As filed with the Securities and Exchange Commission on August 25, 1995
Registration Nos. 33-54642 and 811-7342
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 17
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 18
The JPM Institutional Funds
(Exact Name of Registrant as Specified in Charter)
6 St. James Avenue, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(617) 423-0800
James B. Craver
6 St. James Avenue, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Copy to:
Stephen K. West, Esq.
Sullivan & Cromwell, 125 Broad Street, New York, New York 10004
It is proposed that this filing will become effective (check
appropriate box)
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[X] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has previously registered an indefinite number of its
shares under the Securities Act of 1933, as amended, pursuant to Rule 24f-2
under the Investment Company Act of 1940, as amended. The Registrant has filed
Rule 24f-2 notices with respect to its series as follows: Tax Exempt Money
<PAGE>
Market and Tax Exempt Bond Funds (for their fiscal years ended August 31, 1994)
on October 6, 1994; Treasury Money Market, Short Term Bond, Bond, Emerging
Markets Equity and International Equity Funds (for their fiscal years ended
October 31, 1994) on December 22, 1994; Money Market Fund (for its fiscal year
ended November 30, 1994) on January 27, 1995; Selected U.S. Equity and U.S.
Small Company Funds (for their fiscal years ended May 31, 1994) on July 26,
1994; Diversified Fund (for its fiscal year ended June 30, 1994) on August 30,
1994; and New York Total Return Bond Fund (for its fiscal year ended March 31,
1995) on May 26, 1995.
Pursuant to Rule 24f-2(a)(1) under the Investment Company Act of 1940, as
amended, Registrant hereby declares that an indefinite number of its shares of
beneficial interest (par value $0.001 per share) is being registered by this
registration statement with respect to its series, Asia Growth Fund, European
Equity Fund and Japan Equity Fund.
The Money Market Portfolio, The Tax Exempt Money Market Portfolio, The Treasury
Money Market Portfolio, The Short Term Bond Portfolio, The U.S. Fixed Income
Portfolio, The Tax Exempt Bond Portfolio, The Selected U.S. Equity Portfolio,
The U.S. Small Company Portfolio, The Non-U.S. Equity Portfolio, The Diversified
Portfolio, The Emerging Markets Equity Portfolio, The New York Total Return Bond
Portfolio, The Non-U.S. Fixed Income Portfolio and The Series Portfolio have
also executed this Registration Statement.
JPM454.EDG
<PAGE>
JPM INSTITUTIONAL FUNDS
CROSS-REFERENCE SHEET
(As Required by Rule 495)
PART A ITEM NUMBER: Prospectus Headings.
1. COVER PAGE: Cover Page.
2. SYNOPSIS: Investors for Whom the Funds are Designed.
3. CONDENSED FINANCIAL INFORMATION: Financial Highlights.
4. GENERAL DESCRIPTION OF REGISTRANT: Cover Page; Investors for Whom the
Funds are Designed; Investment Objectives and Policies; Additional
Investment Information; Investment Restrictions; Special Information
Concerning Hub and Spoke(R); Organization; Appendix.
5. MANAGEMENT OF THE FUND: Management of the Trust and the Portfolios;
Shareholder Servicing; Additional Information.
5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE: Not Applicable.
6. CAPITAL STOCK AND OTHER SECURITIES: Special Information Concerning Hub
and Spoke(R); Shareholder Servicing; 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 Funds are 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.
<PAGE>
JPM INSTITUTIONAL FUNDS
CROSS-REFERENCE SHEET
(As Required by Rule 495)
PART B ITEM NUMBER: 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;
Additional Investments; Investment Restrictions; Quality and
Diversification Requirements; Appendix A.
14. MANAGEMENT OF THE FUND: Trustees and Officers.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES: Description of
Shares.
16. INVESTMENT ADVISORY AND OTHER SERVICES: Investment Advisor;
Administrator and Distributor; Services Agent; Custodian; Shareholder
Servicing; 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;
Dividends and Distributions.
20. TAX STATUS: Taxes.
21. UNDERWRITERS: 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
appropriate items, so numbered, in Part C of this Registration Statement.
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 17 (the "Amendment") to the
Registrant's Registration Statement on Form N-1A is being filed solely for the
purpose of (i) adding prospectuses for The JPM Institutional Asia Growth Fund,
The JPM Institutional European Equity Fund and The JPM Institutional Japan
Equity Fund, each a new series of the Registrant (the "Funds") and (ii) updating
the disclosure in the Registrant's Statement of Additional Information with
respect to the Funds. As a result, the Amendment does not otherwise affect any
of the Registrant's other currently effective Prospectuses, all of which are
hereby incorporated herein by reference as most recently filed pursuant to Rule
497 under the Securities Act of 1933, as amended.
<PAGE>
PROSPECTUS
The JPM Institutional Asia Growth Fund
6 St. James Avenue
Boston, Massachusetts 02116
For information call (800) 766-7722
The JPM Institutional Asia Growth Fund (the "Fund") seeks to provide a high to-
tal return from a portfolio of equity securities of companies in Asian growth
markets. The Fund is designed for long-term investors who want access to the
rapidly growing Asian markets.
The Fund is a diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The JPM Insti-
tutional Funds, an open-end management investment company organized as a Massa-
chusetts business trust (the "Trust").
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO
OF SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING
ALL OF ITS INVESTABLE ASSETS IN THE ASIA GROWTH PORTFOLIO (THE "PORTFOLIO"), A
CORRESPONDING DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT COMPANY HAVING THE
SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND INVESTS IN THE PORTFOLIO
THROUGH SIGNATURE FINANCIAL GROUP, INC.'S HUB AND SPOKE(R) FINANCIAL SERVICES
METHOD. HUB AND SPOKE(R) EMPLOYS A TWO-TIER MASTER-FEEDER STRUCTURE AND IS A
REGISTERED SERVICE MARK OF SIGNATURE FINANCIAL GROUP, INC. SEE SPECIAL
INFORMATION CONCERNING HUB AND SPOKE(R) ON PAGE 2.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or the "Advisor").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and it should be retained
for future reference. Additional information about the Fund has been filed with
the Securities and Exchange Commission in a Statement of Additional Information
dated , 1995 (as 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, Signature Broker-Dealer Services, Inc., 6
St. James Avenue, Boston, Massachusetts 02116, Attention: The JPM Institutional
Funds, or by calling (800) 847-9487.
INVESTMENTS IN THE FUND 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 FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE
HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
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 , 1995.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund Is Designed.................................... 1
Special Information Concerning Hub and Spoke (R)........................... 2
Investment Objective and Policies.......................................... 3
Additional Investment Information and Risk Factors......................... 5
Investment Restrictions.................................................... 10
Management of the Trust and the Portfolio.................................. 10
Shareholder Servicing...................................................... 13
Purchase of Shares......................................................... 13
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Redemption of Shares....................................................... 14
Exchange of Shares......................................................... 15
Dividends and Distributions................................................ 15
Net Asset Value............................................................ 15
Organization............................................................... 16
Taxes...................................................................... 16
Additional Information..................................................... 18
Appendix................................................................... A-1
</TABLE>
<PAGE>
The JPM Institutional Asia Growth Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed for long-term investors who want access to the rapidly
growing Asian markets. The Fund seeks to achieve its investment objective by
investing all of its investable assets in The Asia Growth Portfolio, a
diversified open-end management investment company having the same investment
objective as the Fund. Since the investment characteristics and experience of
the Fund will correspond directly with those of the Portfolio, the discussion
in this Prospectus focuses on the investments and investment policies of the
Portfolio. The net asset value of shares in the Fund fluctuates with changes in
the value of the investments in the Portfolio.
The Portfolio may make various types of investments in seeking its objective.
Among the permissible investments and investment techniques for the Portfolio
are futures contracts, options and forward contracts on foreign currencies. The
potential risks of investing in these derivative instruments are discussed in
Additional Investment Information and Risk Factors and the Appendix. The
Portfolio may also purchase certain privately placed securities. The
Portfolio's investments in securities of Asian growth markets involve foreign
investment risks and may be more volatile and less liquid than domestic
securities. For further information about these investments, see Investment
Objective and Policies below.
The Fund requires a minimum initial investment of $500,000. The minimum
subsequent investment is $25,000. See Purchase of Shares. If a shareholder
reduces his or her investment in the Fund to less than $500,000 for more than
30 days, the investment will be subject to mandatory redemption. See Redemption
of Shares--Mandatory Redemption by the Fund.
This Prospectus describes the investment objective and policies, management and
operation of the Fund to enable investors to decide if the Fund suits their
needs. The Fund operates through Signature Financial Group, Inc.'s
("Signature") Hub and Spoke(R) financial services method. The Trustees believe
that the Fund may achieve economies of scale over time by investing through Hub
and Spoke(R).
The following table illustrates that investors in the Fund incur no shareholder
transaction expenses; their investment in the Fund is subject only to the
operating expenses set forth below for the Fund and the Portfolio, as a
percentage of average net assets of the Fund. The Trustees of the Trust believe
that the aggregate per share expenses of the Fund and the Portfolio will be
approximately equal to and may be less than the expenses that the Fund would
incur if it retained the services of an investment adviser and invested its
assets directly in portfolio securities. Fund and Portfolio expenses are
discussed below under the headings Management of the Trust and the Portfolio
and Shareholder Servicing.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases............................................ None
Sales Load Imposed on Reinvested Dividends................................. None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
1
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees............................................................. 0.80%
Rule 12b-1 Fees........................................................... None
Other Expenses (after expense reimbursement).............................. 0.51%
----
Total Operating Expenses (after expense reimbursement).................... 1.31%
</TABLE>
*These expenses are based on estimated expenses of the Fund and the Portfolio
and estimated average net assets for the Fund's first fiscal year, after any
applicable expense reimbursement. Without such expected reimbursement, the es-
timated Total Operating Expenses would be equal on an annual basis (after ap-
plication of state blue expense limitations) to % of the estimated average
net assets of the Fund. See Management of the Trust and the Portfolio.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year..................................................................... $ 13
3 Years.................................................................... $ 42
</TABLE>
The above expense table is designed to assist investors in understanding the
various estimated direct and indirect costs and expenses that investors in the
Fund bear. The estimated fees and expenses included in Other Expenses are the
fees paid to Morgan under the Shareholder Servicing and Financial and Fund
Accounting Services Agreements, organizational expenses, the fees paid to
Pierpont Group, Inc. un- der the Fund Services Agreements, the fees paid to the
Administrator, the fees paid to State Street Bank and Trust Company as custodian
and transfer agent, and other fees and expenses described under Management of
the Trust and the Portfo- lio--Expenses. For a more detailed description of
contractual fee arrangements, including expense reimbursements, and of the fees
and expenses included in Other Expenses, see Management of the Trust and the
Portfolio and Shareholder Servicing. In connection with the above example,
please note that $1,000 is less than the Fund's minimum investment requirement
and that there are no re- demption or exchange fees of any kind. See Purchase of
Shares and Redemption of Shares. THE EXAMPLE IS HYPOTHETICAL; IT IS INCLUDED
SOLELY FOR ILLUSTRATIVE PURPOSES. IT SHOULD NOT BE CONSIDERED A REPRESENTATION
OF FUTURE PERFORMANCE; ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The Fund's annual report will include a discussion of those factors, strategies
and techniques that materially affected its performance during the period of
the report, as well as certain related information. A copy of the Fund's annual
report will be made available without charge upon request.
SPECIAL INFORMATION CONCERNING HUB AND SPOKE(R)
The Trust and the Portfolio use certain proprietary rights, know-how and finan-
cial services referred to as Hub and Spoke(R). Hub and Spoke(R) is a registered
service mark of Signature. Signature Broker-Dealer Services, Inc. (the Trust's
and Portfolio's Administrator and the Trust's Distributor) is a wholly owned
subsidiary of Signature.
Unlike other mutual funds which directly acquire and manage their own portfolio
of securities, the Fund is an open-end management investment company which
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio, a separate registered investment company with the same
investment objective as the Fund. The investment objective of the Fund or Port-
folio may be changed only with the approval of the holders of the outstanding
shares of the Fund and the Portfolio.
The master-feeder structure has been developed relatively recently, so share-
holders should carefully consider this investment approach.
2
<PAGE>
In addition to selling a beneficial interest to the Fund, the Portfolio may
sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions
and will pay a proportionate share of the Portfolio's expenses. However, the
other investors investing in the Portfolio may sell shares of their own fund
using a different pricing structure than the Fund. Such different pricing
structures may result in differences in returns experienced by investors in
other funds that invest in the Portfolio. Such differences in returns are not
uncommon and are present in other mutual fund structures. Information concern-
ing other holders of interests in the Portfolio is available from the Adminis-
trator at (800) 847-9487.
The Trust may withdraw the investment of the Fund from the Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same invest-
ment objective and restrictions as the Fund or the retaining of an investment
adviser to manage the Fund's assets in accordance with the investment policies
described below with respect to the Portfolio.
Certain changes in the Portfolio's investment objective, policies or restric-
tions, or a failure by the Fund's shareholders to approve a change in the Port-
folio's investment objective or restrictions, may require withdrawal of the
Fund's interest in the Portfolio. Any such withdrawal could result in a distri-
bution in kind of portfolio securities (as opposed to a cash distribution) from
the Portfolio which may or may not be readily marketable. The distribution in
kind may result in the Fund having a less diversified portfolio of investments
or adversely affect the Fund's liquidity, and the Fund could incur brokerage,
tax or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in the Portfolio may be materially affected by the ac-
tions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns. Addition-
ally, because the Portfolio would become smaller, it may become less diversi-
fied, resulting in potentially increased portfolio risk (however, these possi-
bilities also exist for traditionally structured funds which have large or in-
stitutional investors who may withdraw from a fund). Also, funds with a greater
pro rata ownership in the Portfolio could have effective voting control of the
operations of the Portfolio. Whenever the Fund is requested to vote on matters
pertaining to the Portfolio (other than a vote by the Fund to continue the op-
eration of the Portfolio upon the withdrawal of another investor in the Portfo-
lio), the Trust will hold a meeting of shareholders of the Fund and will cast
all of its votes proportionately as instructed by the Fund's shareholders. The
Trust will vote the shares held by Fund shareholders who do not give voting in-
structions in the same proportion as the shares of Fund shareholders who do
give voting instructions. Shareholders of the Fund who do not vote will have no
effect on the outcome of such matters.
For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Additional Investment In-
formation and Risk Factors and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment Restric-
tions.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and the Portfolio is described below,
together with the policies they employ in their efforts to achieve this
objective. Additional information about the investment policies of the Fund and
the Portfolio appears in the Statement of Additional Information under
Investment Objectives and Policies. There can be no assurance that the
investment objective of the Fund or the Portfolio will be achieved.
3
<PAGE>
The Fund's investment objective is to achieve a high total return from a port-
folio of equity securities of companies in Asian growth markets. Total return
will consist of realized and unrealized capital gains and losses plus income.
The Fund attempts to achieve its investment objective by investing all its
investable assets in The Asia Growth Portfolio, a diversified open-end manage-
ment investment company having the same investment objective as the Fund.
The Fund is designed for long-term investors who want access to the rapidly
growing Asian markets. THE FUND DOES NOT REPRESENT A COMPLETE INVESTMENT PRO-
GRAM NOR IS THE FUND SUITABLE FOR ALL INVESTORS. MANY INVESTMENTS IN ASIAN
GROWTH MARKETS CAN BE CONSIDERED SPECULATIVE AND, THEREFORE, MAY OFFER HIGHER
POTENTIAL FOR GAINS AND LOSSES AND MAY BE MORE VOLATILE THAN INVESTMENTS IN THE
DEVELOPED MARKETS OF THE WORLD. See Additional Investment Information and Risk
Factors.
The Advisor considers "Asian growth markets" to be Bangladesh, China, India,
Indonesia, Korea, Malaysia, Pakistan, the Philippines, Sri Lanka, Thailand,
Taiwan, Hong Kong, and Singapore.
A company in an Asian growth market is one that: (i) has its principal securi-
ties trading market in an Asian growth market; or (ii) is organized under the
laws of an Asian growth market; or (iii) derives 50% or more of its total reve-
nue and/or profits from either goods produced, sales made or services performed
in Asian growth markets; or (iv) has at least 50% of its assets located in
Asian growth markets.
The Portfolio seeks to achieve its objective through country allocation and
company selection. Morgan uses a disciplined portfolio construction process to
seek to enhance returns and reduce volatility in the market value of the Port-
folio relative to its benchmark. The Portfolio's benchmark is a customized in-
dex comprised of Morgan Stanley Capital International's indices for Hong Kong
and Singapore and the International Finance Corporation's Investable indices
for China, Indonesia, Malaysia, Philippines, South Korea, Taiwan and Thailand.
Based on fundamental research, quantitative valuation techniques and experi-
enced judgment, Morgan identifies those countries where economic and political
factors, including currency movements, are likely to produce above-average re-
turns. Drawing on this analysis, Morgan allocates the Portfolio among Asian
growth markets by overweighting or underweighting selected countries against
the benchmark. Currently, three Asian growth markets--Hong Kong, Malaysia and
Thailand--represent more than 60% of the market value of the benchmark and of
the Portfolio.
To select investments for the Portfolio, the Advisor ranks companies in each
Asian growth market within industrial sectors according to their relative val-
ue. These valuations are based on the Advisor's fundamental research and use of
quantitative tools to project a company's long-term prospects for earnings
growth and its dividend paying capability. Based on this valuation, Morgan then
selects the companies which appear most attractive for the Portfolio. Typical-
ly, the Portfolio's industrial sector weightings will be similar to those of
its benchmark.
The Portfolio intends to manage its portfolio actively in pursuit of its in-
vestment objective. The Portfolio does not intend to respond to short-term mar-
ket fluctuations or to acquire securities for the purpose of short-term trad-
ing; however, it may take advantage of short-term trading opportunities that
are consistent with its objective. To the extent the Portfolio engages in
short-term trading, it may realize short-term capital gains or losses and incur
increased transaction costs. See Taxes below. The estimated annual portfolio
turnover rate for the Portfolio is generally not expected to exceed 100%.
The Portfolio's investments are primarily in securities denominated in foreign
currencies, but it may also invest in securities denominated in the U.S. dollar
or multinational currency units such as the ECU. The Advisor will not routinely
attempt to hedge the Portfolio's foreign currency exposure. However, the Advi-
sor may from time to time engage in foreign currency exchange transactions if,
based on fundamental research, technical factors, and the judgment of experi-
enced currency managers, it believes the transactions would be in the Portfo-
lio's best interest. For further information on foreign currency exchange
transactions, see Additional Investment Information and Risk Factors.
4
<PAGE>
EQUITY INVESTMENTS. In normal circumstances, the Advisor intends to keep the
Portfolio essentially fully invested with at least 65% of the value of its to-
tal assets in equity securities of companies in Asian growth markets consist-
ing of common stocks and other securities with equity characteristics com-
prised of preferred stock, warrants, rights, convertible securities, trust
certificates, limited partnership interests and equity participations. The
Portfolio's primary equity investments are the common stock of companies the
Advisor has identified as attractive in the Asian growth markets. Such invest-
ments will be made in at least three different countries considered to be
Asian growth markets. The common stock in which the Portfolio may invest in-
cludes the common stock of any class or series or any similar equity interest,
such as trust or limited partnership interests. These equity investments may
or may not pay dividends and may or may not carry voting rights. The Portfolio
invests in securities listed on foreign or domestic securities exchanges and
securities traded in foreign or domestic over-the-counter markets, and may in-
vest in certain restricted or unlisted securities.
Certain Asian growth markets are closed in whole or in part to equity invest-
ments by foreigners except through specifically authorized investment funds.
Securities of other investment companies may be acquired by the Portfolio to
the extent permitted under the Investment Company Act of 1940 (the "1940
Act")--that is, the Portfolio may invest up to 10% of its total assets in se-
curities of other investment companies so long as not more than 3% of the out-
standing voting stock of any one investment company is held by the Portfolio.
In addition, not more than 5% of the Portfolio's total assets may be invested
in the securities of any one investment company. As a shareholder in an in-
vestment fund, the Portfolio would bear its share of that investment fund's
expenses, including its advisory and administration fees. At the same time the
Portfolio and the Fund would continue to pay their own operating expenses.
The Portfolio may also invest in money market instruments denominated in U.S.
dollars and other currencies, purchase securities on a when-issued or delayed
delivery basis, enter into repurchase and reverse repurchase agreements, loan
its portfolio securities, purchase certain privately placed securities and en-
ter into forward foreign currency exchange contracts. In addition, the Portfo-
lio may use options on securities and indexes of securities, futures contracts
and options on futures contracts for hedging and risk management purposes.
Forward foreign currency exchange contracts, options and futures contracts are
derivative instruments. For a discussion of these investments and investment
techniques, see Additional Investment Information and Risk Factors.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
INVESTING IN ASIAN GROWTH MARKETS. The Portfolio invests primarily in equity
securities of companies in Asian growth markets. Investments in securities of
issuers in Asian growth markets may involve a high degree of risk and many may
be considered speculative. These investments carry all of the risks of invest-
ing in securities of foreign issuers described below to a heightened degree.
These heightened risks include (i) greater risks of expropriation, confisca-
tory taxation, nationalization, and less social, political and economic sta-
bility; (ii) the small current size of the markets for securities of emerging
markets issuers and the currently low or nonexistent volume of trading, re-
sulting in lack of liquidity and in price volatility; (iii) certain national
policies which may restrict the Portfolio's investment opportunities including
restrictions on investing in issuers or industries deemed sensitive to rele-
vant national interests; and (iv) the absence of developed legal structures
governing private or foreign investment and private property.
As an example of specific concerns attendant to investing in Asian growth mar-
kets, the People's Republic of China (the "PRC") has only recently permitted
private economic activities and the PRC government has exercised and continues
to exercise substantial control over virtually every sector of the PRC economy
through regulation and state ownership. The PRC is a socialist state which
since 1949 has been, and is expected to continue to be, controlled by the Chi-
nese Communist Party of the PRC. Continued economic growth and development in
the PRC, as well as opportunities for foreign investment and prospects of pri-
vate sector enterprises in the PRC, will depend in many respects on the imple-
mentation of the PRC's current program of economic reform, which cannot be as-
sured. Other examples include: Indonesia's, Malaysia's, Thailand's and
Taiwan's limitations on foreign ownership of shares of any listed company,
India's settlement delays, where settlement is through physical delivery, and
Thailand's border disputes with Laos and Cambodia. For
5
<PAGE>
additional information, see Appendix B--Investing in Japan and Asian Growth
Markets in the Statement of Additional Information.
In Hong Kong, British proposals to extend limited democracy have caused a po-
litical rift with the PRC, which is scheduled to assume sovereignty over the
colony in 1997. Although the PRC has committed by treaty to preserve the eco-
nomic and social freedoms enjoyed in Hong Kong for 50 years after regaining
control of Hong Kong, the continuation of the current form of economic system
in Hong Kong after the reversion will depend on the actions of the government
of the PRC. In addition, such reversion has increased sensitivity in Hong Kong
to political developments and statements by public figures in the PRC. Busi-
ness confidence in Hong Kong, therefore, can be significantly affected by such
developments and statements, which in turn can affect markets and business
performance.
OTHER FOREIGN INVESTMENT INFORMATION. Generally, investment in securities of
foreign issuers involves somewhat different investment risks from those af-
fecting securities of U.S. domestic issuers. There may be limited publicly
available information with respect to foreign issuers, and foreign issuers are
not generally subject to uniform accounting, auditing and financial standards
and requirements comparable to those applicable to domestic companies. Divi-
dends and interest paid by foreign issuers may be subject to withholding and
other foreign taxes which may decrease the net return on foreign investments
as compared to dividends and interest paid to the Portfolio by domestic compa-
nies.
Investors should realize that the value of the Portfolio's investments in for-
eign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation, na-
tionalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or depre-
ciation of portfolio securities and could favorably or unfavorably affect the
Portfolio's operations. Furthermore, the economies of individual foreign na-
tions may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital re-
investment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign is-
suer. Any foreign investments made by the Portfolio must be made in compliance
with U.S. and foreign currency restrictions and tax laws restricting the
amounts and types of foreign investments.
In addition, while the volume of transactions effected on foreign stock ex-
changes has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, the Portfolio's for-
eign investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settle-
ment periods for foreign securities, which are often longer than those for se-
curities of U.S. issuers, may affect portfolio liquidity. In buying and sell-
ing securities on foreign exchanges, purchasers normally pay fixed commissions
that are generally higher than the negotiated commissions charged in the
United States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.
The Portfolio may invest in securities of foreign issuers directly or in the
form of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") or other similar securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities they
represent. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying foreign securities. Certain such insti-
tutions issuing ADRs may not be sponsored by the issuer of the underlying for-
eign securities. A non-sponsored depository may not provide the same share-
holder information that a sponsored depository is required to provide under
its contractual arrangements with the issuer of the underlying foreign securi-
ties. EDRs are receipts issued by a European financial institution evidencing
a similar arrangement. Generally, ADRs, in registered form, are designed for
use in the U.S. securities markets, and EDRs, in bearer form, are designed for
use in European securities markets.
6
<PAGE>
Since the Portfolio's investments in foreign securities involve foreign cur-
rencies, the value of its assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. See Foreign Currency Exchange Trans-
actions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and sells
securities and receives interest and dividends in currencies other than the
U.S. dollar, the Portfolio may enter from time to time into foreign currency
exchange transactions. The Portfolio either enters into these transactions on
a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market or uses forward contracts to purchase or sell foreign curren-
cies. The cost of the Portfolio's spot currency exchange transactions is gen-
erally the difference between the bid and offer spot rate of the currency be-
ing purchased or sold.
A forward foreign currency exchange contract is an obligation by the Portfolio
to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These con-
tracts are derivative instruments, as their value derives from the spot ex-
change rates of the currencies underlying the contract. These contracts are
entered into in the interbank market directly between currency traders (usu-
ally large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. The Portfolio will not enter into forward contracts
for speculative purposes. Neither spot transactions nor forward foreign cur-
rency exchange contracts eliminate fluctuations in the prices of the Portfo-
lio's securities or in foreign exchange rates, or prevent loss if the prices
of these securities should decline.
The Portfolio may enter into foreign currency exchange transactions in an at-
tempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or antici-
pated securities transactions. The Portfolio may also enter into forward con-
tracts to hedge against a change in foreign currency exchange rates that would
cause a decline in the value of existing investments denominated or princi-
pally traded in a foreign currency. To do this, the Portfolio would enter into
a forward contract to sell the foreign currency in which the investment is de-
nominated or principally traded in exchange for U.S. dollars or in exchange
for another foreign currency. The Portfolio will only enter into forward con-
tracts to sell a foreign currency in exchange for another foreign currency if
the Advisor expects the foreign currency purchased to appreciate against the
U.S. dollar.
Although these transactions are intended to minimize the risk of loss due to a
decline in the value of the hedged cur- rency, at the same time they limit any
potential gain that might be realized should the value of the hedged currency
increase. In addition, forward contracts that convert a foreign currency into
another foreign currency will cause the Portfolio to assume the risk of fluc-
tuations in the value of the currency purchased against the hedged currency
and the U.S. dollar. The precise matching of the forward contract amounts and
the value of the securities involved will not generally be possible because
the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The projec-
tion of currency market movements is extremely difficult, and the successful
execution of a hedging strategy is highly uncertain.
CONVERTIBLE SECURITIES. The convertible securities in which the Portfolio 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. Convert-
ible 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.
WARRANTS. The Portfolio invests in warrants, which entitle the holder to buy
common stock from the issuer at a specific price (the strike price) for a spe-
cific period of time. The strike price of warrants sometimes is much lower
than the current market price of the underlying securities, yet warrants are
subject to similar price fluctuations. As a result, warrants may be more vola-
tile investments than the underlying securities.
7
<PAGE>
Warrants do not entitle the holder to dividends or voting rights with respect
to the underlying securities and do not represent any rights in the assets of
the issuing company. As the value of the warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to the expiration date.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase secu-
rities on a when-issued or delayed delivery basis. Delivery of and payment for
these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market fluc-
tuation during this period and for money market instruments no interest ac-
crues to the Portfolio until settlement. At the time of settlement, a when-is-
sued security may be valued at less than its purchase price. The Portfolio
maintains with the Custodian a separate account with a segregated portfolio of
securities in an amount at least equal to these commitments. When entering
into a when-issued or delayed delivery transaction, the Portfolio will rely on
the other party to consummate the transaction; if the other party fails to do
so, the Portfolio may be disadvantaged. It is the current policy of the Port-
folio not to enter into when-issued commitments exceeding in the aggregate 15%
of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement trans-
actions with brokers, dealers or banks that meet the credit guidelines estab-
lished by the Portfolio's Trustees. In a repurchase agreement, the Portfolio
buys a security from a seller that has agreed to repurchase it at a mutually
agreed upon date and price, reflecting the interest rate effective for the
term of the agreement. The term of these agreements is usually from overnight
to one week. A repurchase agreement may be viewed as a fully collateralized
loan of money by the Portfolio to the seller. The Portfolio always receives
securities as collateral with a market value at least equal to the purchase
price plus accrued interest and this value is maintained during the term of
the agreement. If the seller defaults and the collateral value declines, the
Portfolio might incur a loss. If bankruptcy proceedings are commenced with re-
spect to the seller, the Portfolio's realization upon the disposition of col-
lateral may be delayed or limited. Investments in certain repurchase agree-
ments and certain other investments which may be considered illiquid are lim-
ited. See Illiquid Investments; Privately Placed and other Unregistered Secu-
rities below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in an amount up to 33 1/3%
of the value of the Portfolio's net assets. The Portfolio may lend its securi-
ties if such loans are secured continuously by cash or equivalent collateral
or by a letter of credit in favor of the Portfolio 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 Portfolio any in-
come accruing thereon. Loans will be subject to termination by the Portfolio
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 the Portfolio
and its respective investors. The Portfolio may pay reasonable finders' and
custodial fees in connection with a loan. In addition, the Portfolio will con-
sider all facts and circumstances, including the creditworthiness of the bor-
rowing financial institution, and the Portfolio will not make any loans in ex-
cess of one year. The Portfolio will not lend its securities to any officer,
Trustee, Director, employee or other affiliate of the Portfolio, the Advisor
or the Distributor, unless otherwise permitted by applicable law.
REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into re-
verse repurchase agreements. In a reverse repurchase agreement, the Portfolio
sells a security and agrees to repurchase it at a mutually agreed upon date
and price, reflecting the interest rate effective for the term of the agree-
ment. For the purposes of the 1940 Act, it is considered as a form of borrow-
ing by the Portfolio and, therefore, a form of leverage. Leverage may cause
any gains or losses of the Portfolio to be magnified. For more information,
see Investment Objectives and Policies in the Statement of Additional Informa-
tion.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may not acquire any illiquid securities if, as a result thereof,
more than 15% of the market value of the Portfolio's net assets would be in
illiquid
8
<PAGE>
investments. Subject to this non-fundamental policy limitation, the Portfolio
may acquire investments that are illiquid or have limited liquidity, such as
private placements or investments that are not registered under the Securities
Act of 1933 (the "1933 Act"). An illiquid investment is any investment that
cannot be disposed of within seven days in the normal course of business at ap-
proximately the amount at which it is valued by the Portfolio. The price the
Portfolio pays for illiquid securities or receives upon resale may be lower
than the price paid or received for similar securities with a more liquid mar-
ket. Accordingly the valuation of these securities will reflect any limitations
on their liquidity.
The Portfolio may also purchase Rule 144A securities sold to institutional in-
vestors without registration under the 1933 Act. These securities may be deter-
mined to be liquid in accordance with guidelines established by the Advisor and
approved by the Trustees. The Trustees will monitor the Advisor's implementa-
tion of these guidelines on a periodic basis.
FUTURES AND OPTIONS TRANSACTIONS. The Portfolio may (a) purchase and sell
(write) exchange traded and over-the-counter put and call options on equity se-
curities or indexes of equity securities, (b) purchase and sell futures con-
tracts on indexes of equity securities, and (c) purchase and sell (write) put
and call options on futures contracts on indexes of equity securities. Each of
these instruments is a derivative instrument as its value derives from the un-
derlying asset or index.
The Portfolio may use futures contracts and options for hedging and risk man-
agement purposes. The Portfolio may not use futures contracts and options for
speculation.
The Portfolio may utilize options and futures contracts to manage its exposure
to changing interest rates and/or security prices. Some options and futures
strategies, including selling futures contracts and buying puts, tend to hedge
the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and
return characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Advisor and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which involves
investment strategies and risks different from those associated with ordinary
portfolio securities transactions, and there can be no guarantee that their use
will increase the Portfolio's return. While the use of these instruments by the
Portfolio may reduce certain risks associated with owning its portfolio securi-
ties, these techniques themselves entail certain other risks. If the Advisor
applies a strategy at an inappropriate time or judges market conditions or
trends incorrectly, options and futures strategies may lower the Portfolio's
return. Certain strategies limit the Portfolio's possibilities to realize gains
as well as limiting its exposure to losses. The Portfolio could also experience
losses if the prices of its options and futures positions were poorly corre-
lated with its other investments or if it could not close out its positions be-
cause of an illiquid secondary market. In addition, the Portfolio will incur
transaction costs, including trading commissions and option premiums, in con-
nection with its futures and options transactions and these transactions could
significantly increase the Portfolio's turnover rate.
The Portfolio may purchase put and call options on securities, indexes of secu-
rities and futures contracts, or purchase and sell futures contracts, only if
such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Portfolio's net assets, and (ii) the aggregate margin deposits required on all
such futures or options thereon held at any time do not exceed 5% of the Port-
folio's total assets. In addition, the Portfolio will not purchase or sell
(write) futures contracts, options on futures contracts or commodity options
for risk management purposes if, as a result, the aggregate initial margin and
options premiums required to establish these positions exceed 5% of the net as-
set value of the Portfolio. For more detailed information about these transac-
tions, see the Appendix to this Prospectus and Risk Management in the Statement
of Additional Information.
9
<PAGE>
MONEY MARKET INSTRUMENTS. The Portfolio is permitted to invest in money market
instruments although it intends to stay invested in equity securities to the
extent practical in light of its objective. The Portfolio may invest in money
market instruments of foreign or domestic issuers denominated in U.S. dollars
and other currencies. Under normal circumstances the Portfolio will purchase
these securities to invest temporary cash balances or to maintain liquidity to
meet redemptions. However, the Portfolio may also invest in money market in-
struments without limitation as a temporary defensive measure taken in the Ad-
visor's judgment during, or in anticipation of, adverse market conditions. For
more detailed information about these money market investments, see Investment
Objectives and Policies in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio are
subject to the following fundamental limitations: (a) the Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except U.S. government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer.
The investment objective of the Fund and the Portfolio, together with the in-
vestment restrictions described below and in the Statement of Additional In-
formation, except as noted, are deemed fundamental policies, i.e., they may be
changed only with the approval of the holders of a majority of the outstanding
voting securities of the Fund and the Portfolio. The Fund has the same invest-
ment restrictions as the Portfolio, except that the Fund may invest all of its
investable assets in another open-end investment company with the same invest-
ment objective and restrictions (such as the Portfolio). References below to
the Portfolio's investment restrictions also include the Fund's investment re-
strictions.
The Portfolio may not purchase securities or other obligations of issuers con-
ducting their principal business activity in the same industry if its invest-
ments in such industry would exceed 25% of the value of the Portfolio's total
assets, except this limitation shall not apply to investments in U.S. Govern-
ment securities. In addition, the Portfolio may not borrow money except that
the Portfolio may (a) borrow money from banks for temporary or emergency pur-
poses (not for leveraging purposes) and (b) enter into reverse repurchase
agreements for any purpose, provided that (a) and (b) in total do not exceed
one-third of the Portfolio's total assets less liabilities (other than
borrowings); and the Portfolio may not issue senior securities except as per-
mitted by the 1940 Act or any rule, order or interpretation thereunder. See
Additional Investment Information and Risk Factors--Loans of Portfolio Securi-
ties and Reverse Repurchase Agreements.
For a more detailed discussion of the above investment restrictions, as well
as a description of certain other investment restrictions, see Investment Re-
strictions in the Statement of Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the
Portfolio, the Trustees decide upon matters of general policy and review the
actions of the Advisor, Administrator, Distributor, Services Agent, and other
service providers. The Trustees of the Trust and of the Portfolio are identi-
fied below.
<TABLE>
<S> <C>
Frederick S. Addy........... Former Executive Vice President and Chief Financial
Officer, Amoco Corporation
William G. Burns............ Former Vice Chairman of the Board and Chief
Financial Officer, NYNEX Corporation
Arthur C. Eschenlauer....... Former Senior Vice President, Morgan Guaranty Trust
Company of New York
Matthew Healey.............. Chairman and Chief Executive Officer, The JPM
Institutional Funds and The Pierpont Funds;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi......... Senior Vice President, Capital Cities/ABC, Inc.,
President, Broadcast Group
</TABLE>
10
<PAGE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust, the Portfolio
and The Pierpont Funds, up to and including creating a separate board of
trustees. See Trustees and Officers in the Statement of Additional Information
for more information about the Trustees and Officers of the Fund and the Port-
folio.
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pier-
pont Group, Inc. in providing these services. Pierpont Group, Inc. was orga-
nized in 1989 at the request of the Trustees of The Pierpont Family of Funds
for the purpose of providing these services at cost to those funds. See Trust-
ees and Officers in the Statement of Additional Information. The principal of-
fices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New
York 10017.
ADVISOR. The Fund has not retained the services of an investment adviser be-
cause the Fund seeks to achieve its investment objective by investing all of
its investable assets in the Portfolio. The Portfolio has retained the serv-
ices of Morgan as Investment Advisor. Morgan, with principal offices at 60
Wall Street, New York, New York 10260, is a New York trust company which con-
ducts a general banking and trust business. Morgan is a wholly owned subsidi-
ary 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 adviser to individual and institutional cli-
ents with combined assets under management of over $165 billion (of which the
Advisor advises over $26 billion). Morgan provides investment advice and port-
folio management services to the Portfolio. Subject to the supervision of the
Portfolio's Trustees, Morgan makes the Portfolio's day-to-day investment deci-
sions, arranges for the execution of portfolio transactions and generally man-
ages the Portfolio's investments. See Investment Advisor in the Statement of
Additional Information.
Morgan uses a sophisticated, disciplined, collaborative process for managing
all asset classes. For equity portfolios, this process utilizes fundamental
research, systematic stock selection, disciplined portfolio construction and,
in the case of foreign equities, country exposure and currency management.
Morgan has managed portfolios of equity securities of companies in emerging
markets, including Asian growth markets, since 1990. The portfolio managers
making investments in Asian growth markets work in conjunction with Morgan's
equity analysts focused on Asian growth markets, as well as capital market,
credit and economic research analysts, traders and administrative officers.
The Asian equity analysts, located in Singapore, each cover a different indus-
try, monitoring a universe of approximately 250 companies in the region.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio (the inception date
of each person's responsibility for the Portfolio and his business experience
for the past five years is indicated parenthetically): Steven T. Ho, Vice
President (since March, 1995, employed by Morgan since prior to 1990 as a
portfolio manager of Asian investments and as an investment research analyst
prior to 1993) and Douglas J. Dooley, Managing Director (since March, 1995,
employed by Morgan since prior to 1990 and has been a portfolio manager of
emerging markets investments since 1990).
As compensation for the services rendered and related expenses borne by Morgan
under the Investment Advisory Agreement with the Portfolio, the Portfolio has
agreed to pay Morgan a fee, which is computed daily and may be paid monthly,
at the annual rate of 0.80% of the Portfolio's average daily net assets.
Morgan also acts as Services Agent to the Trust and the Portfolio and provides
shareholder services to shareholders of the Fund. See Services Agent and
Shareholder Servicing below. INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLI-
GATIONS OF, OR GUARANTEED OR ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW
YORK OR ANY OTHER BANK.
11
<PAGE>
ADMINISTRATOR AND DISTRIBUTOR. Under Administration Agreements with the Trust
and the Portfolio, Signature Broker-Dealer Services, Inc. ("SBDS") serves as
the Administrator for the Trust and the Portfolio and in that capacity super-
vises the Fund's and the Portfolio's day-to-day operations other than manage-
ment of the Portfolio's investments. In this capacity, SBDS administers and
manages all aspects of the Fund's and the Portfolio's day-to-day operations
subject to the supervision of the Trustees, except as set forth under Advisor,
Services Agent, Custodian and Shareholder Servicing. In connection with its
responsibilities as Administrator, SBDS (i) furnishes ordinary clerical and
related services for day-to-day operations including certain recordkeeping re-
sponsibilities; (ii) takes responsibility for compliance with all applicable
federal and state securities and other regulatory requirements; (iii) is re-
sponsible for the registration of sufficient Fund shares under federal and
state securities laws; (iv) takes responsibility for monitoring the Fund's
status as a regulated investment company under the Internal Revenue Code of
1986, as amended (the "Code"); and (v) performs such administrative and mana-
gerial oversight of the activities of the Trust's and the Portfolio's custo-
dian and transfer agent as the respective Trustees may direct from time to
time.
Under the Trust's Administration Agreement, the annual administration fee rate
is calculated based on the aggregate average daily net assets of The JPM In-
stitutional Funds, as well as The Pierpont Funds and The JPM Advisor Funds,
which are two other families of mutual funds for which SBDS acts as Adminis-
trator. The fee rate is calculated daily in accordance with the following
schedule: 0.040% of the first $1 billion of these funds' aggregate average
daily net assets, 0.032% of the next $2 billion of these funds' aggregate av-
erage daily net assets, 0.024% of the next $2 billion of these funds' aggre-
gate average daily net assets and 0.016% of these funds' aggregate average
daily net assets in excess of $5 billion. This fee rate is then applied to the
net assets of the Fund.
Under the Portfolio's Administration Agreement, the annual administration fee
rate is calculated based on the aggregate average daily net assets of the
Portfolio, as well as all of the other portfolios in which series of The JPM
Institutional Funds, The Pierpont Funds or The JPM Advisor Funds invest. The
fee rate is calculated daily in accordance with the following schedule: 0.010%
of the first $1 billion of these portfolios' aggregate average daily net as-
sets, 0.008% of the next $2 billion of these portfolios' aggregate average
daily net assets, 0.006% of the next $2 billion of these portfolios' aggregate
average daily net assets and 0.004% of these portfolios' aggregate average
daily net assets in excess of $5 billion. This fee rate is then applied to the
net assets of the Portfolio. The Administrator may voluntarily waive a portion
of its fees.
SBDS, a registered broker-dealer, also serves as the Distributor of shares of
the Fund and the Exclusive Placement Agent for the Portfolio. SBDS is a wholly
owned subsidiary of Signature. Signature and its affiliates currently provide
administration and distribution services for a number of registered investment
companies through offices located in Boston, New York, London, Toronto and
George Town, Grand Cayman.
SERVICES AGENT. Under Financial and Fund Accounting Services Agreements with
the Trust and the Portfolio (each a "Services Agreement" and collectively, the
"Services Agreements"), Morgan acts as Services Agent to the Trust and the
Portfolio and is responsible for certain accounting and operational services
provided to the Fund and the Portfolio, including services related to tax re-
turns and financial reports. In the case of the Fund, these services also in-
clude matters related to computing the amount of dividends and the net asset
value per share and keeping the books of account.
The Trust's Services Agreement provides for the Fund to pay Morgan a fee for
these services, which is computed daily and may be paid monthly, at the annual
rate of % of the Fund's average daily net assets. The Portfolio's Services
Agreement provides for the Portfolio to pay Morgan a fee for these services,
which is computed daily and may be paid monthly, at the annual rate of % of
the Portfolio's average daily net assets. Under the Services Agreements, Mor-
gan may delegate one or more of its responsibilities to other entities, in-
cluding SBDS, at Morgan's expense.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02101, serves as the Fund's and the Portfolio's Custodian and
Transfer and Dividend Disbursing Agent.
12
<PAGE>
EXPENSES. In addition to the fees payable to Pierpont Group, Inc., Morgan and
SBDS under the various agreements discussed under Trustees, Advisor, Adminis-
trator and Distributor, and Services Agent above and Shareholder Servicing be-
low, the Fund and the Portfolio are responsible for certain usual and custom-
ary expenses associated with their respective operations. Such expenses in-
clude organization expenses, legal fees, accounting expenses, insurance costs,
the compensation and expenses of the Trustees, registration fees under federal
securities laws, and extraordinary expenses applicable to the Fund or the
Portfolio. For the Fund, such expenses also include transfer, registrar and
dividend disbursing costs, the expenses of printing and mailing reports, no-
tices and proxy statements to Fund shareholders, and registration fees under
state securities laws. For the Portfolio, such expenses also include registra-
tion fees under foreign securities laws, custodian fees and brokerage ex-
penses.
Morgan has agreed that it will reimburse the Fund through at least December
31, 1995 to the extent necessary to maintain the Fund's total operating ex-
penses (which includes expenses of the Fund and the Portfolio) at the annual
rate of 1.31% of the Fund's average daily net assets. This limit on expenses
does not cover extraordinary increases in these expenses during the period and
no longer applies in the event of a precipitous decline in assets due to un-
foreseen circumstances. There is no assurance that Morgan will continue this
waiver beyond the specified period, except as required by the following sen-
tence. Morgan has agreed to waive fees as necessary, if in any fiscal year the
sum of the Fund's expenses exceeds the limits set by applicable regulations of
state securities commissions. Such annual limits are currently 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 fis-
cal year.
SHAREHOLDER SERVICING
The Fund has entered into a Shareholder Servicing Agreement with Morgan pursu-
ant to which Morgan acts as shareholder servicing agent for its customers and
other Fund investors who are customers of an eligible institution which is a
customer of Morgan (an "Eligible Institution"). The Fund has agreed to pay
Morgan for these services at an annual rate (expressed as a percentage of the
average daily net asset values of Fund shares owned by or for shareholders for
whom Morgan is acting as shareholder servicing agent) of 0.05% of the Fund's
average daily net assets. Under the terms of the Shareholder Servicing Agree-
ment with the Fund, Morgan may delegate one or more of its responsibilities to
other entities at Morgan's expense.
Shareholders should address all inquiries to J.P. Morgan Funds Services, Mor-
gan Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York
10036 or call (800) 766-7722.
The business days of the Fund and the Portfolio are the days the New York
Stock Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Mor-
gan as shareholder servicing agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as agent for the customer.
All purchase orders must be accepted by the Fund's Distributor. Investors must
be customers of Morgan or an Eligible Institution. Investors may also be em-
ployer-sponsored retirement plans that have designated the Fund as an invest-
ment option for the plans. Prospective investors who are not already customers
of Morgan may apply to become customers of Morgan for the sole purpose of Fund
transactions. There are no charges associated with becoming a Morgan customer
for this purpose. Morgan reserves the right to determine the customers that it
will accept, and the Fund reserves the right to determine the purchase orders
that it will accept.
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<PAGE>
The Fund requires a minimum initial investment of $500,000 and a minimum sub-
sequent investment of $25,000. These minimum investment requirements may be
waived for certain retirement plans. For purposes of minimum investment re-
quirements, the Fund may aggregate investments by related shareholders.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous ba-
sis without a sales charge at the net asset value per share next determined
after receipt of an order. Prospective investors may purchase shares with the
assistance of another Eligible Institution that may establish its own terms,
conditions and charges.
To purchase shares in the Fund, investors should request their Morgan repre-
sentative (or a representative of their Eligible Institution) to assist them
in placing a purchase order with the Fund's Distributor and to transfer imme-
diately available funds to the Fund's Distribution on the next business day.
Any shareholder may also call J.P. Morgan Funds Services at (800) 766-7722 for
assistance in placing an order for Fund shares. If the Fund receives a pur-
chase order prior to 4:00 P.M. New York time on any business day, the purchase
of Fund shares is effective and is made at the net asset value determined that
day, and the purchaser generally becomes a holder of record on the next busi-
ness day upon the Fund's receipt of payment. If the Fund receives a purchase
order after 4:00 P.M. New York time, the purchase is effective and is made at
the net asset value determined on the next business day, and the purchaser be-
comes a holder of record on the following business day upon the Fund's receipt
of payment.
ELIGIBLE INSTITUTIONS. The services provided by Eligible Institutions may in-
clude establishing and maintaining shareholder accounts, processing purchase
and redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting cli-
ents in changing dividend options, account designations and addresses, provid-
ing periodic statements showing the client's account balance and integrating
these statements with those of other transactions and balances in the client's
other accounts serviced by the Eligible Institution, transmitting proxy state-
ments, periodic reports, updated prospectuses and other communications to
shareholders and, with respect to meetings of shareholders, collecting, tabu-
lating and forwarding executed proxies and obtaining such other information
and performing such other services as Morgan or the Eligible Institution's
clients may reasonably request and agree upon with the Eligible Institution.
Eligible Institutions may separately establish their own terms, conditions and
charges for providing the aforementioned services and for providing other
services.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
Morgan or his Eligible Institution, as appropriate, to submit a redemption re-
quest to the Fund or may telephone J.P. Morgan Funds Services directly at
(800) 766-7722 and give the Shareholder Service Representative a preassigned
shareholder Personal Identification Number and the amount of the redemption.
The Fund executes effective redemption requests at the next determined net as-
set value per share. See Net Asset Value. See Additional Information below for
an explanation of the telephone redemption policy of The JPM Institutional
Funds.
A redemption request received by the Fund prior to 4:00 P.M. New York time is
effective on that day. A redemption request received after that time becomes
effective on the next business day. Proceeds of an effective redemption are
deposited the next business day in immediately available funds to the share-
holder's account at Morgan or at his Eligible Institution or, in the case of
certain Morgan customers, are mailed by check or wire transferred in accor-
dance with the customer's instructions, and, subject to Further Redemption In-
formation below, in any event is within seven days.
MANDATORY REDEMPTION BY THE FUND. If the value of a shareholder's holdings in
the Fund falls below the Fund's initial investment amount of $500,000 for more
than 30 days because of a redemption of shares, the shareholder's remaining
shares may be redeemed 60 days after written notice unless the account is in-
creased to the Fund's minimum investment amount or more.
14
<PAGE>
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions
from the Fund may not be processed if a redemption request is not submitted in
proper form. To be in proper form, the Fund must have received the sharehold-
er's taxpayer identification number and address. As discussed under Taxes be-
low, the Fund may be required to impose "back-up" withholding of federal in-
come tax on dividends, distributions and redemption proceeds when noncorporate
investors have not provided a certified taxpayer identification number. In ad-
dition, if a shareholder sends a check for the purchase of Fund shares and
shares are purchased before the check has cleared, the transmittal of redemp-
tion proceeds from the shares will occur upon clearance of the check which may
take up to 15 days.
The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other
periods as the 1940 Act or the Securities and Exchange Commission may permit.
See Redemption of Shares in the Statement of Additional Information.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other JPM Institutional
Fund or Pierpont Fund without charge. An exchange may be made so long as after
the exchange the investor has shares, in each fund in which he or she remains
an investor, with a value of at least each of those fund's minimum investment
amounts. See Method of Purchase in the prospectuses for the other JPM Institu-
tional Funds and The Pierpont Funds for the minimum investment amount for each
of those funds. Shares are exchanged on the basis of relative net asset value
per share. Exchanges are in effect redemptions from one fund and purchases of
another fund and the usual purchase and redemption procedures and requirements
are applicable to exchanges. See Purchase of Shares and Redemption of Shares
in this Prospectus and in the prospectuses for the other JPM Institutional
Funds and The Pierpont Funds. See also Additional Information below for an ex-
planation of the telephone exchange policy of The JPM Institutional Funds.
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income
tax purposes. The Fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state securi-
ties laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
Dividends consisting of substantially all of the Fund's net investment income,
if any, are declared and paid annually. The Fund may also declare an addi-
tional dividend of net investment income in a given year to the extent neces-
sary to avoid the imposition of federal excise tax on the Fund.
Substantially all the realized net capital gains, if any, of the Fund are de-
clared 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. Declared dividends and distribu-
tions are payable to shareholders of record on the record date.
Dividends and capital gains distributions paid by the Fund are automatically
reinvested in additional shares of the Fund unless the shareholder has elected
to have them paid in cash. Dividends and distributions to be paid in cash are
credited to the shareholder's account at Morgan or at his Eligible Institution
or, in the case of certain Morgan customers, are mailed by check in accordance
with the customer's instructions. The Fund reserves the right to discontinue,
alter or limit the automatic reinvestment privilege at any time.
NET ASSET VALUE
Net asset value per share for the Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in the
Portfolio and other assets) the amount of its liabilities and dividing the re-
mainder by the
15
<PAGE>
number of its outstanding shares, rounded to the nearest cent. Expenses, in-
cluding the fees payable to Morgan, are accrued daily. See Net Asset Value in
the Statement of Additional Information for information on valuation of port-
folio securities for the Portfolio.
The Fund computes its net asset value once daily at 4:15 P.M. New York time on
Monday through Friday, except on the holidays listed under Net Asset Value in
the Statement of Additional Information.
ORGANIZATION
The Trust was organized on November 4, 1992 as an unincorporated business
trust under Massachusetts law and is an entity commonly known as a "Massachu-
setts business 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. To date, 16 series of shares have been authorized and are avail-
able for sale to the public. Only shares of the Fund are offered through this
Prospectus. No series of shares has any preference over any other series of
shares. See Massachusetts Trust in the Statement of Additional Information.
The Declaration of Trust for the Trust provides that no Trustee, shareholder,
officer, employee, or agent of the Fund shall be held to any personal liabili-
ty, nor shall resort be had to their private property for the satisfaction of
any obligation or claim or otherwise in connection with the affairs of the
Fund, but that the Trust property only shall be liable.
Shareholders of the Fund are entitled to one vote for each share and to the
appropriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and nonassessable by the Fund. As of June 13, 1995, J.P. Morgan as Agent for
General Motors Savings Plan technically met the definition of a control person
of the Fund. The Trust does not intend to hold meetings of shareholders annu-
ally. The Trustees may call meetings of shareholders for action by shareholder
vote as may be required by either the 1940 Act or the Declaration of Trust.
The Trustees will call a meeting of shareholders to vote on removal of a
Trustee upon the written request of the record holders of ten percent of Trust
shares and will assist shareholders in communicating with each other as pre-
scribed in Section 16(c) of the 1940 Act. For further organization informa-
tion, including certain shareholder rights, see Description of Shares in the
Statement of Additional Information.
The Portfolio, in which all the assets of the Fund are invested, a series
(subtrust) of The Series Portfolio, a master trust organized under the laws of
the State of New York. The Series Portfolio's Declaration of Trust provides
that the Fund and other entities investing in the Portfolio (e.g., other in-
vestment companies, insurance company separate accounts and common and commin-
gled trust funds) will each be liable for all obligations of the Portfolio.
However, the risk of the Fund incurring financial loss on account of such lia-
bility is limited to circumstances in which both inadequate insurance existed
and the Portfolio itself was unable to meet its obligations. Accordingly, the
Trustees of the Trust believe that neither the Fund nor its shareholders will
be adversely affected by reason of the Fund's investing in the Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are sub-
ject to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to fed-
eral taxes and with respect to the applicability of state or local taxes. See
Taxes in the Statement of Additional Information. Annual statements as to the
current federal tax status of distributions, if applicable, are mailed to
shareholders after the end of the taxable year for the Fund.
The Trust intends to qualify the Fund as a separate regulated investment com-
pany under Subchapter M of the Code. For the Fund to qualify as a regulated
investment company, the Portfolio limits its investments so that at the close
of each
16
<PAGE>
quarter of its taxable year (a) no more than 25% of its total assets are in-
vested in the securities of any one issuer, except U.S. Government securities,
and (b) with regard to 50% of its total assets, no more than 5% of its total
assets are invested in the securities of a single issuer, except U.S. Govern-
ment securities. As a regulated investment company, the Fund should not be sub-
ject to federal income taxes or federal excise taxes if all of its net invest-
ment income and capital gains less any available capital loss carryforwards are
distributed to shareholders within allowable time limits. The Portfolio intends
to qualify as an association treated as a partnership for federal income tax
purposes. As such, the Portfolio should not be subject to tax. The Fund's sta-
tus as a regulated investment company is dependent on, among other things, the
Portfolio's continued qualification as a partnership for federal income tax
purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to noncorporate shareholders.
Distributions of net investment income and realized net short-term capital
gains in excess of net long-term capital losses are taxable as ordinary income
to shareholders of the Fund whether such distributions are taken in cash or re-
invested in additional shares. Distributions of this type to corporate share-
holders of the Fund will not qualify for the dividends- received deduction be-
cause the income of the Fund will not consist of dividends paid by U.S. corpo-
rations.
Distributions of net long-term capital gains in excess of net short-term capi-
tal losses are taxable to shareholders of the Fund as long-term capital gains
regardless of how long a shareholder has held shares in the Fund and regardless
of whether taken in cash or reinvested in additional shares. Long-term capital
gains distributions to corporate shareholders are not eligible for the divi-
dends-received deduction.
Any distribution of net investment income or capital gains will have the effect
of reducing the net asset value of Fund shares held by a shareholder by the
same amount as the distribution. If the net asset value of the shares is re-
duced below a shareholder's cost as a result of such a distribution, the dis-
tribution, although constituting a return of capital to the shareholder, will
be taxable as described above.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term cap-
ital gain or loss if the shares have been held for more than one year, and oth-
erwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect
to such shares.
The Fund is subject to foreign withholding taxes with respect to income re-
ceived from sources within certain foreign countries. So long as more than 50%
of the value of the Fund's total assets at the close of any taxable year con-
sists of stock or securities of foreign corporations, the Fund may elect to
treat any such foreign income taxes paid by it as paid directly by its share-
holders. The Fund will make such an election only if it deems it to be in the
best interests of its shareholders and will notify shareholders in writing each
year if it makes the election and of the amount of foreign income taxes and
gross income derived from sources within any foreign country or possession of
the United States, if any, to be treated as paid by the shareholders. If the
Fund makes the election, each shareholder will be required to include in income
his proportionate share of the amount of foreign income taxes paid by the Fund
and will be entitled to claim either a credit (which is subject to certain lim-
itations) or, if the shareholder itemizes deductions, a deduction for his share
of the foreign income taxes in computing his federal income tax liability. (No
deduction will be permitted to individuals in computing their alternative mini-
mum tax liability.)
Distributions of foreign exchange gains resulting from certain transactions,
including the sale of foreign currencies, are taxed as ordinary income.
17
<PAGE>
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The finan-
cial statements appearing in annual reports are audited by independent accoun-
tants. Shareholders also will be sent confirmations of each purchase and re-
demption and monthly statements, reflecting all other account activity, in-
cluding dividends and any distributions reinvested in additional shares or
credited as cash.
All shareholders are given the privilege to initiate transactions automati-
cally by telephone upon opening an account. However, an investor should be
aware that a transaction authorized by telephone and reasonably believed to be
genuine by the Fund, Morgan, his Eligible Institution or the Distributor may
subject the investor to risk of loss if such instruction is subsequently found
not to be genuine. The Fund will employ reasonable procedures, including re-
quiring investors to give their Personal Identification Number and tape re-
cording of telephone instructions, to confirm that instructions communicated
from investors by telephone are genuine; if it does not, it, the Shareholder
Servicing Agent, or a shareholder's Eligible Institution may be liable for any
losses due to unauthorized or fraudulent instructions.
The Fund may make historical performance information available and may compare
its performance to other investments or relevant indexes, including data from
Lipper Analytical Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson
Associates, the Tokyo Stock Price Index, Standard & Poor's 500 Composite Stock
Price Index, the Dow Jones Industrial Average, the Frank Russell Indexes, the
Morgan Stanley Europe, Australia and Far East Index, the IFC Investible indi-
ces, the Financial Times World Stock Index and other industry publications.
The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of op-
erations, if less) assuming that all distributions and dividends by the Fund
were reinvested on the reinvestment dates during the period and less all re-
curring fees. This method of calculating total return is required by regula-
tions of the Securities and Exchange Commission. Total return data similarly
calculated, unless otherwise indicated, over other specified periods of time
may also be used. See Performance Data in the Statement of Additional Informa-
tion. All performance figures are based on historical earnings and are not in-
tended to indicate future performance. Performance information may be obtained
by calling the Fund's Distributor at (800) 847-9487.
18
<PAGE>
APPENDIX
The Portfolio may (a) purchase and sell (write) exchange traded and over-the-
counter put and call options on equity securities or indexes of equity securi-
ties, (b) purchase and sell futures contracts on indexes of equity securities,
and (c) purchase and sell (write) put and call options on futures contracts on
indexes of equity securities. Each of these instruments is a derivative instru-
ment, as its value derives from the underlying asset or index.
The Portfolio may use futures contracts and options for hedging and risk man-
agement purposes. See Risk Management in the Statement of Additional Informa-
tion. The Portfolio may not use futures contracts and options for speculation.
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio ob-
tains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays
the current market price for the option (known as the option premium). Options
have various types of underlying instruments, including specific securities,
indexes of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by al-
lowing it to expire or by exercising the option. The Portfolio may also close
out a put option position by entering into an offsetting transaction, if a liq-
uid market exists. If the option is allowed to expire, the Portfolio will lose
the entire premium it paid. If the Portfolio exercises a put option on a secu-
rity, it will sell the instrument underlying the option at the strike price. If
the Portfolio exercises an option on an index, settlement is in cash and does
not involve the actual sale of securities. If an option is American style, it
may be exercised on any day up to its expiration date. A European style option
may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the in-
strument underlying the option does not fall enough to offset the cost of pur-
chasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase,
rather than sell, the instrument underlying the option at the option's strike
price. A call buyer typically attempts to participate in potential price in-
creases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect
to suffer a loss if security prices do not rise sufficiently to offset the cost
of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put option,
it takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the instrument underlying the option if the other party to
the option chooses to exercise it. The Portfolio may seek to terminate its po-
sition in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a
put option the Portfolio has written, however, the Portfolio must continue to
be prepared to pay the strike price while the option is outstanding, regardless
of price changes, and must continue to post margin as discussed below.
If the price of the underlying instrument rises, a put writer would generally
expect to profit, although its gain would be limited to the amount of the pre-
mium it received. If security prices remain the same over time, it is likely
that the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would expect
to suffer a loss. This loss should be less than the loss from purchasing and
holding the underlying instrument directly, however, because the premium re-
ceived for writing the option should offset a portion of the decline.
Writing a call option obligates the Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the op-
tion. The characteristics of writing call options are similar to those of writ-
ing put options,
A-1
<PAGE>
except that writing calls generally is a profitable strategy if prices remain
the same or fall. Through receipt of the option premium a call writer offsets
part of the effect of a price decline. At the same time, because a call writer
must be prepared to deliver the underlying instrument in return for the strike
price, even if its current value is greater, a call writer gives up some abil-
ity to participate in security price increases.
The writer of an exchange traded put or call option on a security, an index of
securities or a futures contract is required to deposit cash or securities or a
letter of credit as margin and to make mark to market payments of variation
margin as the position becomes unprofitable.
OPTIONS ON INDEXES. The Portfolio may purchase and sell (write) put and call
options on any securities index based on securities in which the Portfolio may
invest. Options on securities indexes are similar to options on securities, ex-
cept that the exercise of securities index options is settled by cash payment
and does not involve the actual purchase or sale of securities. In addition,
these options are designed to reflect price fluctuations in a group of securi-
ties or segment of the securities market rather than price fluctuations in a
single security. The Portfolio, in purchasing or selling index options, is sub-
ject to the risk that the value of its portfolio securities may not change as
much as an index because the Portfolio's investments generally will not match
the composition of an index.
For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an over-the-counter option, it will be rely-
ing on its counterparty to perform its obligations, and the Portfolio may incur
additional losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When the Portfolio purchases a futures contract, it agrees to purchase a speci-
fied quantity of an underlying instrument at a specified future date or to make
a cash payment based on the value of a securities index. When the Portfolio
sells a futures contract, it agrees to sell a specified quantity of the under-
lying instrument at a specified future date or to receive a cash payment based
on the value of a securities index. The price at which the purchase and sale
will take place is fixed when the Portfolio enters into the contract. Futures
can be held until their delivery dates or the position can be (and normally is)
closed out before then. There is no assurance, however, that a liquid market
will exist when the Portfolio wishes to close out a particular position.
When the Portfolio purchases a futures contract, the value of the futures con-
tract tends to increase and decrease in tandem with the value of its underlying
instrument. Therefore, purchasing futures contracts will tend to increase the
Portfolio's exposure to positive and negative price fluctuations in the under-
lying instrument, much as if it had purchased the underlying instrument direct-
ly. When the Portfolio sells a futures contract, by contrast, the value of its
futures position will tend to move in a direction contrary to the value of the
underlying instrument. Selling futures contracts, therefore, will tend to off-
set both positive and negative market price changes, much as if the underlying
instrument had been sold.
The purchaser or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, when the Portfolio buys or sells a futures contract it will be
required to deposit "initial margin" with its Custodian in a segregated account
in the name of its futures broker, known as a futures commission merchant
(FCM). Initial margin deposits are typically equal to a small percentage of the
contract's value. If the value of either party's position declines, that party
will be required to make additional "variation margin" payments equal to the
change in value on a daily basis. The party that has a gain may be entitled to
receive all or a portion of this amount. The Portfolio may be obligated to make
payments of variation margin at a time when it is disadvantageous to do so.
Furthermore, it may not always be possible for the Portfolio to close out its
futures positions. Until it closes out a futures position, the Portfolio will
be obligated to continue to pay variation margin. Initial and variation margin
pay-
A-2
<PAGE>
ments do not constitute purchasing on margin for purposes of the Portfolio's
investment restrictions. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.
The Portfolio will segregate liquid, high quality assets in connection with its
use of options and futures contracts to the extent required by the staff of the
Securities and Exchange Commission. 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 the Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
For further information about the Portfolio's use of futures and options and a
more detailed discussion of associated risks, see Investment Objectives and
Policies in the Statement of Additional Information.
A-3
<PAGE>
-----------------------------------
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 offer in such jurisdiction.
The JPM Institutional Asia
Growth Fund
PROSPECTUS
, 1995
<PAGE>
PROSPECTUS
The JPM Institutional European Equity Fund
6 St. James Avenue
Boston, Massachusetts 02116
For information call (800) 766-7722
The JPM Institutional European Equity Fund (the "Fund") seeks to provide a high
total return from a portfolio of equity securities of European companies. The
Fund is designed for investors who want an actively managed portfolio of Euro-
pean equity securities that seeks to outperform the Morgan Stanley Capital In-
ternational Europe Index which is comprised of more than 500 companies in four-
teen European countries.
The Fund is a diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The JPM Insti-
tutional Funds, an open-end management investment company organized as a Massa-
chusetts business trust (the "Trust").
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO
OF SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING
ALL OF ITS INVESTABLE ASSETS IN THE EUROPEAN EQUITY PORTFOLIO (THE
"PORTFOLIO"), A CORRESPONDING DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT
COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND INVESTS IN
THE PORTFOLIO THROUGH SIGNATURE FINANCIAL GROUP, INC.'S HUB AND SPOKE(R)
FINANCIAL SERVICES METHOD. HUB AND SPOKE(R) EMPLOYS A TWO-TIER MASTER-FEEDER
STRUCTURE AND IS A REGISTERED SERVICE MARK OF SIGNATURE FINANCIAL GROUP, INC.
SEE SPECIAL INFORMATION CONCERNING HUB AND SPOKE(R) ON PAGE 2.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or the "Advisor").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and it should be retained
for future reference. Additional information about the Fund has been filed with
the Securities and Exchange Commission in a Statement of Additional Information
dated , 1995 (as 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, Signature Broker-Dealer Services, Inc., 6
St. James Avenue, Boston, Massachusetts 02116, Attention: The JPM Institutional
Funds, or by calling (800) 847-9487.
INVESTMENTS IN THE FUND 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 FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE
HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
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 , 1995.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
Investors for Whom the Fund Is Designed.................................... 1
Special Information Concerning Hub and Spoke (R)........................... 2
Investment Objective and Policies.......................................... 3
Additional Investment Information and Risk Factors......................... 5
Investment Restrictions.................................................... 9
Management of the Trust and the Portfolio.................................. 10
Shareholder Servicing...................................................... 13
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Purchase of Shares......................................................... 13
Redemption of Shares....................................................... 14
Exchange of Shares......................................................... 14
Dividends and Distributions................................................ 15
Net Asset Value............................................................ 15
Organization............................................................... 15
Taxes...................................................................... 16
Additional Information..................................................... 17
Appendix................................................................... A-1
</TABLE>
<PAGE>
The JPM Institutional European Equity Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed for investors who want an actively managed portfolio of
European equity securities. The Fund seeks to achieve its investment objective
by investing all of its investable assets in The European Equity Portfolio, a
diversified open-end management investment company having the same investment
objective as the Fund. Since the investment characteristics and experience of
the Fund will correspond directly with those of the Portfolio, the discussion
in this Prospectus focuses on the investments and investment policies of the
Portfolio. The net asset value of shares in the Fund fluctuates with changes in
the value of the investments in the Portfolio.
The Portfolio may make various types of investments in seeking its objective.
Among the permissible investments and investment techniques for the Portfolio
are futures contracts, options and forward contracts on foreign currencies. The
potential risks of investing in these derivative instruments are discussed in
Additional Investment Information and Risk Factors and the Appendix. The
Portfolio may also purchase certain privately placed securities. The
Portfolio's investments in securities of foreign issuers, including issuers in
emerging markets, involve foreign investment risks and may be more volatile and
less liquid than domestic securities. For further information about these
investments, see Investment Objective and Policies below.
The Fund requires a minimum initial investment of $1 million. The minimum
subsequent investment is $25,000. See Purchase of Shares. If a shareholder
reduces his or her investment in the Fund to less than $1 million for more than
30 days, the investment will be subject to mandatory redemption. See Redemption
of Shares--Mandatory Redemption by the Fund.
This Prospectus describes the investment objective and policies, management and
operation of the Fund to enable investors to decide if the Fund suits their
needs. The Fund operates through Signature Financial Group, Inc.'s
("Signature") Hub and Spoke(R) financial services method. The Trustees believe
that the Fund may achieve economies of scale over time by investing through Hub
and Spoke(R).
The following table illustrates that investors in the Fund incur no shareholder
transaction expenses; their investment in the Fund is subject only to the
operating expenses set forth below for the Fund and the Portfolio, as a
percentage of average net assets of the Fund. The Trustees of the Trust believe
that the aggregate per share expenses of the Fund and the Portfolio will be
approximately equal to and may be less than the expenses that the Fund would
incur if it retained the services of an investment adviser and invested its
assets directly in portfolio securities. Fund and Portfolio expenses are
discussed below under the headings Management of the Trust and the Portfolio
and Shareholder Servicing.
<TABLE>
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SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases............................................ None
Sales Load Imposed on Reinvested Dividends................................. None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
1
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees............................................................. 0.65%
Rule 12b-1 Fees........................................................... None
Other Expenses (after expense reimbursement).............................. 0.48%
----
Total Operating Expenses (after expense reimbursement).................... 1.13%
</TABLE>
*These expenses are based on estimated expenses of the Fund and the Portfolio
and estimated average net assets for the Fund's first fiscal year, after any
applicable expense reimbursement. Without such expected reimbursement, the es-
timated Total Operating Expenses would be equal on an annual basis (after ap-
plication of state blue sky expense limitations) to % of the estimated av-
erage net assets of the Fund. See Management of the Trust and the Portfolio.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year..................................................................... $ 12
3 Years.................................................................... $ 36
</TABLE>
The above expense table is designed to assist investors in understanding the
various estimated direct and indirect costs and expenses that investors in the
Fund bear. The estimated fees and expenses included in Other Expenses are the
fees paid to Morgan under the Shareholder Servicing and Financial and Fund
Accounting Services Agreements, organizational expenses the fees paid to
Pierpont Group, Inc. under the Fund Services Agreements, the fees paid to the
Administrator, the fees paid to State Street Bank and Trust Company as custodian
and transfer agent, and other fees and expenses described under Management of
the Trust and the Portfolio-- Expenses. For a more detailed description of
contractual fee arrangements, in- cluding expense reimbursements, and of the
fees and expenses included in Other Expenses, see Management of the Trust and
the Portfolio and Shareholder Servic- ing. In connection with the above example,
please note that $1,000 is less than the Fund's minimum investment requirement
and that there are no redemption or exchange fees of any kind. See Purchase of
Shares and Redemption of Shares. THE EXAMPLE IS HYPOTHETICAL; IT IS INCLUDED
SOLELY FOR ILLUSTRATIVE PURPOSES. IT SHOULD NOT BE CONSIDERED A REPRESENTATION
OF FUTURE PERFORMANCE; ACTUAL EX- PENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The Fund's annual report will include a discussion of those factors, strategies
and techniques that materially affected its performance during the period of
the report, as well as certain related information. A copy of the Fund's annual
report will be made available without charge upon request.
SPECIAL INFORMATION CONCERNING HUB AND SPOKE(R)
The Trust and the Portfolio use certain proprietary rights, know-how and finan-
cial services referred to as Hub and Spoke(R). Hub and Spoke(R) is a registered
service mark of Signature. Signature Broker-Dealer Services, Inc. (the Trust's
and Portfolio's Administrator and the Trust's Distributor) is a wholly owned
subsidiary of Signature.
Unlike other mutual funds which directly acquire and manage their own portfolio
of securities, the Fund is an open-end management investment company which
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio, a separate registered investment company with the same
investment objective as the Fund. The investment objective of the Fund or Port-
folio may be changed only with the approval of the holders of the outstanding
shares of the Fund and the Portfolio.
The master-feeder structure has been developed relatively recently, so share-
holders should carefully consider this investment approach.
2
<PAGE>
In addition to selling a beneficial interest to the Fund, the Portfolio may
sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions
and will pay a proportionate share of the Portfolio's expenses. However, the
other investors investing in the Portfolio may sell shares of their own fund
using a different pricing structure than the Fund. Such different pricing
structures may result in differences in returns experienced by investors in
other funds that invest in the Portfolio. Such differences in returns are not
uncommon and are present in other mutual fund structures. Information concern-
ing other holders of interests in the Portfolio is available from the Adminis-
trator at (800) 847-9487.
The Trust may withdraw the investment of the Fund from the Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same invest-
ment objective and restrictions as the Fund or the retaining of an investment
adviser to manage the Fund's assets in accordance with the investment policies
described below with respect to the Portfolio.
Certain changes in the Portfolio's investment objective, policies or restric-
tions, or a failure by the Fund's shareholders to approve a change in the Port-
folio's investment objective or restrictions, may require withdrawal of the
Fund's interest in the Portfolio. Any such withdrawal could result in a distri-
bution in kind of portfolio securities (as opposed to a cash distribution) from
the Portfolio which may or may not be readily marketable. The distribution in
kind may result in the Fund having a less diversified portfolio of investments
or adversely affect the Fund's liquidity, and the Fund could incur brokerage,
tax or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in the Portfolio may be materially affected by the ac-
tions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns. Addition-
ally, because the Portfolio would become smaller, it may become less diversi-
fied, resulting in potentially increased portfolio risk (however, these possi-
bilities also exist for traditionally structured funds which have large or in-
stitutional investors who may withdraw from a fund). Also, funds with a greater
pro rata ownership in the Portfolio could have effective voting control of the
operations of the Portfolio. Whenever the Fund is requested to vote on matters
pertaining to the Portfolio (other than a vote by the Fund to continue the op-
eration of the Portfolio upon the withdrawal of another investor in the Portfo-
lio), the Trust will hold a meeting of shareholders of the Fund and will cast
all of its votes proportionately as instructed by the Fund's shareholders. The
Trust will vote the shares held by Fund shareholders who do not give voting in-
structions in the same proportion as the shares of Fund shareholders who do
give voting instructions. Shareholders of the Fund who do not vote will have no
effect on the outcome of such matters.
For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Additional Investment In-
formation and Risk Factors and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment Restric-
tions.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and the Portfolio is described below,
together with the policies they employ in their efforts to achieve this
objective. Additional information about the investment policies of the Fund and
the Portfolio appears in the Statement of Additional Information under
Investment Objectives and Policies. There can be no assurance that the
investment objective of the Fund or the Portfolio will be achieved.
3
<PAGE>
The Fund's investment objective is to provide a high total return from a port-
folio of equity securities of European companies. Total return will consist of
realized and unrealized capital gains and losses plus income. The Fund attempts
to achieve its investment objective by investing all of its investable assets
in The European Equity Portfolio, a diversified open-end management investment
company having the same investment objective as the Fund.
The Fund is designed for investors who want an actively managed portfolio of
European equity securities that seeks to outperform the Morgan Stanley Capital
International Europe Index which is comprised of more than 500 companies in
fourteen European countries. THE FUND DOES NOT REPRESENT A COMPLETE INVESTMENT
PROGRAM NOR IS THE FUND SUITABLE FOR ALL INVESTORS.
The Portfolio seeks to achieve its investment objective through country alloca-
tion and stock valuation and selection. Based on fundamental research, quanti-
tative valuation techniques, and experienced judgment, Morgan uses a structured
decision-making process to allocate the Portfolio across European countries,
consisting of Austria, Belgium, Denmark, Germany, Finland, France, Ireland, It-
aly, the Netherlands, Norway, Spain, Sweden, Switzerland and the United King-
dom.
A European company is one that: (i) has its principal securities trading market
in a European country; or (ii) is organized under the laws of a European coun-
try; or (iii) derives 50% or more of its total revenue and/or profits from ei-
ther goods produced, sales made or services performed in European countries; or
(iv) has at least 50% of its assets located in European countries.
Using a dividend discount model and based on analysts' industry expertise, com-
panies in each country are ranked within industrial sectors according to their
relative value. Based on this valuation, Morgan selects the companies which ap-
pear the most attractive for the Portfolio. Morgan believes that under normal
market conditions, industrial sector weightings generally will be similar to
those of the Morgan Stanley Capital International Europe Index.
The Portfolio's investments are primarily denominated in foreign currencies but
it may also invest in securities denominated in the U.S. dollar or multina-
tional currency units such as the ECU. The Advisor will not routinely attempt
to hedge the Portfolio's foreign currency exposure. However, the Advisor may
from time to time engage in foreign currency exchange transactions if, based on
fundamental research, technical factors, and the judgment of experienced cur-
rency managers, it believes the transactions would be in the Portfolio's best
interest. For further information on foreign currency exchange transactions,
see Additional Investment Information and Risk Factors.
The Portfolio intends to manage its portfolio actively in pursuit of its in-
vestment objective. The Portfolio does not intend to respond to short-term mar-
ket fluctuations or to acquire securities for the purpose of short-term trad-
ing; however, it may take advantage of short-term trading opportunities that
are consistent with its objective. To the extent the Portfolio engages in
short-term trading, it may realize short-term capital gains or losses and incur
increased transaction costs. See Taxes below. The estimated annual portfolio
turnover rate for the Portfolio is generally not expected to exceed 100%.
EQUITY INVESTMENTS. In normal circumstances, the Advisor intends to keep the
Portfolio essentially fully invested with at least 65% of the value of its to-
tal assets in equity securities of European companies consisting of common
stocks and other securities with equity characteristics comprised of preferred
stock, warrants, rights, convertible securities, trust certificates, limited
partnership interests and equity participations. The Portfolio's primary equity
investments are the common stock of companies based in the developed countries
of Europe. Such investments will be made in at least three European countries.
The common stock in which the Portfolio may invest includes the common stock of
any class or series or any similar equity interest, such as trust or limited
partnership interests. These equity investments may or may not pay dividends
and may or may not carry voting rights. In addition to its equity investments
in European companies, the
4
<PAGE>
Portfolio may invest up to 5% of its assets in equity securities of issuers in
emerging European markets such as Eastern European countries and Turkey. See
Additional Investment Information and Risk Factors. The Portfolio invests in
securities listed on foreign or domestic securities exchanges and securities
traded in foreign or domestic over-the-counter markets, and may invest in cer-
tain restricted or unlisted securities.
The Portfolio may also invest in money market instruments and bonds denomi-
nated in U.S. dollars and other currencies, purchase securities on a when-is-
sued or delayed delivery basis, enter into repurchase and reverse repurchase
agreements, loan its portfolio securities, purchase certain privately placed
securities and enter into forward foreign currency exchange contracts. In ad-
dition, the Portfolio may use options on securities and indexes of securities,
futures contracts and options on futures contracts for hedging and risk man-
agement purposes. Forward foreign currency exchange contracts, options and
futures contracts are derivative instruments. For a discussion of these in-
vestments and investment techniques, see Additional Investment Information and
Risk Factors.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
FOREIGN INVESTMENT INFORMATION. The Portfolio invests primarily in foreign se-
curities. Investment in securities of foreign issuers involves somewhat dif-
ferent investment risks from those affecting securities of U.S. domestic is-
suers. There may be limited publicly available information with respect to
foreign issuers, and foreign issuers are not generally subject to uniform ac-
counting, auditing and financial standards and requirements comparable to
those applicable to domestic companies. Dividends and interest paid by foreign
issuers may be subject to withholding and other foreign taxes which may de-
crease the net return on foreign investments as compared to dividends and in-
terest paid to the Portfolio by domestic companies.
Investors should realize that the value of the Portfolio's investments in for-
eign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation, na-
tionalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or depre-
ciation of portfolio securities and could favorably or unfavorably affect the
Portfolio's operations. Furthermore, the economies of individual foreign na-
tions may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital re-
investment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a
judgment against a foreign issuer. Any foreign investments made by the Portfo-
lio must be made in compliance with U.S. and foreign currency restrictions and
tax laws restricting the amounts and types of foreign investments.
In addition, while the volume of transactions effected on foreign stock ex-
changes has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, the Portfolio's for-
eign investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settle-
ment periods for foreign securities, which are often longer than those for se-
curities of U.S. issuers, may affect portfolio liquidity. In buying and sell-
ing securities on foreign exchanges, purchasers normally pay fixed commissions
that are generally higher than the negotiated commissions charged in the
United States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.
Although the Portfolio invests primarily in securities of established issuers
in developed European countries, it may also invest in equity securities of
companies in European emerging market countries. Investments in securities of
issuers in European emerging market countries may involve a high degree of
risk and many may be considered speculative. These investments carry all of
the risks of investing in securities of foreign issuers outlined in this sec-
tion to a heightened degree. These heightened risks include (i) greater risks
of expropriation, confiscatory taxation, nationalization, and less
5
<PAGE>
social, political and economic stability; (ii) the small current size of the
markets for securities of emerging markets issuers and the currently low or
nonexistent volume of trading, resulting in lack of liquidity and in price
volatility; (iii) certain national policies which may restrict the Portfolio's
investment opportunities including restrictions on investing in issuers or in-
dustries deemed sensitive to relevant national interests; and (iv) the absence
of developed legal structures governing private or foreign investment and pri-
vate property.
The Portfolio may invest in securities of foreign issuers directly or in the
form of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") or other similar securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities they
represent. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying foreign securities. Certain such insti-
tutions issuing ADRs may not be sponsored by the issuer of the underlying for-
eign securities. A non-sponsored depository may not provide the same share-
holder information that a sponsored depository is required to provide under
its contractual arrangements with the issuer of the underlying foreign securi-
ties. EDRs are receipts issued by a European financial institution evidencing
a similar arrangement. Generally, ADRs, in registered form, are designed for
use in the U.S. securities markets, and EDRs, in bearer form, are designed for
use in European securities markets.
Since the Portfolio's investments in foreign securities involve foreign cur-
rencies, the value of its assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. See Foreign Currency Exchange Trans-
actions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and sells
securities and receives interest and dividends in currencies other than the
U.S. dollar, the Portfolio may enter from time to time into foreign currency
exchange transactions. The Portfolio either enters into these transactions on
a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market or uses forward contracts to purchase or sell foreign curren-
cies. The cost of the Portfolio's spot currency exchange transactions is gen-
erally the difference between the bid and offer spot rate of the currency be-
ing purchased or sold.
A forward foreign currency exchange contract is an obligation by the Portfolio
to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These con-
tracts are derivative instruments, as their value derives from the spot ex-
change rates of the currencies underlying the contract. These contracts are
entered into in the interbank market directly between currency traders (usu-
ally large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. The Portfolio will not enter into forward contracts
for speculative purposes. Neither spot transactions nor forward foreign cur-
rency exchange contracts eliminate fluctuations in the prices of the Portfo-
lio's securities or in foreign exchange rates, or prevent loss if the prices
of these securities should decline.
The Portfolio may enter into foreign currency exchange transactions in an at-
tempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or antici-
pated securities transactions. The Portfolio may also enter into forward con-
tracts to hedge against a change in foreign currency exchange rates that would
cause a decline in the value of existing investments denominated or princi-
pally traded in a foreign currency. To do this, the Portfolio would enter into
a forward contract to sell the foreign currency in which the investment is de-
nominated or principally traded in exchange for U.S. dollars or in exchange
for another foreign currency. The
Portfolio will only enter into forward contracts to sell a foreign currency in
exchange for another foreign currency if the Advisor expects the foreign cur-
rency purchased to appreciate against the U.S. dollar.
Although these transactions are intended to minimize the risk of loss due to a
decline in the value of the hedged cur- rency, at the same time they limit any
potential gain that might be realized should the value of the hedged currency
6
<PAGE>
increase. In addition, forward contracts that convert a foreign currency into
another foreign currency will cause the Portfolio to assume the risk of fluc-
tuations in the value of the currency purchased against the hedged currency
and the U.S. dollar. The precise matching of the forward contract amounts and
the value of the securities involved will not generally be possible because
the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The projec-
tion of currency market movements is extremely difficult, and the successful
execution of a hedging strategy is highly uncertain.
CONVERTIBLE SECURITIES. The convertible securities in which the Portfolio 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. Convert-
ible 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.
WARRANTS. The Portfolio invests in warrants, which entitle the holder to buy
common stock from the issuer at a specific price (the strike price) for a spe-
cific period of time. The strike price of warrants sometimes is much lower
than the current market price of the underlying securities, yet warrants are
subject to similar price fluctuations. As a result, warrants may be more vola-
tile investments than the underlying securities.
Warrants do not entitle the holder to dividends or voting rights with respect
to the underlying securities and do not represent any rights in the assets of
the issuing company. Also the value of the warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to the expiration date.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase secu-
rities on a when-issued or delayed delivery basis. Delivery of and payment for
these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market fluc-
tuation during this period and for fixed income investments no interest ac-
crues to the Portfolio until settlement. At the time of settlement, a when-is-
sued security may be valued at less than its purchase price. The Portfolio
maintains with the Custodian a separate account with a segregated portfolio of
securities in an amount at least equal to these commitments. When entering
into a when-issued or delayed delivery transaction, the Portfolio will rely on
the other party to consummate the transaction; if the other party fails to do
so, the Portfolio may be disadvantaged. It is the current policy of the Port-
folio not to enter into when-issued commitments exceeding in the aggregate 15%
of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement trans-
actions with brokers, dealers or banks that meet the credit guidelines estab-
lished by the Portfolio's Trustees. In a repurchase agreement, the Portfolio
buys a security from a seller that has agreed to repurchase it at a mutually
agreed upon date and price, reflecting the interest rate effective for the
term of the agreement. The term of these agreements is usually from overnight
to one week. A repurchase agreement may be viewed as a fully collateralized
loan of money by the Portfolio to the seller. The Portfolio always receives
securities as collateral with a market value at least equal to the purchase
price plus accrued interest and this value is maintained during the term of
the agreement. If the seller defaults and the collateral value declines, the
Portfolio might incur a loss. If bankruptcy proceedings are commenced with re-
spect to the seller, the Portfolio's realization upon the disposition of col-
lateral may be delayed or limited. Investments in certain repurchase agree-
ments and certain other investments which may be considered illiquid are lim-
ited. See Illiquid Investments; Privately Placed and other Unregistered Secu-
rities below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in an amount up to 33 1/3%
of the value of the Portfolio's net assets. The Portfolio may lend its securi-
ties if such loans are secured continuously by cash or equivalent collateral
or by a letter of credit in favor of the Portfolio at least equal at
7
<PAGE>
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 Portfo-
lio any income accruing thereon. Loans will be subject to termination by the
Portfolio in the normal settlement time, generally three business days after
notice, or by the borrower on one day's notice. Borrowed securities must be re-
turned 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 the
Portfolio and its respective investors. The Portfolio may pay reasonable find-
ers' and custodial fees in connection with a loan. In addition, the Portfolio
will consider all facts and circumstances, including the creditworthiness of
the borrowing financial institution, and the Portfolio will not make any loans
in excess of one year. The Portfolio will not lend its securities to any offi-
cer, Trustee, Director, employee or other affiliate of the Portfolio, the Advi-
sor or the Distributor, unless otherwise permitted by applicable law.
REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase it at a mutually agreed upon date and price,
reflecting the interest rate effective for the term of the agreement. For the
purposes of the Investment Company Act of 1940 (the "1940 Act"), it is consid-
ered as a form of borrowing by the Portfolio and, therefore, a form of lever-
age. Leverage may cause any gains or losses of the Portfolio to be magnified.
For more information, see Investment Objectives and Policies in the Statement
of Additional Information.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may not acquire any illiquid securities if, as a result thereof, more
than 15% of the market value of the Portfolio's net assets would be in illiquid
investments. Subject to this non-fundamental policy limitation, the Portfolio
may acquire investments that are illiquid or have limited liquidity, such as
private placements or investments that are not registered under the Securities
Act of 1933 (the "1933 Act"). An illiquid investment is any investment that
cannot be disposed of within seven days in the normal course of business at ap-
proximately the amount at which it is valued by the Portfolio. The price the
Portfolio pays for illiquid securities or receives upon resale may be lower
than the price paid or received for similar securities with a more liquid mar-
ket. Accordingly the valuation of these securities will reflect any limitations
on their liquidity.
The Portfolio may also purchase Rule 144A securities sold to institutional in-
vestors without registration under the 1933 Act. These securities may be deter-
mined to be liquid in accordance with guidelines established by the Advisor and
approved by the Trustees. The Trustees will monitor the Advisor's implementa-
tion of these guidelines on a periodic basis.
FUTURES AND OPTIONS TRANSACTIONS. The Portfolio may (a) purchase and sell
(write) exchange traded and over-the-counter put and call options on equity se-
curities or indexes of equity securities, (b) purchase and sell futures con-
tracts on indexes of equity securities, and (c) purchase and sell (write) put
and call options on futures contracts on indexes of equity securities. Each of
these instruments is a derivative instrument as its value derives from the un-
derlying asset or index.
The Portfolio may use futures contracts and options for hedging and risk man-
agement purposes. The Portfolio may not use futures contracts and options for
speculation.
The Portfolio may utilize options and futures contracts to manage its exposure
to changing interest rates and/or security prices. Some options and futures
strategies, including selling futures contracts and buying puts, tend to hedge
the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and
return characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Advisor and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
8
<PAGE>
The use of options and futures is a highly specialized activity which involves
investment strategies and risks different from those associated with ordinary
portfolio securities transactions, and there can be no guarantee that their use
will increase the Portfolio's return. While the use of these instruments by the
Portfolio may reduce certain risks associated with owning its portfolio securi-
ties, these techniques themselves entail certain other risks. If the Advisor
applies a strategy at an inappropriate time or judges market conditions or
trends incorrectly, options and futures strategies may lower the Portfolio's
return. Certain strategies limit the Portfolio's possibilities to realize gains
as well as limiting its exposure to losses. The Portfolio could also experience
losses if the prices of its options and futures positions were poorly corre-
lated with its other investments or if it could not close out its positions be-
cause of an illiquid secondary market. In addition, the Portfolio will incur
transaction costs, including trading commissions and option premiums, in con-
nection with its futures and options transactions and these transactions could
significantly increase the Portfolio's turnover rate.
The Portfolio may purchase put and call options on securities, indexes of secu-
rities and futures contracts, or purchase and sell futures contracts, only if
such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Portfolio's net assets, and (ii) the aggregate margin deposits required on all
such futures or options thereon held at any time do not exceed 5% of the Port-
folio's total assets. In addition, the Portfolio will not purchase or sell
(write) futures contracts, options on futures contracts or commodity options
for risk management purposes if, as a result, the aggregate initial margin and
options premiums required to establish these positions exceed 5% of the net as-
set value of the Portfolio. For more detailed information about these transac-
tions, see the Appendix to this Prospectus and Investment Objectives and Poli-
cies--Risk Management in the Statement of Additional Information.
FIXED INCOME INVESTMENTS. The Portfolio is permitted to invest in money market
instruments and bonds although it intends to stay invested in equity securities
to the extent practical in light of its objective. The Portfolio may invest in
fixed income instruments of foreign or domestic issuers denominated in U.S.
dollars and other currencies. Under normal circumstances the Portfolio will
purchase money market instruments to invest temporary cash balances or to main-
tain liquidity to meet redemptions. However, the Portfolio may also invest in
money market instruments and bonds without limitation as a temporary defensive
measure taken in the Advisor's judgment during, or in anticipation of, adverse
market conditions. For more detailed information about these investments, see
Investment Objectives and Policies in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio are
subject to the following fundamental limitations: (a) the Portfolio may not in-
vest more than 5% of its total assets in the securities of any one issuer, ex-
cept U.S. government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer.
The investment objective of the Fund and the Portfolio, together with the in-
vestment restrictions described below and in the Statement of Additional Infor-
mation, except as noted, are deemed fundamental policies, i.e., they may be
changed only with the approval of the holders of a majority of the outstanding
voting securities of the Fund and the Portfolio. The Fund has the same invest-
ment restrictions as the Portfolio, except that the Fund may invest all of its
investable assets in another open-end investment company with the same invest-
ment objective and restrictions (such as the Portfolio). References below to
the Portfolio's investment restrictions also include the Fund's investment re-
strictions.
The Portfolio may not purchase securities or other obligations of issuers con-
ducting their principal business activity in the same industry if its invest-
ments in such industry would exceed 25% of the value of the Portfolio's total
assets, except this limitation shall not apply to investments in U.S. Govern-
ment securities. In addition, the Portfolio may not borrow
9
<PAGE>
money except that the Portfolio may (a) borrow money from banks for temporary
or emergency purposes (not for leveraging purposes) and (b) enter into reverse
repurchase agreements for any purpose, provided that (a) and (b) in total do
not exceed one-third of the Portfolio's total assets less liabilities (other
than borrowings); and the Portfolio may not issue senior securities except as
permitted by the 1940 Act or any rule, order or interpretation thereunder. See
Additional Investment Information and Risk Factors--Loans of Portfolio Securi-
ties and Reverse Repurchase Agreements.
For a more detailed discussion of the above investment restrictions, as well
as a description of certain other investment restrictions, see Investment Re-
strictions in the Statement of Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the
Portfolio, the Trustees decide upon matters of general policy and review the
actions of the Advisor, Administrator, Distributor, Services Agent, and other
service providers. The Trustees of the Trust and of the Portfolio are identi-
fied below.
<TABLE>
<S> <C>
Frederick S. Addy........... Former Executive Vice President and Chief Financial
Officer, Amoco Corporation
William G. Burns............ Former Vice Chairman of the Board and Chief
Financial Officer, NYNEX Corporation
Arthur C. Eschenlauer....... Former Senior Vice President, Morgan Guaranty Trust
Company of New York
Matthew Healey.............. Chairman and Chief Executive Officer, The JPM
Institutional Funds and The Pierpont Funds;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi......... Senior Vice President, Capital Cities/ABC, Inc.,
President, Broadcast Group
</TABLE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust, the Portfolio
and The Pierpont Funds, up to and including creating a separate board of
trustees. See Trustees and Officers in the Statement of Additional Information
for more information about the Trustees and Officers of the Fund and the Port-
folio.
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pier-
pont Group, Inc. in providing these services. Pierpont Group, Inc. was orga-
nized in 1989 at the request of the Trustees of The Pierpont Family of Funds
for the purpose of providing these services at cost to those funds. See Trust-
ees and Officers in the Statement of Additional Information. The principal of-
fices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New
York 10017.
ADVISOR. The Fund has not retained the services of an investment adviser be-
cause the Fund seeks to achieve its investment objective by investing all of
its investable assets in the Portfolio. The Portfolio has retained the serv-
ices of Morgan as Investment Advisor. Morgan, with principal offices at 60
Wall Street, New York, New York 10260, is a New York trust company which con-
ducts a general banking and trust business. Morgan is a wholly owned subsidi-
ary 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 adviser to individual and institutional cli-
ents with combined assets under management of over $165 billion (of which the
Advisor advises over $26 billion). Morgan provides investment advice and port-
folio management services to the Portfolio. Subject to the supervision of the
Portfolio's Trustees, Morgan makes the Portfolio's day-to-day investment deci-
sions, arranges for the execution of
10
<PAGE>
portfolio transactions and generally manages the Portfolio's investments. See
Investment Advisor in the Statement of Additional Information.
Morgan uses a sophisticated, disciplined, collaborative process for managing
all asset classes. For equity portfolios, this process utilizes fundamental
research, systematic stock selection, disciplined portfolio construction and,
in the case of foreign equities, country exposure and currency management.
Morgan has managed portfolios of equity securities of international, including
European, companies on behalf of its clients since 1974. The portfolio manag-
ers making investments in European equity securities work in conjunction with
Morgan's European equity analysts, as well as capital market, credit and eco-
nomic research analysts, traders and administrative officers. The European eq-
uity analysts, located in London, each cover a different industry, monitoring
a universe of approximately 600 companies in Europe.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio (the inception date
of each person's responsibility for the Portfolio and his business experience
for the past five years is indicated parenthetically): Paul A. Quinsee, Vice
President (since March, 1995, employed by Morgan since February, 1992 and by
Citibank, N.A. prior to 1992 as a portfolio manager of international equity
investments) and Rudolph Leuthold, Managing Director (since March, 1995, em-
ployed by Morgan since prior to 1990 as a portfolio manager of international
equity investments).
As compensation for the services rendered and related expenses borne by Morgan
under the Investment Advisory Agreement with the Portfolio, the Portfolio has
agreed to pay Morgan a fee, which is computed daily and may be paid monthly,
at the annual rate of 0.65% of the Portfolio's average daily net assets.
Morgan also acts as Services Agent to the Trust and the Portfolio and provides
shareholder services to shareholders of the Fund. See Services Agent and
Shareholder Servicing below. INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLI-
GATIONS OF, OR GUARANTEED OR ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW
YORK OR ANY OTHER BANK.
ADMINISTRATOR AND DISTRIBUTOR. Under Administration Agreements with the Trust
and the Portfolio, Signature Broker-Dealer Services, Inc. ("SBDS") serves as
the Administrator for the Trust and the Portfolio and in that capacity super-
vises the Fund's and the Portfolio's day-to-day operations other than manage-
ment of the Portfolio's investments. In this capacity, SBDS administers and
manages all aspects of the Fund's and the Portfolio's day-to-day operations
subject to the supervision of the Trustees, except as set forth under Advisor,
Services Agent, Custodian and Shareholder Servicing. In connection with its
responsibilities as Administrator, SBDS (i) furnishes ordinary clerical and
related services for day-to-day operations including certain recordkeeping re-
sponsibilities; (ii) takes responsibility for compliance with all applicable
federal and state securities and other regulatory requirements; (iii) is re-
sponsible for the registration of sufficient Fund shares under federal and
state securities laws; (iv) takes responsibility for monitoring the Fund's
status as a regulated investment company under the Internal Revenue Code of
1986, as amended (the "Code"); and (v) performs such administrative and mana-
gerial oversight of the activities of the Trust's and the Portfolio's custo-
dian and transfer agent as the respective Trustees may direct from time to
time.
Under the Trust's Administration Agreement, the annual administration fee rate
is calculated based on the aggregate average daily net assets of The JPM In-
stitutional Funds, as well as The Pierpont Funds and The JPM Advisor Funds,
which are two other families of mutual funds for which SBDS acts as Adminis-
trator. The fee rate is calculated daily in accordance with the following
schedule: 0.040% of the first $1 billion of these funds' aggregate average
daily net assets, 0.032% of the next $2 billion of these funds' aggregate av-
erage daily net assets, 0.024% of the next $2 billion of these
11
<PAGE>
funds' aggregate average daily net assets and 0.016% of these funds' aggregate
average daily net assets in excess of $5 billion. This fee rate is then ap-
plied to the net assets of the Fund.
Under the Portfolio's Administration Agreement, the annual administration fee
rate is calculated based on the aggregate average daily net assets of the
Portfolio, as well as all of the other portfolios in which series of The JPM
Institutional Funds, The Pierpont Funds or The JPM Advisor Funds invest. The
fee rate is calculated daily in accordance with the following schedule: 0.010%
of the first $1 billion of these portfolios' aggregate average daily net as-
sets, 0.008% of the next $2 billion of these portfolios' aggregate average
daily net assets, 0.006% of the next $2 billion of these portfolios' aggregate
average daily net assets and 0.004% of these portfolios' aggregate average
daily net assets in excess of $5 billion. This fee rate is then applied to the
net assets of the Portfolio. The Administrator may voluntarily waive a portion
of its fees.
SBDS, a registered broker-dealer, also serves as the Distributor of shares of
the Fund and the Exclusive Placement Agent for the Portfolio. SBDS is a wholly
owned subsidiary of Signature. Signature and its affiliates currently provide
administration and distribution services for a number of registered investment
companies through offices located in Boston, New York, London, Toronto and
George Town, Grand Cayman.
SERVICES AGENT. Under Financial and Fund Accounting Services Agreements with
the Trust and the Portfolio (each a "Services Agreement" and collectively, the
"Services Agreements"), Morgan acts as Services Agent to the Trust and the
Portfolio and is responsible for certain accounting and operational services
provided to the Fund and the Portfolio, including services related to tax re-
turns and financial reports. In the case of the Fund, these services also in-
clude matters related to computing the amount of dividends and the net asset
value per share and keeping the books of account.
The Trust's Services Agreement provides for the Fund to pay Morgan a fee for
these services, which is computed daily and may be paid monthly, at the annual
rate of % of the Fund's average daily net assets. The Portfolio's Services
Agreement provides for the Portfolio to pay Morgan a fee for these services,
which is computed daily and may be paid monthly, at the annual rate of %
of the Portfolio's average daily net assets. Under the Services Agreements,
Morgan may delegate one or more of its responsibilities to other entities, in-
cluding SBDS, at Morgan's expense.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02101, serves as the Fund's and the Portfolio's Custodian and
Transfer and Dividend Disbursing Agent.
EXPENSES. In addition to the fees payable to Pierpont Group, Inc., Morgan and
SBDS under the various agreements discussed under Trustees, Advisor, Adminis-
trator and Distributor, and Services Agent above and Shareholder Servicing be-
low, the Fund and the Portfolio are responsible for certain usual and custom-
ary expenses associated with their respective operations. Such expenses in-
clude organization expenses, legal fees, accounting expenses, insurance costs,
the compensation and expenses of the Trustees, registration fees under federal
securities laws, and extraordinary expenses applicable to the Fund or the
Portfolio. For the Fund, such expenses also include transfer, registrar and
dividend disbursing costs, the expenses of printing and mailing reports, no-
tices and proxy statements to Fund shareholders, and registration fees under
state securities laws. For the Portfolio, such expenses also include registra-
tion fees under foreign securities laws, custodian fees and brokerage ex-
penses.
Morgan has agreed that it will reimburse the Fund through at least December
31, 1995 to the extent necessary to maintain the Fund's total operating ex-
penses (which includes expenses of the Fund and the Portfolio) at the annual
rate of 1.13% of the Fund's average daily net assets. This limit on expenses
does not cover extraordinary increases in these expenses during the period and
no longer applies in the event of a precipitous decline in assets due to un-
foreseen circumstances. There is no assurance that Morgan will continue this
waiver beyond the specified period, except as required by
12
<PAGE>
the following sentence. Morgan has agreed to waive fees as necessary, if in any
fiscal year the sum of the Fund's expenses exceeds the limits set by applicable
regulations of state securities commissions. Such annual limits are currently
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.
SHAREHOLDER SERVICING
The Fund has entered into a Shareholder Servicing Agreement with Morgan pursu-
ant to which Morgan acts as shareholder servicing agent for its customers and
other Fund investors who are customers of an eligible institution which is a
customer of Morgan (an "Eligible Institution"). The Fund has agreed to pay Mor-
gan for these services at an annual rate (expressed as a percentage of the av-
erage daily net asset values of Fund shares owned by or for shareholders for
whom Morgan is acting as shareholder servicing agent) of 0.05% of the Fund's
average daily net assets. Under the terms of the Shareholder Servicing Agree-
ment with the Fund, Morgan may delegate one or more of its responsibilities to
other entities at Morgan's expense.
Shareholders should address all inquiries to J.P. Morgan Funds Services, Morgan
Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York 10036
or call (800) 766-7722.
The business days of the Fund and the Portfolio are the days the New York Stock
Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
as shareholder servicing agent and the Fund is authorized to accept any in-
structions relating to a Fund account from Morgan as agent for the customer.
All purchase orders must be accepted by the Fund's Distributor. Investors must
be customers of Morgan or an Eligible Institution. Investors may also be em-
ployer-sponsored retirement plans that have designated the Fund as an invest-
ment option for the plans. Prospective investors who are not already customers
of Morgan may apply to become customers of Morgan for the sole purpose of Fund
transactions. There are no charges associated with becoming a Morgan customer
for this purpose. Morgan reserves the right to determine the customers that it
will accept, and the Fund reserves the right to determine the purchase orders
that it will accept.
The Fund requires a minimum initial investment of $1 million and a minimum sub-
sequent investment of $25,000. These minimum investment requirements may be
waived for certain retirement plans. For purposes of minimum investment re-
quirements, the Fund may aggregate investments by related shareholders.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value per share next determined after
receipt of an order. Prospective investors may purchase shares with the assis-
tance of another Eligible Institution that may establish its own terms, condi-
tions and charges.
To purchase shares in the Fund, investors should request their Morgan represen-
tative (or a representative of their Eligible Institution) to assist them in
placing a purchase order with the Fund's Distributor and to transfer immedi-
ately available funds to the Fund's Distributor on the next business day. Any
shareholder may also call J.P. Morgan Funds Services at (800) 766-7722 for as-
sistance in placing an order for Fund shares. If the Fund receives a purchase
order prior to 4:00 P.M. New York time on any business day, the purchase of
Fund shares is effective and is made at the net asset value determined that
day, and the purchaser generally becomes a holder of record on the next busi-
ness day upon the Fund's receipt of payment. If the Fund receives a purchase
order after 4:00 P.M. New York time, the purchase is effective and is made at
the net asset value determined on the next business day, and the purchaser be-
comes a holder of record on the following business day upon the Fund's receipt
of payment.
13
<PAGE>
ELIGIBLE INSTITUTIONS. The services provided by Eligible Institutions may in-
clude establishing and maintaining shareholder accounts, processing purchase
and redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting cli-
ents in changing dividend options, account designations and addresses, provid-
ing periodic statements showing the client's account balance and integrating
these statements with those of other transactions and balances in the client's
other accounts serviced by the Eligible Institution, transmitting proxy state-
ments, periodic reports, updated prospectuses and other communications to
shareholders and, with respect to meetings of shareholders, collecting, tabu-
lating and forwarding executed proxies and obtaining such other information
and performing such other services as Morgan or the Eligible Institution's
clients may reasonably request and agree upon with the Eligible Institution.
Eligible Institutions may separately establish their own terms, conditions and
charges for providing the aforementioned services and for providing other
services.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
Morgan or his Eligible Institution, as appropriate, to submit a redemption re-
quest to the Fund or may telephone J.P. Morgan Funds Services directly at
(800) 766-7722 and give the Shareholder Service Representative a preassigned
shareholder Personal Identification Number and the amount of the redemption.
The Fund executes effective redemption requests at the next determined net as-
set value per share. See Net Asset Value. See Additional Information below for
an explanation of the telephone redemption policy of The JPM Institutional
Funds.
A redemption request received by the Fund prior to 4:00 P.M. New York time is
effective on that day. A redemption request received after that time becomes
effective on the next business day. Proceeds of an effective redemption are
deposited the next business day in immediately available funds to the share-
holder's account at Morgan or at his Eligible Institution or, in the case of
certain Morgan customers, are mailed by check or wire transferred in accor-
dance with the customer's instructions, and, subject to Further Redemption In-
formation below, in any event is within seven days.
MANDATORY REDEMPTION BY THE FUND. If the value of a shareholder's holdings in
the Fund falls below the Fund's initial investment amount of $1 million for
more than 30 days because of a redemption of shares, the shareholder's remain-
ing shares may be redeemed 60 days after written notice unless the account is
increased to the Fund's minimum investment amount or more.
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions
from the Fund may not be processed if a redemption request is not submitted in
proper form. To be in proper form, the Fund must have received the sharehold-
er's taxpayer identification number and address. As discussed under Taxes be-
low, the Fund may be required to impose "back-up" withholding of federal in-
come tax on dividends, distributions and redemption proceeds when noncorporate
investors have not provided a certified taxpayer identification number. In ad-
dition, if a shareholder sends a check for the purchase of Fund shares and
shares are purchased before the check has cleared, the transmittal of redemp-
tion proceeds from the shares will occur upon clearance of the check which may
take up to 15 days.
The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other
periods as the 1940 Act or the Securities and Exchange Commission may permit.
See Redemption of Shares in the Statement of Additional Information.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other JPM Institutional
Fund or Pierpont Fund without charge. An exchange may be made so long as after
the exchange the investor has shares, in each fund in which he or she remains
an investor, with a value of at least each of those fund's minimum investment
amounts. See Method of Purchase
14
<PAGE>
in the prospectuses for the other JPM Institutional Funds and The Pierpont
Funds for the minimum investment amount for each of those funds. Shares are
exchanged on the basis of relative net asset value per share. Exchanges are in
effect redemptions from one fund and purchases of another fund and the usual
purchase and redemption procedures and requirements are applicable to ex-
changes. See Purchase of Shares and Redemption of Shares in this Prospectus
and in the prospectuses for the other JPM Institutional Funds and The Pierpont
Funds. See also Additional Information below for an explanation of the tele-
phone exchange policy of The JPM Institutional Funds.
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income
tax purposes. The Fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state securi-
ties laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
Dividends consisting of substantially all of the Fund's net investment income,
if any, are declared and paid annually. The Fund may also declare an addi-
tional dividend of net investment income in a given year to the extent neces-
sary to avoid the imposition of federal excise tax on the Fund.
Substantially all the realized net capital gains, if any, of the Fund are de-
clared 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. Declared dividends and distribu-
tions are payable to shareholders of record on the record date.
Dividends and capital gains distributions paid by the Fund are automatically
reinvested in additional shares of the Fund unless the shareholder has elected
to have them paid in cash. Dividends and distributions to be paid in cash are
credited to the shareholder's account at Morgan or at his Eligible Institution
or, in the case of certain Morgan customers, are mailed by check in accordance
with the customer's instructions. The Fund reserves the right to discontinue,
alter or limit the automatic reinvestment privilege at any time.
NET ASSET VALUE
Net asset value per share for the Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in the
Portfolio and other assets) the amount of its liabilities and dividing the re-
mainder by the number of its outstanding shares, rounded to the nearest cent.
Expenses, including the fees payable to Morgan, are accrued daily. See Net As-
set Value in the Statement of Additional Information for information on valua-
tion of portfolio securities for the Portfolio.
The Fund computes its net asset value once daily at 4:15 P.M. New York time on
Monday through Friday, except on the holidays listed under Net Asset Value in
the Statement of Additional Information.
ORGANIZATION
The Trust was organized on November 4, 1992 as an unincorporated business
trust under Massachusetts law and is an entity commonly known as a "Massachu-
setts business 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. To date, 16 series of shares have been authorized and are avail-
able for sale to the public. Only shares of the Fund are offered through this
Prospectus. No series of shares has any preference over any other series of
shares. See Massachusetts Trust in the Statement of Additional Information.
15
<PAGE>
The Declaration of Trust for the Trust provides that no Trustee, shareholder,
officer, employee, or agent of the Fund shall be held to any personal liabili-
ty, nor shall resort be had to their private property for the satisfaction of
any obligation or claim or otherwise in connection with the affairs of the
Fund, but that the Trust property only shall be liable.
Shareholders of the Fund are entitled to one vote for each share and to the
appropriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and nonassessable by the Fund. The Trust does not intend to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for ac-
tion by shareholder vote as may be required by either the 1940 Act or the Dec-
laration of Trust. The Trustees will call a meeting of shareholders to vote on
removal of a Trustee upon the written request of the record holders of ten
percent of Trust shares and will assist shareholders in communicating with
each other as prescribed in Section 16(c) of the 1940 Act. For further organi-
zation information, including certain shareholder rights, see Description of
Shares in the Statement of Additional Information.
The Portfolio, in which all the assets of the Fund are invested, is a series
(subtrust) of The Series Portfolio, a master trust organized under the laws of
the State of New York. The Series Portfolio's Declaration of Trust provides
that the Fund and other entities investing in the Portfolio (e.g., other in-
vestment companies, insurance company separate accounts and common and commin-
gled trust funds) will each be liable for all obligations of the Portfolio.
However, the risk of the Fund incurring financial loss on account of such lia-
bility is limited to circumstances in which both inadequate insurance existed
and the Portfolio itself was unable to meet its obligations. Accordingly, the
Trustees of the Trust believe that neither the Fund nor its shareholders will
be adversely affected by reason of the Fund's investing in the Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are sub-
ject to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to fed-
eral taxes and with respect to the applicability of state or local taxes. See
Taxes in the Statement of Additional Information. Annual statements as to the
current federal tax status of distributions, if applicable, are mailed to
shareholders after the end of the taxable year for the Fund.
The Trust intends to qualify the Fund as a separate regulated investment com-
pany under Subchapter M of the Code. For the Fund to qualify as a regulated
investment company, the Portfolio limits its investments so that at the close
of each quarter of its taxable year (a) no more than 25% of its total assets
are invested in the securities of any one issuer, except U.S. Government secu-
rities, and (b) with regard to 50% of its total assets, no more than 5% of its
total assets are invested in the securities of a single issuer, except U.S.
Government securities. As a regulated investment company, the Fund should not
be subject to federal income taxes or federal excise taxes if all of its net
investment income and capital gains less any available capital loss
carryforwards are distributed to shareholders within allowable time limits.
The Portfolio intends to qualify as an association treated as a partnership
for federal income tax purposes. As such, the Portfolio should not be subject
to tax. The Fund's status as a regulated investment company is dependent on,
among other things, the Portfolio's continued qualification as a partnership
for federal income tax purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to noncorporate shareholders.
Distributions of net investment income and realized net short-term capital
gains in excess of net long-term capital losses are taxable as ordinary income
to shareholders of the Fund whether such distributions are taken in cash or
reinvested in additional shares. Distributions of this type to corporate
shareholders of the Fund will not qualify for the dividends- received deduc-
tion because the income of the Fund will not consist of dividends paid by U.S.
corporations.
Distributions of net long-term capital gains in excess of net short-term capi-
tal losses are taxable to shareholders of the Fund as long-term capital gains
regardless of how long a shareholder has held shares in the Fund and regard-
less of
16
<PAGE>
whether taken in cash or reinvested in additional shares. Long-term capital
gains distributions to corporate shareholders are not eligible for the divi-
dends-received deduction.
Any distribution of net investment income or capital gains will have the ef-
fect of reducing the net asset value of Fund shares held by a shareholder by
the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder,
will be taxable as described above.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of
any long-term capital gain distributions received by the shareholder with re-
spect to such shares.
The Fund is subject to foreign withholding taxes with respect to income re-
ceived from sources within certain foreign countries. So long as more than 50%
of the value of the Fund's total assets at the close of any taxable year con-
sists of stock or securities of foreign corporations, the Fund may elect to
treat any such foreign income taxes paid by it as paid directly by its share-
holders. The Fund will make such an election only if it deems it to be in the
best interests of its shareholders and will notify shareholders in writing
each year if it makes the election and of the amount of foreign income taxes
and gross income derived from sources within any foreign country or possession
of the United States, if any, to be treated as paid by the shareholders. If
the Fund makes the election, each shareholder will be required to include in
income his proportionate share of the amount of foreign income taxes paid by
the Fund and will be entitled to claim either a credit (which is subject to
certain limitations) or, if the shareholder itemizes deductions, a deduction
for his share of the foreign income taxes in computing his federal income tax
liability. (No deduction will be permitted to individuals in computing their
alternative minimum tax liability.)
Distributions of foreign exchange gains resulting from certain transactions,
including the sale of foreign currencies, are taxed as ordinary income.
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The finan-
cial statements appearing in annual reports are audited by independent accoun-
tants. Shareholders also will be sent confirmations of each purchase and re-
demption and monthly statements, reflecting all other account activity, in-
cluding dividends and any distributions reinvested in additional shares or
credited as cash.
All shareholders are given the privilege to initiate transactions automati-
cally by telephone upon opening an account. However, an investor should be
aware that a transaction authorized by telephone and reasonably believed to be
genuine by the Fund, Morgan, his Eligible Institution or the Distributor may
subject the investor to risk of loss if such instruction is subsequently found
not to be genuine. The Fund will employ reasonable procedures, including re-
quiring investors to give their Personal Identification Number and tape re-
cording of telephone instructions, to confirm that instructions communicated
from investors by telephone are genuine; if it does not, it, the Shareholder
Servicing Agent, or a shareholder's Eligible Institution may be liable for any
losses due to unauthorized or fraudulent instructions.
The Fund may make historical performance information available and may compare
its performance to other investments or relevant indexes, including data from
Lipper Analytical Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson
Associates, Standard & Poor's Composite Stock Price Index, the Dow Jones In-
dustrial Average, the Frank Russell Indexes, the Morgan Stanley Europe, Aus-
tralia and Far East Index, Morgan Stanley Capital International Europe Index,
the Financial Times World Stock Index and other industry publications.
17
<PAGE>
The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of oper-
ations, if less) assuming that all distributions and dividends by the Fund were
reinvested on the reinvestment dates during the period and less all recurring
fees. This method of calculating total return is required by regulations of the
Securities and Exchange Commission. Total return data similarly calculated, un-
less otherwise indicated, over other specified periods of time may also be
used. See Performance Data in the Statement of Additional Information. All per-
formance figures are based on historical earnings and are not intended to indi-
cate future performance. Performance information may be obtained by calling the
Fund's Distributor at (800) 847-9487.
18
<PAGE>
APPENDIX
The Portfolio may (a) purchase and sell (write) exchange traded and over-the-
counter put and call options on equity securities or indexes of equity securi-
ties, (b) purchase and sell futures contracts on indexes of equity securities,
and (c) purchase and sell (write) put and call options on futures contracts on
indexes of equity securities. Each of these instruments is a derivative instru-
ment, as its value derives from the underlying asset or index.
The Portfolio may use futures contracts and options for hedging and risk man-
agement purposes. See Risk Management in the Statement of Additional Informa-
tion. The Portfolio may not use futures contracts and options for speculation.
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio ob-
tains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays
the current market price for the option (known as the option premium). Options
have various types of underlying instruments, including specific securities,
indexes of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by al-
lowing it to expire or by exercising the option. The Portfolio may also close
out a put option position by entering into an offsetting transaction, if a liq-
uid market exists. If the option is allowed to expire, the Portfolio will lose
the entire premium it paid. If the Portfolio exercises a put option on a secu-
rity, it will sell the instrument underlying the option at the strike price. If
the Portfolio exercises an option on an index, settlement is in cash and does
not involve the actual sale of securities. If an option is American style, it
may be exercised on any day up to its expiration date. A European style option
may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the in-
strument underlying the option does not fall enough to offset the cost of pur-
chasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase,
rather than sell, the instrument underlying the option at the option's strike
price. A call buyer typically attempts to participate in potential price in-
creases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect
to suffer a loss if security prices do not rise sufficiently to offset the cost
of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put option,
it takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the instrument underlying the option if the other party to
the option chooses to exercise it. The Portfolio may seek to terminate its po-
sition in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a
put option the Portfolio has written, however, the Portfolio must continue to
be prepared to pay the strike price while the option is outstanding, regardless
of price changes, and must continue to post margin as discussed below.
If the price of the underlying instrument rises, a put writer would generally
expect to profit, although its gain would be limited to the amount of the pre-
mium it received. If security prices remain the same over time, it is likely
that the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would expect
to suffer a loss. This loss should be less than the loss from purchasing and
holding the underlying instrument directly, however, because the premium re-
ceived for writing the option should offset a portion of the decline.
Writing a call option obligates the Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the op-
tion. The characteristics of writing call options are similar to those of writ-
ing put options,
A-1
<PAGE>
except that writing calls generally is a profitable strategy if prices remain
the same or fall. Through receipt of the option premium a call writer offsets
part of the effect of a price decline. At the same time, because a call writer
must be prepared to deliver the underlying instrument in return for the strike
price, even if its current value is greater, a call writer gives up some abil-
ity to participate in security price increases.
The writer of an exchange traded put or call option on a security, an index of
securities or a futures contract is required to deposit cash or securities or a
letter of credit as margin and to make mark to market payments of variation
margin as the position becomes unprofitable.
OPTIONS ON INDEXES. The Portfolio may purchase and sell (write) put and call
options on any securities index based on securities in which the Portfolio may
invest. Options on securities indexes are similar to options on securities, ex-
cept that the exercise of securities index options is settled by cash payment
and does not involve the actual purchase or sale of securities. In addition,
these options are designed to reflect price fluctuations in a group of securi-
ties or segment of the securities market rather than price fluctuations in a
single security. The Portfolio, in purchasing or selling index options, is sub-
ject to the risk that the value of its portfolio securities may not change as
much as an index because the Portfolio's investments generally will not match
the composition of an index.
For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an over-the-counter option, it will be rely-
ing on its counterparty to perform its obligations, and the Portfolio may incur
additional losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When the Portfolio purchases a futures contract, it agrees to purchase a speci-
fied quantity of an underlying instrument at a specified future date or to make
a cash payment based on the value of a securities index. When the Portfolio
sells a futures contract, it agrees to sell a specified quantity of the under-
lying instrument at a specified future date or to receive a cash payment based
on the value of a securities index. The price at which the purchase and sale
will take place is fixed when the Portfolio enters into the contract. Futures
can be held until their delivery dates or the position can be (and normally is)
closed out before then. There is no assurance, however, that a liquid market
will exist when the Portfolio wishes to close out a particular position.
When the Portfolio purchases a futures contract, the value of the futures con-
tract tends to increase and decrease in tandem with the value of its underlying
instrument. Therefore, purchasing futures contracts will tend to increase the
Portfolio's exposure to positive and negative price fluctuations in the under-
lying instrument, much as if it had purchased the underlying instrument direct-
ly. When the Portfolio sells a futures contract, by contrast, the value of its
futures position will tend to move in a direction contrary to the value of the
underlying instrument. Selling futures contracts, therefore, will tend to off-
set both positive and negative market price changes, much as if the underlying
instrument had been sold.
The purchaser or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, when the Portfolio buys or sells a futures contract it will be
required to deposit "initial margin" with its Custodian in a segregated account
in the name of its futures broker, known as a futures commission merchant
(FCM). Initial margin deposits are typically equal to a small percentage of the
contract's value. If the value of either party's position declines, that party
will be required to make additional "variation margin" payments equal to the
change in value on a daily basis. The party that has a gain may be entitled to
receive all or a portion of this amount. The Portfolio may be obligated to make
payments of variation margin at a time when it is disadvantageous to do so.
Furthermore, it may not always be possible for the Portfolio to close out its
futures positions. Until it closes out a futures position, the Portfolio will
be obligated to continue to pay variation margin. Initial and variation margin
pay-
A-2
<PAGE>
ments do not constitute purchasing on margin for purposes of the Portfolio's
investment restrictions. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.
The Portfolio will segregate liquid, high quality assets in connection with its
use of options and futures contracts to the extent required by the staff of the
Securities and Exchange Commission. 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 the Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
For further information about the Portfolio's use of futures and options and a
more detailed discussion of associated risks, see Investment Objectives and
Policies in the Statement of Additional Information.
A-3
<PAGE>
-----------------------------------
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 offer in such jurisdiction.
The JPM Institutional European
Equity Fund
PROSPECTUS
, 1995
<PAGE>
PROSPECTUS
The JPM Institutional Japan Equity Fund
6 St. James Avenue
Boston, Massachusetts 02116
For information call (800) 766-7722
The JPM Institutional Japan Equity Fund (the "Fund") seeks to provide a high
total return from a portfolio of equity securities of Japanese companies. The
Fund is designed for investors who want an actively managed portfolio of Japa-
nese equity securities that seeks to outperform the Tokyo Stock Price Index
("TOPIX"), a composite market-capitalization weighted index of all common
stocks listed on the First Section of the Tokyo Stock Exchange.
The Fund is a non-diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The JPM Insti-
tutional Funds, an open-end management investment company organized as a Massa-
chusetts business trust (the "Trust").
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO
OF SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING
ALL OF ITS INVESTABLE ASSETS IN THE JAPAN EQUITY PORTFOLIO (THE "PORTFOLIO"), A
CORRESPONDING NON-DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT COMPANY HAVING THE
SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND INVESTS IN THE PORTFOLIO
THROUGH SIGNATURE FINANCIAL GROUP, INC.'S HUB AND SPOKE(R) FINANCIAL SERVICES
METHOD. HUB AND SPOKE(R) EMPLOYS A TWO-TIER MASTER-FEEDER STRUCTURE AND IS A
REGISTERED SERVICE MARK OF SIGNATURE FINANCIAL GROUP, INC. SEE SPECIAL
INFORMATION CONCERNING HUB AND SPOKE(R) ON PAGE 2.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or the "Advisor").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and it should be retained
for future reference. Additional information about the Fund has been filed with
the Securities and Exchange Commission in a Statement of Additional Information
dated , 1995 (as 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, Signature Broker-Dealer Services, Inc., 6
St. James Avenue, Boston, Massachusetts 02116, Attention: The JPM Institutional
Funds, or by calling (800) 847-9487.
INVESTMENTS IN THE FUND 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 FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE
HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
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 , 1995.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund Is Designed.................................... 1
Special Information Concerning Hub and Spoke(R)............................ 2
Investment Objective and Policies.......................................... 3
Additional Investment Information and Risk Factors......................... 5
Investment Restrictions.................................................... 10
Management of the Trust and the Portfolio.................................. 10
Shareholder Servicing...................................................... 13
Purchase of Shares......................................................... 13
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Redemption of Shares....................................................... 14
Exchange of Shares......................................................... 15
Dividends and Distributions................................................ 15
Net Asset Value............................................................ 15
Organization............................................................... 16
Taxes...................................................................... 16
Additional Information..................................................... 17
Appendix................................................................... A-1
</TABLE>
<PAGE>
The JPM Institutional Japan Equity Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed for investors who seek to broaden their investments by
adding exposure to Japanese equity securities. The Fund seeks to achieve its
investment objective by investing all of its investable assets in The Japan
Equity Portfolio, a non-diversified open-end management investment company
having the same investment objective as the Fund. Since the investment
characteristics and experience of the Fund will correspond directly with those
of the Portfolio, the discussion in this Prospectus focuses on the investments
and investment policies of the Portfolio. The net asset value of shares in the
Fund fluctuates with changes in the value of the investments in the Portfolio.
The Portfolio may make various types of investments in seeking its objective.
Among the permissible investments and investment techniques for the Portfolio
are futures contracts, options and forward contracts on foreign currencies. The
potential risks of investing in these derivative instruments are discussed in
Additional Investment Information and Risk Factors and the Appendix. The
Portfolio may also purchase certain privately placed securities. The
Portfolio's investments in securities of Japanese issuers involve foreign
investment risks and may be more volatile and less liquid than domestic
securities. For further information about these investments, see Investment
Objective and Policies below.
The Fund requires a minimum initial investment of $1 million. The minimum
subsequent investment is $25,000. See Purchase of Shares. If a shareholder
reduces his or her investment in the Fund to less than $1 million for more than
30 days, the investment will be subject to mandatory redemption. See Redemption
of Shares--Mandatory Redemption by the Fund.
This Prospectus describes the investment objective and policies, management and
operation of the Fund to enable investors to decide if the Fund suits their
needs. The Fund operates through Signature Financial Group, Inc.'s
("Signature") Hub and Spoke(R) financial services method. The Trustees believe
that the Fund may achieve economies of scale over time by investing through Hub
and Spoke(R).
The following table illustrates that investors in the Fund incur no shareholder
transaction expenses; their investment in the Fund is subject only to the
operating expenses set forth below for the Fund and the Portfolio, as a
percentage of average net assets of the Fund. The Trustees of the Trust believe
that the aggregate per share expenses of the Fund and the Portfolio will be
approximately equal to and may be less than the expenses that the Fund would
incur if it retained the services of an investment adviser and invested its
assets directly in portfolio securities. Fund and Portfolio expenses are
discussed below under the headings Management of the Trust and the Portfolio
and Shareholder Servicing.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases............................................ None
Sales Load Imposed on Reinvested Dividends................................. None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
1
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees............................................................. 0.65%
Rule 12b-1 Fees........................................................... None
Other Expenses (after expense reimbursement).............................. 0.40%
----
Total Operating Expenses (after expense reimbursement).................... 1.05%
</TABLE>
*These expenses are based on estimated expenses of the Fund and the Portfolio
and estimated average net assets for the Fund's first fiscal year, after any
applicable expense reimbursement. Without such expected reimbursement, the es-
timated Total Operating Expenses would be equal on an annual basis (after ap-
plication of state blue expense limitations) to % of the estimated average
net assets of the Fund. See Management of the Trust and the Portfolio.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year..................................................................... $ 11
3 Years.................................................................... $ 33
</TABLE>
The above expense table is designed to assist investors in understanding the
various estimated direct and indirect costs and expenses that investors in the
Fund bear. The estimated fees and expenses included in Other Expenses are the
fees paid to Morgan under the Shareholder Servicing and Financial and Fund
Accounting Services Agreements, organizational expenses, the fees paid to
Pierpont Group, Inc. un- der the Fund Services Agreements, the fees paid to the
Administrator, the fees paid to State Street Bank and Trust Company as custodian
and transfer agent, and other fees and expenses described under Management of
the Trust and the Portfo- lio--Expenses. For a more detailed description of
contractual fee arrangements, including expense reimbursements, and of the fees
and expenses included in Other Expenses, see Management of the Trust and the
Portfolio and Shareholder Servicing. In connection with the above example,
please note that $1,000 is less than the Fund's minimum investment requirement
and that there are no re- demption or exchange fees of any kind. See Purchase of
Shares and Redemption of Shares. THE EXAMPLE IS HYPOTHETICAL; IT IS INCLUDED
SOLELY FOR ILLUSTRATIVE PURPOSES. IT SHOULD NOT BE CONSIDERED A REPRESENTATION
OF FUTURE PERFORMANCE; ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The Fund's annual report will include a discussion of those factors, strategies
and techniques that materially affected its performance during the period of
the report, as well as certain related information. A copy of the Fund's annual
report will be made available without charge upon request.
SPECIAL INFORMATION CONCERNING HUB AND SPOKE(R)
The Trust and the Portfolio use certain proprietary rights, know-how and finan-
cial services referred to as Hub and Spoke(R). Hub and Spoke(R) is a registered
service mark of Signature. Signature Broker-Dealer Services, Inc. (the Trust's
and Portfolio's Administrator and the Trust's Distributor) is a wholly owned
subsidiary of Signature.
Unlike other mutual funds which directly acquire and manage their own portfolio
of securities, the Fund is an open-end management investment company which
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio, a separate registered investment company with the same
investment objective as the Fund. The investment objective of the Fund or Port-
folio may be changed only with the approval of the holders of the outstanding
shares of the Fund and the Portfolio.
The master-feeder structure has been developed relatively recently, so share-
holders should carefully consider this investment approach.
2
<PAGE>
In addition to selling a beneficial interest to the Fund, the Portfolio may
sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions
and will pay a proportionate share of the Portfolio's expenses. However, the
other investors investing in the Portfolio may sell shares of their own fund
using a different pricing structure than the Fund. Such different pricing
structures may result in differences in returns experienced by investors in
other funds that invest in the Portfolio. Such differences in returns are not
uncommon and are present in other mutual fund structures. Information concern-
ing other holders of interests in the Portfolio is available from the Adminis-
trator at (800) 847-9487.
The Trust may withdraw the investment of the Fund from the Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same invest-
ment objective and restrictions as the Fund or the retaining of an investment
adviser to manage the Fund's assets in accordance with the investment policies
described below with respect to the Portfolio.
Certain changes in the Portfolio's investment objective, policies or restric-
tions, or a failure by the Fund's shareholders to approve a change in the Port-
folio's investment objective or restrictions, may require withdrawal of the
Fund's interest in the Portfolio. Any such withdrawal could result in a distri-
bution in kind of portfolio securities (as opposed to a cash distribution) from
the Portfolio which may or may not be readily marketable. The distribution in
kind may result in the Fund having a less diversified portfolio of investments
or adversely affect the Fund's liquidity, and the Fund could incur brokerage,
tax or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in the Portfolio may be materially affected by the ac-
tions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns. Addition-
ally, because the Portfolio would become smaller, it may become less diversi-
fied, resulting in potentially increased portfolio risk (however, these possi-
bilities also exist for traditionally structured funds which have large or in-
stitutional investors who may withdraw from a fund). Also, funds with a greater
pro rata ownership in the Portfolio could have effective voting control of the
operations of the Portfolio. Whenever the Fund is requested to vote on matters
pertaining to the Portfolio (other than a vote by the Fund to continue the op-
eration of the Portfolio upon the withdrawal of another investor in the Portfo-
lio), the Trust will hold a meeting of shareholders of the Fund and will cast
all of its votes proportionately as instructed by the Fund's shareholders. The
Trust will vote the shares held by Fund shareholders who do not give voting in-
structions in the same proportion as the shares of Fund shareholders who do
give voting instructions. Shareholders of the Fund who do not vote will have no
effect on the outcome of such matters.
For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Additional Investment In-
formation and Risk Factors and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment Restric-
tions.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and the Portfolio is described below,
together with the policies they employ in their efforts to achieve this
objective. Additional information about the investment policies of the Fund and
the Portfolio appears in the Statement of Additional Information under
Investment Objectives and Policies. There can be no assurance that the
investment objective of the Fund or the Portfolio will be achieved.
3
<PAGE>
The Fund's investment objective is to provide a high total return from a port-
folio of equity securities of Japanese companies. Total return will consist of
realized and unrealized capital gains and losses plus income. The Fund attempts
to achieve its investment objective by investing all of its investable assets
in The Japan Equity Portfolio, a non-diversified open-end management investment
company having the same investment objective as the Fund.
The Fund is designed for investors who want an actively managed portfolio of
Japanese equity securities that seeks to outperform the Tokyo Stock Price Index
("TOPIX"), a composite market-capitalization weighted index of all common
stocks listed on the First Section of the Tokyo Stock Exchange. THE FUND DOES
NOT REPRESENT A COMPLETE INVESTMENT PROGRAM NOR IS THE FUND SUITABLE FOR ALL
INVESTORS.
A Japanese company is one that: (i) has its principal securities trading market
in Japan; or (ii) is organized under the laws of Japan; or (iii) derives 50% or
more of its total revenues and/or profits from either goods produced, sales
made or services performed in Japan; or (iv) has at least 50% of its assets lo-
cated in Japan.
Morgan seeks to enhance the Portfolio's total return relative to that of the
TOPIX through fundamental research, stock valuation and the exploitation of un-
derlying market inefficiencies. Based on internal fundamental research, Morgan
uses a proprietary valuation model to establish the relative valuation of indi-
vidual Japanese companies within industrial sectors. Morgan then buys and sells
securities within each industrial sector based on this valuation process. In
addition to stocks, the Advisor actively uses convertible securities and war-
rants to seek to enhance overall portfolio performance.
In addition, Morgan uses a disciplined portfolio construction process to seek
to reduce the Portfolio's volatility relative to the TOPIX. Morgan attempts to
keep the industrial sector weightings, the average market capitalization and
other broad characteristics of the Portfolio comparable to those of the TOPIX.
The Portfolio intends to manage its portfolio actively in pursuit of its in-
vestment objective. The Portfolio does not intend to respond to short-term mar-
ket fluctuations or to acquire securities for the purpose of short-term trad-
ing; however, it may take advantage of short-term trading opportunities that
are consistent with its objective. To the extent the Portfolio engages in
short-term trading, it may realize short-term capital gains or losses and incur
increased transaction costs. See Taxes below. The estimated annual portfolio
turnover rate for the Portfolio is generally not expected to exceed 100%.
The Portfolio's equity investments will be primarily denominated in yen, but
the Portfolio may also invest in securities denominated in other foreign cur-
rencies, the U.S. dollar or multinational currency units such as the ECU. The
Advisor will not routinely attempt to hedge the Portfolio's foreign currency
exposure. However, the Advisor may from time to time engage in foreign currency
exchange transactions if, based on fundamental research, technical factors, and
the judgment of experienced currency managers, it believes the transactions
would be in the Portfolio's best interest. For further information on foreign
currency exchange transactions, see Additional Investment Information and Risk
Factors.
EQUITY INVESTMENTS. In normal circumstances, the Advisor intends to keep the
Portfolio essentially fully invested with at least 65% of the Portfolio's total
assets invested in equity securities of Japanese companies consisting of common
stocks and other securities with equity characteristics comprised of preferred
stock, warrants, rights, convertible securities, trust certificates, limited
partnership interests and equity participations. The Portfolio's primary equity
investments are the common stock of established Japanese companies. The common
stock in which the Portfolio may invest includes the common stock of any class
or series or any similar equity interest, such as trust or limited partnership
interests. These equity investments may or may not pay dividends and may or may
not carry voting rights. The Portfolio invests in securities listed on foreign
or domestic securities exchanges and securities traded in foreign or domestic
over-the-counter ("OTC") markets, and may invest in certain restricted or un-
listed securities.
4
<PAGE>
NON-DIVERSIFICATION. The Portfolio is registered as a non-diversified invest-
ment company which means that the Portfolio is not limited by the Investment
Company Act of 1940 (the "1940 Act") in the proportion of its assets that may
be invested in the obligations of a single issuer. Thus, the Portfolio may in-
vest a greater proportion of its assets in the securities of a smaller number
of issuers and, as a result, may be subject to greater risk with respect to its
portfolio securities. The Portfolio, however, will comply with the diversifica-
tion requirements imposed by the Internal Revenue Code of 1986, as amended (the
"Code"), for qualification as a regulated investment company. See Taxes below.
The Portfolio may also invest in money market instruments denominated in U.S.
dollars and other currencies, purchase securities on a when-issued or delayed
delivery basis, enter into repurchase and reverse repurchase agreements, loan
its portfolio securities, purchase certain privately placed securities and en-
ter into forward foreign currency exchange contracts. In addition, the Portfo-
lio may use options on securities and indexes of securities, futures contracts
and options on futures contracts for hedging and risk management purposes. For-
ward foreign currency exchange contracts, options and futures contracts are de-
rivative instruments. For a discussion of these investments and investment
techniques, see Additional Investment Information and Risk Factors.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
INVESTING IN JAPAN. Investing in Japanese securities may involve the risks as-
sociated with investing in foreign securities generally. See Other Foreign In-
vestment Information. In addition, because the Portfolio invests primarily in
Japan, it will be subject to the general economic and political conditions in
Japan.
Share prices of companies listed on Japanese stock exchanges and on the Japa-
nese OTC market reached historical peaks (which were later referred to as the
"bubble") as well as historically high trading volumes in 1989 and 1990. Since
then, stock prices in both markets decreased significantly, with listed stock
prices reaching their lowest levels in the third quarter of 1992 and OTC stock
prices reaching their lowest levels in the fourth quarter of 1992. During the
period from January 1, 1989 through December 31, 1994, the highest Nikkei stock
average and Nikkei OTC average were 38,915.87 and 4,149.20, respectively, and
the lowest for each were 14,309.41 and 1,099.32, respectively. There can be no
assurance that additional market corrections will not occur.
The common stocks of many Japanese companies continue to trade at high price
earnings ratios in comparison with those in the United States, even after the
recent market decline. Differences in accounting methods make it difficult to
compare the earnings of Japanese companies with those of companies in other
countries, especially the United States.
Since the Portfolio invests primarily in securities denominated in yen, changes
in exchange rates between the U.S. dollar and the yen affect the U.S. dollar
value of the Portfolio's assets. Such rate of exchange is determined by forces
of supply and demand on the foreign exchange markets. These forces are in turn
affected by the international balance of payments and other economic, political
and financial conditions, government intervention, speculation and other fac-
tors. See Foreign Currency Exchange Transactions.
Japanese securities held by the Portfolio are not registered with the U.S. Se-
curities and Exchange Commission nor are the issuers thereof subject to its re-
porting requirements. There may be less publicly available information about
issuers of Japanese securities than about U.S. companies and such issuers may
not be subject to accounting, auditing and financial reporting standards and
requirements comparable to those to which U.S. companies are subject.
Although the Japanese economy has grown substantially over the past four de-
cades, recently the rate of growth had slowed substantially. During 1991, 1992
and 1993, the Japanese economy grew at rates of 4.3%, 1.1% and 0.1%, respec-
tively, as measured by real gross domestic product. For additional information
about the Japanese economy, see Appendix B--Investing in Japan and Asian Growth
Markets--Japan and its Securities Markets in the Statement of Additional Infor-
mation.
5
<PAGE>
Japan's success in exporting its products has generated a sizeable trade sur-
plus. Such trade surplus has caused tensions at times between Japan and some
of its trading partners. In particular, Japan's trade relations with the
United States have recently been the subject of discussion and negotiation be-
tween the two nations. The United States has imposed certain measures designed
to address trade issues in specific industries. These measures and similar
measures in the future may adversely affect the performance of the Portfolio.
Japan's economy has typically exhibited low inflation and low interest rates.
There can be no assurance that low inflation and low interest rates will con-
tinue, and it is likely that a reversal of such factors would adversely affect
the Japanese
economy. Moreover, the Japanese economy may differ, favorably or unfavorably,
from the U.S. economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resources, self-sufficiency and bal-
ance of payments position.
Japan has a parliamentary form of government. In 1993 a coalition government
was formed which, for the first time since 1955, did not include the Liberal
Democratic Party. Since mid-1993, there have been several changes in leader-
ship in Japan. What, if any, effect the current political situation will have
on prospective regulatory reforms on the economy in Japan cannot be predicted.
Recent and future developments in Japan and neighboring Asian countries may
lead to changes in policy that might adversely affect the Portfolio. For addi-
tional information, see Appendix B--Investing in Japan and Asian Growth Mar-
kets--Japan and its Securities Markets in the Statement of Additional
Information.
OTHER FOREIGN INVESTMENT INFORMATION. The Portfolio invests primarily in for-
eign securities. Investment in securities of foreign issuers involves somewhat
different investment risks from those affecting securities of U.S. domestic
issuers. There may be limited publicly available information with respect to
foreign issuers, and foreign issuers are not generally subject to uniform ac-
counting, auditing and financial standards and requirements comparable to
those applicable to domestic companies. Interest paid by foreign issuers may
be subject to withholding and other foreign taxes which may decrease the net
return on foreign investments as compared to interest paid to the Portfolio by
domestic companies.
Investors should realize that the value of the Portfolio's investments in for-
eign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation, na-
tionalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or depre-
ciation of portfolio securities and could favorably or unfavorably affect the
Portfolio's operations. Furthermore, the economies of individual foreign na-
tions may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital re-
investment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign is-
suer. Any foreign investments made by the Portfolio must be made in compliance
with U.S. and foreign currency restrictions and tax laws restricting the
amounts and types of foreign investments.
The Portfolio may invest in securities of foreign issuers directly or in the
form of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") or other similar securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities they
represent. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying foreign securities. Certain such insti-
tutions issuing ADRs may not be sponsored by the issuer of the underlying for-
eign securities. A non-sponsored depository may not provide the same share-
holder information that a sponsored depository is required to provide under
its contractual arrangements with the issuer of the underlying foreign securi-
ties. EDRs are receipts issued by a European financial institution evidencing
a similar arrangement. Generally, ADRs, in registered form, are designed for
use in the U.S. securities markets, and EDRs, in bearer form, are designed for
use in European securities markets.
Since the Portfolio's investments in foreign securities involve foreign cur-
rencies, the value of its assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. See Foreign Currency Exchange Trans-
actions.
6
<PAGE>
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and sells
securities and receives interest and dividends in currencies other than the
U.S. dollar--principally yen--the Portfolio may enter from time to time into
foreign currency exchange transactions. The Portfolio either enters into these
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or uses forward contracts to purchase or sell
foreign currencies. The cost of the Portfolio's spot currency exchange transac-
tions is generally the difference between the bid and offer spot rate of the
currency being purchased or sold.
A forward foreign currency exchange contract is an obligation by the Portfolio
to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying the contract. These contracts are entered into in
the interbank market directly between currency traders (usually large commer-
cial banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement and is traded at a net price without com-
mission. The Portfolio will not enter into forward contracts for speculative
purposes. Neither spot transactions nor forward foreign currency exchange con-
tracts eliminate fluctuations in the prices of the Portfolio's securities or in
foreign exchange rates, or prevent loss if the prices of these securities
should decline.
The Portfolio may enter into foreign currency exchange transactions in an at-
tempt to protect against changes in foreign currency exchange rates between the
trade and settlement dates of specific securities transactions or anticipated
securities transactions. The Portfolio may also enter into forward contracts to
hedge against a change in foreign currency exchange rates that would cause a
decline in the value of existing investments denominated or principally traded
in a foreign currency. To do this, the Portfolio would enter into a forward
contract to sell the foreign currency in which the investment is denominated or
principally traded in exchange for U.S. dollars or in exchange for another for-
eign currency. The Portfolio will only enter into forward contracts to sell a
foreign currency in exchange for another foreign currency if the Advisor ex-
pects the foreign currency purchased to appreciate against the U.S. dollar.
Although these transactions are intended to minimize the risk of loss due to a
decline in the value of the hedged cur- rency, at the same time they limit any
potential gain that might be realized should the value of the hedged currency
increase. In addition, forward contracts that convert a foreign currency into
another foreign currency will cause the Portfolio to assume the risk of fluctu-
ations in the value of the currency purchased against the hedged currency and
the U.S. dollar. The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible because the fu-
ture value of such securities in foreign currencies will change as a conse-
quence of market movements in the value of such securities between the date the
forward contract is entered into and the date it matures. The projection of
currency market movements is extremely difficult, and the successful execution
of a hedging strategy is highly uncertain.
CONVERTIBLE SECURITIES. The convertible securities in which the Portfolio 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. Convert-
ible 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.
WARRANTS. The Portfolio invests in warrants, which entitle the holder to buy
common stock from the issuer at a specific price (the strike price) for a spe-
cific period of time. The strike price of warrants sometimes is much lower than
the current market price of the underlying securities, yet warrants are subject
to similar price fluctuations. As a result, warrants may be more volatile in-
vestments than the underlying securities.
Warrants do not entitle the holder to dividends or voting rights with respect
to the underlying securities and do not represent any rights in the assets of
the issuing company. Also the value of the warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to the expiration date.
7
<PAGE>
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase secu-
rities on a when-issued or delayed delivery basis. Delivery of and payment for
these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market fluc-
tuation during this period and for money market instruments no interest ac-
crues to the Portfolio until settlement. At the time of settlement, a when-is-
sued security may be valued at less than its purchase price. The Portfolio
maintains with the Custodian a separate account with a segregated portfolio of
securities in an amount at least equal to these commitments. When entering
into a when-issued or delayed delivery transaction, the Portfolio will rely on
the other party to consummate the transaction; if the other party fails to do
so, the Portfolio may be disadvantaged. It is the current policy of the Port-
folio not to enter into when-issued commitments exceeding in the aggregate 15%
of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement trans-
actions with brokers, dealers or banks that meet the credit guidelines estab-
lished by the Portfolio's Trustees. In a repurchase agreement, the Portfolio
buys a security from a seller that has agreed to repurchase it at a mutually
agreed upon date and price, reflecting the interest rate effective for the
term of the agreement. The term of these agreements is usually from overnight
to one week. A repurchase agreement may be viewed as a fully collateralized
loan of money by the Portfolio to the seller. The Portfolio always receives
securities as collateral with a market value at least equal to the purchase
price plus accrued interest and this value is maintained during the term of
the agreement. If the seller defaults and the collateral value declines, the
Portfolio might incur a loss. If bankruptcy proceedings are commenced with re-
spect to the seller, the Portfolio's realization upon the disposition of col-
lateral may be delayed or limited. Investments in certain repurchase agree-
ments and certain other investments which may be considered illiquid are lim-
ited. See Illiquid Investments; Privately Placed and other Unregistered Secu-
rities below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in an amount up to 33 1/3%
of the value of the Portfolio's net assets. The Portfolio may lend its securi-
ties if such loans are secured continuously by cash or equivalent collateral
or by a letter of credit in favor of the Portfolio 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 Portfolio any in-
come accruing thereon. Loans will be subject to termination by the Portfolio
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 the Portfolio
and its respective investors. The Portfolio may pay reasonable finders' and
custodial fees in connection with a loan. In addition, the Portfolio will con-
sider all facts and circumstances, including the creditworthiness of the bor-
rowing financial institution, and the Portfolio will not make any loans in ex-
cess of one year. The Portfolio will not lend its securities to any officer,
Trustee, Director, employee or other affiliate of the Portfolio, the Advisor
or the Distributor, unless otherwise permitted by applicable law.
REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into re-
verse repurchase agreements. In a reverse repurchase agreement, the Portfolio
sells a security and agrees to repurchase it at a mutually agreed upon date
and price, reflecting the interest rate effective for the term of the agree-
ment. For the purposes of the 1940 Act, it is considered as a form of borrow-
ing by the Portfolio and, therefore, a form of leverage. Leverage may cause
any gains or losses of the Portfolio to be magnified. For more information,
see Investment Objectives and Policies in the Statement of Additional Informa-
tion.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may not acquire any illiquid securities if, as a result thereof,
more than 15% of the market value of the Portfolio's net assets would be in
illiquid investments. Subject to this non-fundamental policy limitation, the
Portfolio may acquire investments that are illiquid or have limited liquidity,
such as private placements or investments that are not registered under the
Securities Act of 1933 (the "1933 Act"). An illiquid investment is any invest-
ment that cannot be disposed of within seven days in the normal
8
<PAGE>
course of business at approximately the amount at which it is valued by the
Portfolio. The price the Portfolio pays for illiquid securities or receives
upon resale may be lower than the price paid or received for similar securities
with a more liquid market. Accordingly the valuation of these securities will
reflect any limitations on their liquidity.
The Portfolio may also purchase Rule 144A securities sold to institutional in-
vestors without registration under the 1933 Act. These securities may be deter-
mined to be liquid in accordance with guidelines established by the Advisor and
approved by the Trustees. The Trustees will monitor the Advisor's implementa-
tion of these guidelines on a periodic basis.
FUTURES AND OPTIONS TRANSACTIONS. The Portfolio may (a) purchase and sell
(write) exchange traded and OTC put and call options on equity securities or
indexes of equity securities, (b) purchase and sell futures contracts on in-
dexes of equity securities, and (c) purchase and sell (write) put and call op-
tions on futures contracts on indexes of equity securities. Each of these in-
struments is a derivative instrument as its value derives from the underlying
asset or index.
The Portfolio may use futures contracts and options for hedging and risk man-
agement purposes. The Portfolio may not use futures contracts and options for
speculation.
The Portfolio may utilize options and futures contracts to manage its exposure
to changing interest rates and/or security prices. Some options and futures
strategies, including selling futures contracts and buying puts, tend to hedge
the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and
return characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Advisor and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which involves
investment strategies and risks different from those associated with ordinary
portfolio securities transactions, and there can be no guarantee that their use
will increase the Portfolio's return. While the use of these instruments by the
Portfolio may reduce certain risks associated with owning its portfolio securi-
ties, these techniques themselves entail certain other risks. If the Advisor
applies a strategy at an inappropriate time or judges market conditions or
trends incorrectly, options and futures strategies may lower the Portfolio's
return. Certain strategies limit the Portfolio's possibilities to realize gains
as well as limiting its exposure to losses. The Portfolio could also experience
losses if the prices of its options and futures positions were poorly corre-
lated with its other investments or if it could not close out its positions be-
cause of an illiquid secondary market. In addition, the Portfolio will incur
transaction costs, including trading commissions and option premiums, in con-
nection with its futures and options transactions and these transactions could
significantly increase the Portfolio's turnover rate.
The Portfolio may purchase put and call options on securities, indexes of secu-
rities and futures contracts, or purchase and sell futures contracts, only if
such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Portfolio's net assets, and (ii) the aggregate margin deposits required on all
such futures or options thereon held at any time do not exceed 5% of the Port-
folio's total assets. In addition, the Portfolio will not purchase or sell
(write) futures contracts, options on futures contracts or commodity options
for risk management purposes if, as a result, the aggregate initial margin and
options premiums required to establish these positions exceed 5% of the net as-
set value of the Portfolio. For more detailed information about these transac-
tions, see the Appendix to this Prospectus and Risk Management in the Statement
of Additional Information.
MONEY MARKET INSTRUMENTS. The Portfolio is permitted to invest in money market
instruments although it intends to stay invested in equity securities to the
extent practical in light of its objective. The Portfolio may invest in money
market instruments of foreign or domestic issuers denominated in U.S. dollars
and other currencies. Under normal cir
9
<PAGE>
cumstances the Portfolio will purchase these securities to invest temporary
cash balances or to maintain liquidity to meet redemptions. However, the Port-
folio may also invest in money market instruments without limitation as a tem-
porary defensive measure taken in the Advisor's judgment during, or in antici-
pation of, adverse market conditions. For more detailed information about
these money market investments, see Investment Objectives and Policies in the
Statement of Additional Information.
INVESTMENT RESTRICTIONS
The investment objective of the Fund and the Portfolio, together with the in-
vestment restrictions described below and in the Statement of Additional In-
formation, except as noted, are deemed fundamental policies, i.e., they may be
changed only with the approval of the holders of a majority of the outstanding
voting securities of the Fund and the Portfolio. The Fund has the same invest-
ment restrictions as the Portfolio, except that the Fund may invest all of its
investable assets in another open-end investment company with the same invest-
ment objective and restrictions (such as the Portfolio). References below to
the Portfolio's investment restrictions also include the Fund's investment re-
strictions.
The Portfolio may not purchase securities or other obligations of issuers con-
ducting their principal business activity in the same industry if its invest-
ments in such industry would exceed 25% of the value of the Portfolio's total
assets, except this limitation shall not apply to investments in U.S. Govern-
ment securities. In addition, the Portfolio may not borrow money except that
the Portfolio may (a) borrow money from banks for temporary or emergency pur-
poses (not for leveraging purposes) and (b) enter into reverse repurchase
agreements for any purpose, provided that (a) and (b) in total do not exceed
one-third of the Portfolio's total assets less liabilities (other than
borrowings); and the Portfolio may not issue senior securities except as per-
mitted by the 1940 Act or any rule, order or interpretation thereunder. See
Additional Investment Information and Risk Factors--Loans of Portfolio Securi-
ties and Reverse Repurchase Agreements.
For a more detailed discussion of the above investment restrictions, as well
as a description of certain other investment restrictions, see Investment Re-
strictions in the Statement of Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the
Portfolio, the Trustees decide upon matters of general policy and review the
actions of the Advisor, Administrator, Distributor, Services Agent, and other
service providers. The Trustees of the Trust and of the Portfolio are identi-
fied below.
<TABLE>
<S> <C>
Frederick S. Addy........... Former Executive Vice President and Chief Financial
Officer, Amoco Corporation
William G. Burns............ Former Vice Chairman of the Board and Chief
Financial Officer, NYNEX Corporation
Arthur C. Eschenlauer....... Former Senior Vice President, Morgan Guaranty Trust
Company of New York
Matthew Healey.............. Chairman and Chief Executive Officer, The JPM
Institutional Funds and The Pierpont Funds;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi......... Senior Vice President, Capital Cities/ABC, Inc.,
President, Broadcast Group
</TABLE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust, the Portfolio
and The Pierpont Funds, up to and including creating a separate board of
trustees. See Trustees and Officers in the Statement of Additional Information
for more information about the Trustees and Officers of the Fund and the Port-
folio.
10
<PAGE>
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pier-
pont Group, Inc. in providing these services. Pierpont Group, Inc. was orga-
nized in 1989 at the request of the Trustees of The Pierpont Family of Funds
for the purpose of providing these services at cost to those funds. See Trust-
ees and Officers in the Statement of Additional Information. The principal of-
fices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New
York 10017.
ADVISOR. The Fund has not retained the services of an investment adviser be-
cause the Fund seeks to achieve its investment objective by investing all of
its investable assets in the Portfolio. The Portfolio has retained the serv-
ices of Morgan as Investment Advisor. Morgan, with principal offices at 60
Wall Street, New York, New York 10260, is a New York trust company which con-
ducts a general banking and trust business. Morgan is a wholly owned subsidi-
ary 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 adviser to individual and institutional cli-
ents with combined assets under management of over $165 billion (of which the
Advisor advises over $26 billion). Morgan provides investment advice and port-
folio management services to the Portfolio. Subject to the supervision of the
Portfolio's Trustees, Morgan makes the Portfolio's day-to-day investment deci-
sions, arranges for the execution of portfolio transactions and generally man-
ages the Portfolio's investments. See Investment Advisor in the Statement of
Additional Information.
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 invested in equity securities of Japanese companies on behalf of
its clients for over a decade and has had a research team in Tokyo since 1972.
The portfolio managers making investments in Japanese equity securities work
in conjunction with Morgan's Japanese equity analysts, as well as capital mar-
ket, credit and economic research analysts, traders and administrative offi-
cers. The Japanese equity analysts, located in Tokyo, each cover a different
industry, monitoring a universe of over 300 Japanese companies.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio (the inception date
of each person's responsibility for the Portfolio and his business experience
for the past five years is indicated parenthetically): Masato Degawa, Vice
President (since August, 1995, employed by Morgan since September, 1993 as a
portfolio manager of Japanese equity investments and by Morgan Stanley prior
to September, 1993 as a senior analyst covering Japanese utilities and special
situations) and Yukiko Sugimoto, Vice President (since March, 1995, employed
by Morgan since prior to 1990 as a portfolio manager of Japanese equity in-
vestments since 1991 and as an account officer for Morgan's Euroclear opera-
tions group prior to 1991).
As compensation for the services rendered and related expenses borne by Morgan
under the Investment Advisory Agreement with the Portfolio, the Portfolio has
agreed to pay Morgan a fee, which is computed daily and may be paid monthly,
at the annual rate of 0.65% of the Portfolio's average daily net assets.
Morgan also acts as Services Agent to the Trust and the Portfolio and provides
shareholder services to shareholders of the Fund. See Services Agent and
Shareholder Servicing below. INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLI-
GATIONS OF, OR GUARANTEED OR ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW
YORK OR ANY OTHER BANK.
ADMINISTRATOR AND DISTRIBUTOR. Under Administration Agreements with the Trust
and the Portfolio, Signature Broker-Dealer Services, Inc. ("SBDS") serves as
the Administrator for the Trust and the Portfolio and in that capacity super-
vises the Fund's and the Portfolio's day-to-day operations other than manage-
ment of the Portfolio's investments. In this capacity, SBDS administers and
manages all aspects of the Fund's and the Portfolio's day-to-day operations
subject to the supervision of the Trustees, except as set forth under Advisor,
Services Agent, Custodian and Shareholder Servicing. In
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connection with its responsibilities as Administrator, SBDS (i) furnishes or-
dinary clerical and related services for day-to-day operations including cer-
tain recordkeeping responsibilities; (ii) takes responsibility for compliance
with all applicable federal and state securities and other regulatory require-
ments; (iii) is responsible for the registration of sufficient Fund shares un-
der federal and state securities laws; (iv) takes responsibility for monitor-
ing the Fund's status as a regulated investment company under the Code; and
(v) performs such administrative and managerial oversight of the activities of
the Trust's and the Portfolio's custodian and transfer agent as the respective
Trustees may direct from time to time.
Under the Trust's Administration Agreement, the annual administration fee rate
is calculated based on the aggregate average daily net assets of The JPM In-
stitutional Funds, as well as The Pierpont Funds and The JPM Advisor Funds,
which are two other families of mutual funds for which SBDS acts as Adminis-
trator. The fee rate is calculated daily in accordance with the following
schedule: 0.040% of the first $1 billion of these funds' aggregate average
daily net assets, 0.032% of the next $2 billion of these funds' aggregate av-
erage daily net assets, 0.024% of the next $2 billion of these funds' aggre-
gate average daily net assets and 0.016% of these funds' aggregate average
daily net assets in excess of $5 billion. This fee rate is then applied to the
net assets of the Fund.
Under the Portfolio's Administration Agreement, the annual administration fee
rate is calculated based on the aggregate average daily net assets of the
Portfolio, as well as all of the other portfolios in which series of The JPM
Institutional Funds, The Pierpont Funds or The JPM Advisor Funds invest. The
fee rate is calculated daily in accordance with the following schedule: 0.010%
of the first $1 billion of these portfolios' aggregate average daily net as-
sets, 0.008% of the next $2 billion of these portfolios' aggregate average
daily net assets, 0.006% of the next $2 billion of these portfolios' aggregate
average daily net assets and 0.004% of these portfolios' aggregate average
daily net assets in excess of $5 billion. This fee rate is then applied to the
net assets of the Portfolio. The Administrator may voluntarily waive a portion
of its fees.
SBDS, a registered broker-dealer, also serves as the Distributor of shares of
the Fund and the Exclusive Placement Agent for the Portfolio. SBDS is a wholly
owned subsidiary of Signature. Signature and its affiliates currently provide
administration and distribution services for a number of registered investment
companies through offices located in Boston, New York, London, Toronto and
George Town, Grand Cayman.
SERVICES AGENT. Under Financial and Fund Accounting Services Agreements with
the Trust and the Portfolio (each a "Services Agreement" and collectively, the
"Services Agreements"), Morgan acts as Services Agent to the Trust and the
Portfolio and is responsible for certain accounting and operational services
provided to the Fund and the Portfolio, including services related to tax re-
turns and financial reports. In the case of the Fund, these services also in-
clude matters related to computing the amount of dividends and the net asset
value per share and keeping the books of account.
The Trust's Services Agreement provides for the Fund to pay Morgan a fee for
these services, which is computed daily and may be paid monthly, at the annual
rate of % of the Fund's average daily net assets. The Portfolio's Services
Agreement provides for the Portfolio to pay Morgan a fee for these services,
which is computed daily and may be paid monthly, at the annual rate of %
of the Portfolio's average daily net assets. Under the Services Agreements,
Morgan may delegate one or more of its responsibilities to other entities, in-
cluding SBDS, at Morgan's expense.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02101, serves as the Fund's and the Portfolio's Custodian and
Transfer and Dividend Disbursing Agent.
EXPENSES. In addition to the fees payable to Pierpont Group, Inc., Morgan and
SBDS under the various agreements discussed under Trustees, Advisor, Adminis-
trator and Distributor, and Services Agent above and Shareholder Servicing be-
low, the Fund and the Portfolio are responsible for certain usual and custom-
ary expenses associated with their respective operations. Such expenses in-
clude organization expenses, legal fees, accounting expenses, insurance costs,
the compensation and expenses of the Trustees, registration fees under federal
securities laws, and extraordinary expenses applicable
12
<PAGE>
to the Fund or the Portfolio. For the Fund, such expenses also include trans-
fer, registrar and dividend disbursing costs, the expenses of printing and
mailing reports, notices and proxy statements to Fund shareholders, and regis-
tration fees under state securities laws. For the Portfolio, such expenses
also include registration fees under foreign securities laws, custodian fees
and brokerage expenses.
Morgan has agreed that it will reimburse the Fund through at least December
31, 1995 to the extent necessary to maintain the Fund's total operating ex-
penses (which includes expenses of the Fund and the Portfolio) at the annual
rate of 1.05% of the Fund's average daily net assets. This limit on expenses
does not cover extraordinary increases in these expenses during the period and
no longer applies in the event of a precipitous decline in assets due to un-
foreseen circumstances. There is no assurance that Morgan will continue this
waiver beyond the specified period, except as required by the following sen-
tence. Morgan has agreed to waive fees as necessary, if in any fiscal year the
sum of the Fund's expenses exceeds the limits set by applicable regulations of
state securities commissions. Such annual limits are currently 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 fis-
cal year.
SHAREHOLDER SERVICING
The Fund has entered into a Shareholder Servicing Agreement with Morgan pursu-
ant to which Morgan acts as shareholder servicing agent for its customers and
other Fund investors who are customers of an eligible institution which is a
customer of Morgan (an "Eligible Institution"). The Fund has agreed to pay
Morgan for these services at an annual rate (expressed as a percentage of the
average daily net asset values of Fund shares owned by or for shareholders for
whom Morgan is acting as shareholder servicing agent) of 0.05% of the Fund's
average daily net assets. Under the terms of the Shareholder Servicing Agree-
ment with the Fund, Morgan may delegate one or more of its responsibilities to
other entities at Morgan's expense.
Shareholders should address all inquiries to J.P. Morgan Funds Services, Mor-
gan Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York
10036 or call (800) 766-7722.
The business days of the Fund and the Portfolio are the days the New York
Stock Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Mor-
gan as shareholder servicing agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as agent for the customer.
All purchase orders must be accepted by the Fund's Distributor. Investors must
be customers of Morgan or an Eligible Institution. Investors may also be em-
ployer-sponsored retirement plans that have designated the Fund as an invest-
ment option for the plans. Prospective investors who are not already customers
of Morgan may apply to become customers of Morgan for the sole purpose of Fund
transactions. There are no charges associated with becoming a Morgan customer
for this purpose. Morgan reserves the right to determine the customers that it
will accept, and the Fund reserves the right to determine the purchase orders
that it will accept.
The Fund requires a minimum initial investment of $1 million and a minimum
subsequent investment of $25,000. These minimum investment requirements may be
waived for certain retirement plans. For purposes of minimum investment re-
quirements, the Fund may aggregate investments by related shareholders.
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<PAGE>
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous ba-
sis without a sales charge at the net asset value per share next determined
after receipt of an order. Prospective investors may purchase shares with the
assistance of another Eligible Institution that may establish its own terms,
conditions and charges.
To purchase shares in the Fund, investors should request their Morgan repre-
sentative (or a representative of their Eligible Institution) to assist them
in placing a purchase order with the Fund's Distributor and to transfer imme-
diately available funds to the Fund's Distributor on the next business day.
Any shareholder may also call J.P. Morgan Funds Services at (800) 766-7722 for
assistance in placing an order for Fund shares. If the Fund receives a pur-
chase order prior to 4:00 P.M. New York time on any business day, the purchase
of Fund shares is effective and is made at the net asset value determined that
day, and the purchaser generally becomes a holder of record on the next busi-
ness day upon the Fund's receipt of payment. If the Fund receives a purchase
order after 4:00 P.M. New York time, the purchase is effective and is made at
the net asset value determined on the next business day, and the purchaser be-
comes a holder of record on the following business day upon the Fund's receipt
of payment.
ELIGIBLE INSTITUTIONS. The services provided by Eligible Institutions may in-
clude establishing and maintaining shareholder accounts, processing purchase
and redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting cli-
ents in changing dividend options, account designations and addresses, provid-
ing periodic statements showing the client's account balance and integrating
these statements with those of other transactions and balances in the client's
other accounts serviced by the Eligible Institution, transmitting proxy state-
ments, periodic reports, updated prospectuses and other communications to
shareholders and, with respect to meetings of shareholders, collecting, tabu-
lating and forwarding executed proxies and obtaining such other information
and performing such other services as Morgan or the Eligible Institution's
clients may reasonably request and agree upon with the Eligible Institution.
Eligible Institutions may separately establish their own terms, conditions and
charges for providing the aforementioned services and for providing other
services.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
Morgan or his Eligible Institution, as appropriate, to submit a redemption re-
quest to the Fund or may telephone J.P. Morgan Funds Services directly at
(800) 766-7722 and give the Shareholder Service Representative a preassigned
shareholder Personal Identification Number and the amount of the redemption.
The Fund executes effective redemption requests at the next determined net as-
set value per share. See Net Asset Value. See Additional Information below for
an explanation of the telephone redemption policy of The JPM Institutional
Funds.
A redemption request received by the Fund prior to 4:00 P.M. New York time is
effective on that day. A redemption request received after that time becomes
effective on the next business day. Proceeds of an effective redemption are
deposited on the next business day in immediately available funds to the
shareholder's account at Morgan or at his Eligible Institution or, in the case
of certain Morgan customers, are mailed by check or wire transferred in accor-
dance with the customer's instructions, and, subject to Further Redemption In-
formation below, in any event is within seven days.
MANDATORY REDEMPTION BY THE FUND. If the value of a shareholder's holdings in
the Fund falls below the Fund's initial investment amount of $1 million for
more than 30 days because of a redemption of shares, the shareholder's remain-
ing shares may be redeemed 60 days after written notice unless the account is
increased to the Fund's minimum investment amount or more.
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions
from the Fund may not be processed if a redemption request is not submitted in
proper form. To be in proper form, the Fund must have received the sharehold-
er's taxpayer identification number and address. As discussed under Taxes be-
low, the Fund may be required to im-
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<PAGE>
pose "back-up" withholding of federal income tax on dividends, distributions
and redemption proceeds when noncorporate investors have not provided a certi-
fied taxpayer identification number. In addition, if a shareholder sends a
check for the purchase of Fund shares and shares are purchased before the
check has cleared, the transmittal of redemption proceeds from the shares will
occur upon clearance of the check which may take up to 15 days.
The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other
periods as the 1940 Act or the Securities and Exchange Commission may permit.
See Redemption of Shares in the Statement of Additional Information.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other JPM Institutional
Fund or Pierpont Fund without charge. An exchange may be made so long as after
the exchange the investor has shares, in each fund in which he or she remains
an investor, with a value of at least each of those fund's minimum investment
amounts. See Method of Purchase in the prospectuses for the other JPM Institu-
tional Funds and The Pierpont Funds for the minimum investment amount for each
of those funds. Shares are exchanged on the basis of relative net asset value
per share. Exchanges are in effect redemptions from one fund and purchases of
another fund and the usual purchase and redemption procedures and requirements
are applicable to exchanges. See Purchase of Shares and Redemption of Shares
in this Prospectus and in the prospectuses for the other JPM Institutional
Funds and The Pierpont Funds. See also Additional Information below for an ex-
planation of the telephone exchange policy of The JPM Institutional Funds.
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income
tax purposes. The Fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state securi-
ties laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
Dividends consisting of substantially all of the Fund's net investment income,
if any, are declared and paid annually. The Fund may also declare an addi-
tional dividend of net investment income in a given year to the extent neces-
sary to avoid the imposition of federal excise tax on the Fund.
Substantially all the realized net capital gains, if any, of the Fund are de-
clared 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. Declared dividends and distribu-
tions are payable to shareholders of record on the record date.
Dividends and capital gains distributions paid by the Fund are automatically
reinvested in additional shares of the Fund unless the shareholder has elected
to have them paid in cash. Dividends and distributions to be paid in cash are
credited to the shareholder's account at Morgan or at his Eligible Institution
or, in the case of certain Morgan customers, are mailed by check in accordance
with the customer's instructions. The Fund reserves the right to discontinue,
alter or limit the automatic reinvestment privilege at any time.
NET ASSET VALUE
Net asset value per share for the Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in the
Portfolio and other assets) the amount of its liabilities and dividing the re-
mainder by the number of its outstanding shares, rounded to the nearest cent.
Expenses, including the fees payable to Morgan, are accrued daily. See Net As-
set Value in the Statement of Additional Information for information on valua-
tion of portfolio securities for the Portfolio.
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<PAGE>
The Fund computes its net asset value once daily at 4:15 P.M. New York time on
Monday through Friday, except on the holidays listed under Net Asset Value in
the Statement of Additional Information.
ORGANIZATION
The Trust was organized on November 4, 1992 as an unincorporated business
trust under Massachusetts law and is an entity commonly known as a "Massachu-
setts business 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. To date, 16 series of shares have been authorized and are avail-
able for sale to the public. Only shares of the Fund are offered through this
Prospectus. No series of shares has any preference over any other series of
shares. See Massachusetts Trust in the Statement of Additional Information.
The Declaration of Trust for the Trust provides that no Trustee, shareholder,
officer, employee, or agent of the Fund shall be held to any personal liabili-
ty, nor shall resort be had to their private property for the satisfaction of
any obligation or claim or otherwise in connection with the affairs of the
Fund, but that the Trust property only shall be liable.
Shareholders of the Fund are entitled to one vote for each share and to the
appropriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and nonassessable by the Fund. The Trust does not intend to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for ac-
tion by shareholder vote as may be required by either the 1940 Act or the Dec-
laration of Trust. The Trustees will call a meeting of shareholders to vote on
removal of a Trustee upon the written request of the record holders of ten
percent of Trust shares and will assist shareholders in communicating with
each other as prescribed in Section 16(c) of the 1940 Act. For further organi-
zation information, including certain shareholder rights, see Description of
Shares in the Statement of Additional Information.
The Portfolio, in which all the assets of the Fund are invested, is a series
(subtrust) of The Series Portfolio, a master trust organized under the laws of
the State of New York. The Series Portfolio's Declaration of Trust provides
that the Fund and other entities investing in the Portfolio (e.g., other in-
vestment companies, insurance company separate accounts and common and commin-
gled trust funds) will each be liable for all obligations of the Portfolio.
However, the risk of the Fund incurring financial loss on account of such lia-
bility is limited to circumstances in which both inadequate insurance existed
and the Portfolio itself was unable to meet its obligations. Accordingly, the
Trustees of the Trust believe that neither the Fund nor its shareholders will
be adversely affected by reason of the Fund's investing in the Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are sub-
ject to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to fed-
eral taxes and with respect to the applicability of state or local taxes. See
Taxes in the Statement of Additional Information. Annual statements as to the
current federal tax status of distributions, if applicable, are mailed to
shareholders after the end of the taxable year for the Fund.
The Trust intends to qualify the Fund as a separate regulated investment com-
pany under Subchapter M of the Code. For the Fund to qualify as a regulated
investment company, the Portfolio limits its investments so that at the close
of each quarter of its taxable year (a) no more than 25% of its total assets
are invested in the securities of any one issuer, except U.S. Government secu-
rities, and (b) with regard to 50% of its total assets, no more than 5% of its
total assets are invested in the securities of a single issuer, except U.S.
Government securities. As a regulated investment company, the Fund should not
be subject to federal income taxes or federal excise taxes if all of its net
investment income and capital gains
16
<PAGE>
less any available capital loss carryforwards are distributed to shareholders
within allowable time limits. The Portfolio intends to qualify as an associa-
tion treated as a partnership for federal income tax purposes. As such, the
Portfolio should not be subject to tax. The Fund's status as a regulated in-
vestment company is dependent on, among other things, the Portfolio's continued
qualification as a partnership for federal income tax purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to noncorporate shareholders.
Distributions of net investment income and realized net short-term capital
gains in excess of net long-term capital losses are taxable as ordinary income
to shareholders of the Fund whether such distributions are taken in cash or re-
invested in additional shares. Distributions of this type to corporate share-
holders of the Fund will not qualify for the dividends- received deduction be-
cause the income of the Fund will not consist of dividends paid by U.S. corpo-
rations.
Distributions of net long-term capital gains in excess of net short-term capi-
tal losses are taxable to shareholders of the Fund as long-term capital gains
regardless of how long a shareholder has held shares in the Fund and regardless
of whether taken in cash or reinvested in additional shares. Long-term capital
gains distributions to corporate shareholders are not eligible for the divi-
dends-received deduction.
Any distribution of net investment income or capital gains will have the effect
of reducing the net asset value of Fund shares held by a shareholder by the
same amount as the distribution. If the net asset value of the shares is re-
duced below a shareholder's cost as a result of such a distribution, the dis-
tribution, although constituting a return of capital to the shareholder, will
be taxable as described above.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term cap-
ital gain or loss if the shares have been held for more than one year, and oth-
erwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect
to such shares.
The Fund is subject to foreign withholding taxes with respect to income re-
ceived from sources within certain foreign countries. So long as more than 50%
of the value of the Fund's total assets at the close of any taxable year con-
sists of stock or securities of foreign corporations, the Fund may elect to
treat any such foreign income taxes paid by it as paid directly by its share-
holders. The Fund will make such an election only if it deems it to be in the
best interests of its shareholders and will notify shareholders in writing each
year if it makes the election and of the amount of foreign income taxes and
gross income derived from sources within any foreign country or possession of
the United States, if any, to be treated as paid by the shareholders. If the
Fund makes the election, each shareholder will be required to include in income
his proportionate share of the amount of foreign income taxes paid by the Fund
and will be entitled to claim either a credit (which is subject to certain lim-
itations) or, if the shareholder itemizes deductions, a deduction for his share
of the foreign income taxes in computing his federal income tax liability. (No
deduction will be permitted to individuals in computing their alternative mini-
mum tax liability.)
Distributions of foreign exchange gains resulting from certain transactions,
including the sale of foreign currencies, are taxed as ordinary income.
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The finan-
cial statements appearing in annual reports are audited by independent accoun-
tants. Shareholders also will be sent confirmations of each purchase and re-
demption and monthly statements, reflecting all other account activity, includ-
ing dividends and any distributions reinvested in additional shares or credited
as cash.
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<PAGE>
All shareholders are given the privilege to initiate transactions automati-
cally by telephone upon opening an account. However, an investor should be
aware that a transaction authorized by telephone and reasonably believed to be
genuine by the Fund, Morgan, his Eligible Institution or the Distributor may
subject the investor to risk of loss if such instruction is subsequently found
not to be genuine. The Fund will employ reasonable procedures, including re-
quiring investors to give their Personal Identification Number and tape re-
cording of telephone instructions, to confirm that instructions communicated
from investors by telephone are genuine; if it does not, it, the Shareholder
Servicing Agent, or a shareholder's Eligible Institution may be liable for any
losses due to unauthorized or fraudulent instructions.
The Fund may make historical performance information available and may compare
its performance to other investments or relevant indexes, including data from
Lipper Analytical Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson
Associates, the TOPIX, Standard & Poor's Composite Stock Price Index, the Dow
Jones Industrial Average, the Frank Russell Indexes, the Morgan Stanley Eu-
rope, Australia and Far East Index, the Financial Times World Stock Index and
other industry publications.
The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of op-
erations, if less) assuming that all distributions and dividends by the Fund
were reinvested on the reinvestment dates during the period and less all re-
curring fees. This method of calculating total return is required by regula-
tions of the Securities and Exchange Commission. Total return data similarly
calculated, unless otherwise indicated, over other specified periods of time
may also be used. See Performance Data in the Statement of Additional Informa-
tion. All performance figures are based on historical earnings and are not in-
tended to indicate future performance. Performance information may be obtained
by calling the Fund's Distributor at (800) 847-9487.
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<PAGE>
APPENDIX
The Portfolio may (a) purchase and sell (write) exchange traded and OTC put and
call options on equity securities or indexes of equity securities, (b) purchase
and sell futures contracts on indexes of equity securities, and (c) purchase
and sell (write) put and call options on futures contracts on indexes of equity
securities. Each of these instruments is a derivative instrument, as its value
derives from the underlying asset or index.
The Portfolio may use futures contracts and options for hedging and risk man-
agement purposes. See Risk Management in the Statement of Additional Informa-
tion. The Portfolio may not use futures contracts and options for speculation.
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio ob-
tains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays
the current market price for the option (known as the option premium). Options
have various types of underlying instruments, including specific securities,
indexes of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by al-
lowing it to expire or by exercising the option. The Portfolio may also close
out a put option position by entering into an offsetting transaction, if a liq-
uid market exists. If the option is allowed to expire, the Portfolio will lose
the entire premium it paid. If the Portfolio exercises a put option on a secu-
rity, it will sell the instrument underlying the option at the strike price. If
the Portfolio exercises an option on an index, settlement is in cash and does
not involve the actual sale of securities. If an option is American style, it
may be exercised on any day up to its expiration date. A European style option
may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the in-
strument underlying the option does not fall enough to offset the cost of pur-
chasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase,
rather than sell, the instrument underlying the option at the option's strike
price. A call buyer typically attempts to participate in potential price in-
creases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect
to suffer a loss if security prices do not rise sufficiently to offset the cost
of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put option,
it takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the instrument underlying the option if the other party to
the option chooses to exercise it. The Portfolio may seek to terminate its po-
sition in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a
put option the Portfolio has written, however, the Portfolio must continue to
be prepared to pay the strike price while the option is outstanding, regardless
of price changes, and must continue to post margin as discussed below.
If the price of the underlying instrument rises, a put writer would generally
expect to profit, although its gain would be limited to the amount of the pre-
mium it received. If security prices remain the same over time, it is likely
that the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would expect
to suffer a loss. This loss should be less than the loss from purchasing and
holding the underlying instrument directly, however, because the premium re-
ceived for writing the option should offset a portion of the decline.
Writing a call option obligates the Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the op-
tion. The characteristics of writing call options are similar to those of writ-
ing put options,
A-1
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except that writing calls generally is a profitable strategy if prices remain
the same or fall. Through receipt of the option premium a call writer offsets
part of the effect of a price decline. At the same time, because a call writer
must be prepared to deliver the underlying instrument in return for the strike
price, even if its current value is greater, a call writer gives up some abil-
ity to participate in security price increases.
The writer of an exchange traded put or call option on a security, an index of
securities or a futures contract is required to deposit cash or securities or a
letter of credit as margin and to make mark to market payments of variation
margin as the position becomes unprofitable.
OPTIONS ON INDEXES. The Portfolio may purchase and sell (write) put and call
options on any securities index based on securities in which the Portfolio may
invest. Options on securities indexes are similar to options on securities, ex-
cept that the exercise of securities index options is settled by cash payment
and does not involve the actual purchase or sale of securities. In addition,
these options are designed to reflect price fluctuations in a group of securi-
ties or segment of the securities market rather than price fluctuations in a
single security. The Portfolio, in purchasing or selling index options, is sub-
ject to the risk that the value of its portfolio securities may not change as
much as an index because the Portfolio's investments generally will not match
the composition of an index.
For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Portfolio may incur additional
losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When the Portfolio purchases a futures contract, it agrees to purchase a speci-
fied quantity of an underlying instrument at a specified future date or to make
a cash payment based on the value of a securities index. When the Portfolio
sells a futures contract, it agrees to sell a specified quantity of the under-
lying instrument at a specified future date or to receive a cash payment based
on the value of a securities index. The price at which the purchase and sale
will take place is fixed when the Portfolio enters into the contract. Futures
can be held until their delivery dates or the position can be (and normally is)
closed out before then. There is no assurance, however, that a liquid market
will exist when the Portfolio wishes to close out a particular position.
When the Portfolio purchases a futures contract, the value of the futures con-
tract tends to increase and decrease in tandem with the value of its underlying
instrument. Therefore, purchasing futures contracts will tend to increase the
Portfolio's exposure to positive and negative price fluctuations in the under-
lying instrument, much as if it had purchased the underlying instrument direct-
ly. When the Portfolio sells a futures contract, by contrast, the value of its
futures position will tend to move in a direction contrary to the value of the
underlying instrument. Selling futures contracts, therefore, will tend to off-
set both positive and negative market price changes, much as if the underlying
instrument had been sold.
The purchaser or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, when the Portfolio buys or sells a futures contract it will be
required to deposit "initial margin" with its Custodian in a segregated account
in the name of its futures broker, known as a futures commission merchant
(FCM). Initial margin deposits are typically equal to a small percentage of the
contract's value. If the value of either party's position declines, that party
will be required to make additional "variation margin" payments equal to the
change in value on a daily basis. The party that has a gain may be entitled to
receive all or a portion of this amount. The Portfolio may be obligated to make
payments of variation margin at a time when it is disadvantageous to do so.
Furthermore, it may not always be possible for the Portfolio to close out its
futures positions. Until it closes out a futures position, the Portfolio will
be obligated to continue to pay variation margin. Initial and variation margin
pay-
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ments do not constitute purchasing on margin for purposes of the Portfolio's
investment restrictions. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.
The Portfolio will segregate liquid, high quality assets in connection with its
use of options and futures contracts to the extent required by the staff of the
Securities and Exchange Commission. 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 the Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
For further information about the Portfolio's use of futures and options and a
more detailed discussion of associated risks, see Investment Objectives and
Policies in the Statement of Additional Information.
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-----------------------------------
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 offer in such jurisdiction.
The JPM Institutional Japan
Equity Fund
PROSPECTUS
, 1995
<PAGE>
JPM454A
THE JPM INSTITUTIONAL FUNDS
THE JPM INSTITUTIONAL MONEY MARKET FUND
THE JPM INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
THE JPM INSTITUTIONAL TREASURY MONEY MARKET FUND
THE JPM INSTITUTIONAL SHORT TERM BOND FUND
THE JPM INSTITUTIONAL BOND FUND
THE JPM INSTITUTIONAL TAX EXEMPT BOND FUND
THE JPM INSTITUTIONAL NEW YORK TOTAL RETURN BOND FUND
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
THE JPM INSTITUTIONAL DIVERSIFIED FUND
THE JPM INSTITUTIONAL SELECTED U.S. EQUITY FUND
THE JPM INSTITUTIONAL U.S. SMALL COMPANY FUND
THE JPM INSTITUTIONAL INTERNATIONAL EQUITY FUND
THE JPM INSTITUTIONAL EMERGING MARKETS EQUITY FUND
THE JPM INSTITUTIONAL EUROPEAN EQUITY FUND
THE JPM INSTITUTIONAL JAPAN EQUITY FUND
THE JPM INSTITUTIONAL ASIA GROWTH FUND
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER , 1995
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 SIGNATURE
BROKER-DEALER SERVICES, INC., ATTENTION: THE JPM INSTITUTIONAL FUNDS;
(800) 847-9487.
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Table of Contents
PAGE
General . . . . . . . . . . . . . . . . . . .
Investment Objectives and Policies . . . . . .
Investment Restrictions . . . . . . . . . . .
Trustees and Officers . . . . . . . . . . . .
Investment Advisor . . . . . . . . . . . . . .
Administrator and Distributor . . . . . . . .
Services Agent . . . . . . . . . . . . . . . .
Custodian . . . . . . . . . . . . . . . . . .
Shareholder Servicing . . . . . . . . . . .
Independent Accountants . . . . . . . . . . .
Expenses . . . . . . . . . . . . . . . . . . .
Purchase of Shares . . . . . . . . . . . . . .
Redemption of Shares . . . . . . . . . . . . .
Exchange of Shares . . . . . . . . . . . . . .
Dividends and Distributions . . . . . . . . .
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 New York Municipal Obligations. . .
Appendix C - Investing in Japan
and Asian Growth Markets. . . . . . . . . . .
<PAGE>
GENERAL
The JPM Institutional Family of Funds is a family of open-end
investment companies, currently consisting of sixteen funds: The JPM
Institutional Money Market Fund, The JPM Institutional Treasury Money Market
Fund, The JPM Institutional Tax Exempt Money Market Fund, The JPM Institutional
Short Term Bond Fund, The JPM Institutional Bond Fund, The JPM Institutional Tax
Exempt Bond Fund, The JPM Institutional International Bond Fund, The JPM
Institutional Diversified Fund, The JPM Institutional New York Total Return Bond
Fund, The JPM Institutional Selected U.S. Equity Fund, The JPM Institutional
U.S. Small Company Fund, The JPM Institutional International Equity Fund, The
JPM Institutional Emerging Markets Equity Fund, The JPM Institutional European
Equity Fund, The JPM Institutional Japan Equity Fund and The JPM Institutional
Asia Growth Fund (collectively, the "Funds"). Each of the Funds
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is a series of The JPM Institutional Funds, an open-end management investment
company formed as a Massachusetts business trust (the "Trust") (where
appropriate, references to the "Trust" refer to the Trust acting on behalf of a
Fund and references to a "Fund" refer to a Fund acting through the Trust).
This Statement of Additional Information describes the financial
history, investment objectives and policies, management and operation of each of
the Funds to enable investors to select the Funds which best suit their needs.
The Funds operate through Signature Financial Group, Inc.'s Hub and Spoke(R)
financial
services method.
This Statement of Additional Information provides additional
information with respect to the Funds, and should be read in conjunction with
the current Prospectus. Capitalized terms not otherwise defined in this
Statement of Additional Information have the meanings accorded to them in the
Funds' Prospectus. The Funds' executive offices are located at 6 St. James
Avenue, Boston, Massachusetts 02116.
INVESTMENT OBJECTIVES AND POLICIES
THE JPM INSTITUTIONAL MONEY MARKET FUND (the "Money Market Fund") is
designed to be an economical and convenient means of making substantial
investments in money market instruments. The Money Market Fund's investment
objective is to maximize current income and maintain a high level of liquidity.
The Fund attempts to achieve this objective by investing all of its investable
assets in The Money Market Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the Money
Market Fund.
The Portfolio seeks to achieve its investment objective by maintaining
a dollar-weighted average portfolio maturity of not more than 90 days and by
investing in U.S. dollar denominated securities described in the Prospectus and
this Statement of Additional Information that meet certain rating criteria,
present minimal credit risk and have effective maturities of not more than
thirteen months. The Portfolio's ability to achieve maximum current income is
affected by its high quality standards. See "Quality and Diversification
Requirements."
THE JPM INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND (the "Tax Exempt
Money Market Fund") is designed to be an economical and convenient means of
making substantial investments in instruments that are exempt from federal
income tax. The Tax Exempt Money Market Fund's investment objective is to
provide a high level of current income that is exempt from federal income tax
and maintain a high level of liquidity. See "Taxes." The Fund attempts to
achieve this objective by investing all of its investable assets in The Tax
Exempt Money Market Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the Tax
Exempt Money Market Fund.
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The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing in U.S. dollar-denominated securities described in the
Prospectus and this Statement of Additional Information that meet certain rating
criteria, present minimal credit risks, have effective maturities of not more
than thirteen months and earn interest wholly exempt from federal income tax in
the opinion of bond counsel for the issuer, but it may invest up to 20% of its
total assets in taxable obligations. See "Quality and Diversification
Requirements." Interest on these securities may be subject to state and local
taxes. For more detailed information regarding tax matters, including the
applicability of the alternative minimum tax, see "Taxes."
THE JPM INSTITUTIONAL TREASURY MONEY MARKET FUND (the "Treasury Money
Market Fund") is designed to be an economical and convenient means of making
substantial investments in short term direct obligations of the U.S. Treasury.
The Treasury Money Market Fund's investment objective is to provide current
income, maintain a high level of liquidity and preserve capital. The Fund
attempts to accomplish this objective by investing all of its investable assets
in The Treasury Money Market Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the
Treasury Money Market Fund.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing in U.S. Treasury securities described in the Prospectus
and in this Statement of Additional Information that have effective maturities
of not more than thirteen months. See "Quality and Diversification
Requirements."
THE JPM INSTITUTIONAL SHORT TERM BOND FUND (the "Short Term Bond Fund")
is designed for investors who place a strong emphasis on conservation of capital
but who also want a return greater than that of a money market fund or other
very low risk investment vehicles. It is appropriate for investors who do not
require the stable net asset value typical of a money market fund but who want
less price fluctuation than is typical of a longer-term bond fund. The Short
Term Bond Fund's investment objective is to provide a high total return while
attempting to limit the likelihood of negative quarterly returns. The Short Term
Bond Fund seeks to achieve this high total return to the extent consistent with
modest risk of capital and the maintenance of liquidity. The Short Term Bond
Fund attempts to achieve its investment objective by investing all of its
investable assets in The Short Term Bond Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Short Term Bond Fund.
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The Portfolio attempts to achieve its investment objective by investing
primarily in the corporate and government debt obligations and related
securities described in the Prospectus and this Statement of Additional
Information.
THE JPM INSTITUTIONAL BOND FUND (the "Bond Fund") is designed to be an
economical and convenient means of making substantial investments in a broad
range of corporate and government debt obligations and related investments of
domestic and foreign issuers, subject to certain quality and other restrictions.
See "Quality and Diversification Requirements." The Bond Fund's investment
objective is to provide a high total return consistent with moderate risk of
capital and maintenance of liquidity. Although the net asset value of the Bond
Fund will fluctuate, the Bond Fund attempts to conserve the value of its
investments to the extent consistent with its objective. The Bond Fund attempts
to achieve its objective by investing all of its investable assets in The U.S.
Fixed Income Portfolio (the "Portfolio"), a diversified open-end management
investment company having the same investment objective as the Bond Fund.
The Portfolio attempts to achieve its investment objective by investing
in high grade corporate and government debt obligations and related securities
of domestic and foreign issuers described in the Prospectus and this Statement
of Additional Information.
INVESTMENT PROCESS
Duration/yield curve management: Morgan's duration decision begins with
an analysis of real yields, which its research indicates are generally a
reliable indicator of longer term interest rate trends. Other factors Morgan
studies in regard to interest rates include economic growth and inflation,
capital flows and monetary policy. Based on this analysis, Morgan forms a view
of the most likely changes in the level and shape of the yield curve -- as well
as the timing of those changes -- and sets the Portfolio's duration and maturity
structure accordingly. Morgan typically limits the overall duration of the
Portfolio to a range between one year shorter and one year longer than that of
the Salomon Brothers Broad Investment Grade Bond Index, the benchmark index.
Sector allocations: Sector allocations are driven by Morgan's
fundamental and quantitative analysis of the relative valuation of a broad array
of fixed income sectors. Specifically, Morgan utilizes market and credit
analysis to assess whether the current risk-adjusted yield spreads of various
sectors are likely to widen or narrow. Morgan then overweights (underweights)
those sectors its analysis indicates offer the most (least) relative value,
basing the speed and magnitude of these shifts on valuation considerations.
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Security selection: Securities are selected by the portfolio manager,
with substantial input from Morgan's fixed income analysts and traders. Using
quantitative analysis as well as traditional valuation methods, Morgan's
applied-research analysts aim to optimize security selection within the bounds
of the Portfolio's investment objective. In addition, credit analysts --
supported by Morgan's equity analysts -- assess the creditworthiness of issuers
and counterparties. A dedicated trading desk contributes to security selection
by tracking new issuance, monitoring dealer inventories, and identifying
attractively priced bonds. The traders also handle all transactions for the
Portfolio.
THE JPM INSTITUTIONAL TAX EXEMPT BOND FUND (the "Tax Exempt Bond Fund")
is designed to be an economical and convenient means of making substantial
investments in debt obligations that are exempt from federal income tax. The Tax
Exempt Bond Fund's investment objective is to provide a high level of current
income exempt from federal income tax consistent with moderate risk of capital
and maintenance of liquidity. See "Taxes." The Fund attempts to achieve its
investment objective by investing all of its investable assets in The Tax Exempt
Bond Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Tax Exempt Bond Fund.
The Portfolio attempts to achieve its investment objective by investing
primarily in securities of states, territories and possessions of the United
States and their political subdivisions, agencies and instrumentalities, the
interest of which is exempt from federal income tax in the opinion of bond
counsel for the issuer, but it may invest up to 20% of its total assets in
taxable obligations. The Tax Exempt Bond Fund seeks to maintain a current yield
that is greater than that obtainable from a portfolio of short term tax exempt
obligations, subject to certain quality restrictions. See "Quality and
Diversification Requirements."
THE JPM INSTITUTIONAL NEW YORK TOTAL RETURN BOND FUND (the "New York
Total Return Bond Fund") is designed to be an economical and convenient means of
investing in a portfolio consisting primarily of debt obligations that are
exempt from federal and New York State income taxes. The New York Total Return
Bond Fund's investment objective is to provide a high after tax total return for
New York residents consistent with moderate risk of capital. Total return will
consist of income plus capital gains and losses. The Fund attempts to achieve
its objective by investing all of its investable assets in The New York Total
Return Bond Portfolio (the "Portfolio"), a non-diversified open-end management
investment company having the same investment objective as the Fund.
The Portfolio attempts to achieve its investment objective by investing
primarily in municipal securities issued by New York State and its political
subdivisions and by agencies, authorities
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<PAGE>
and instrumentalities of New York and its political subdivisions. These
securities earn income exempt from federal and New York State and local income
taxes but, in certain circumstances, may be subject to alternative minimum tax.
In addition, the Portfolio may invest in municipal securities issued by states
other than New York, by territories and possessions of the United States and by
the District of Columbia and their political subdivisions, agencies and
instrumentalities. These securities earn income exempt from federal income taxes
but, in certain circumstances, may be subject to alternative minimum tax. In
order to seek to enhance the Portfolio's after tax return, the Portfolio may
also invest in securities which earn income subject to New York and/or federal
income taxes. These securities include U.S. government securities, corporate
securities and municipal securities issued on a taxable basis.
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND (the "International Bond
Fund") is designed to be an economical and convenient means of making
substantial investments in a broad range of international fixed income
securities. The International Bond Fund's investment objective is to provide a
high total return, consistent with moderate risk of capital, from a portfolio of
international fixed income securities. The International Bond Fund attempts to
achieve its objective by investing all of its investable assets in The Non-U.S.
Fixed Income Portfolio (the "Portfolio"), a non-diversified open-end management
investment company having the same investment objective as the International
Bond Fund.
The Portfolio attempts to achieve its investment objective by investing
primarily in high grade, non-dollar-denominated corporate and government debt
obligations of foreign issuers described in the Prospectus and this Statement of
Additional Information.
INVESTMENT PROCESS
Duration management: The duration decision is central to Morgan's
investment process and begins with an analysis of economic conditions and real
yields in the countries that make up the Portfolio's universe. Based on this
analysis, fixed income portfolio managers forecast three potential paths
(optimistic, pessimistic, and most likely) that interest rates in each market
could follow over the next three and twelve months. These forecasts are
converted into return curves that enable Morgan to estimate the risk-return
profile of different portfolio durations. In each market, duration is set at its
"optimal" level-that is, at the level that Morgan believes will generate the
highest excess return per unit of excess risk, as measured against the
benchmark.
Country allocation: Morgan allocates the Portfolio's assets primarily
among the developed countries of the world outside the United States. Country
allocations are determined through and
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optimization procedure that ranks markets according to the risks and returns
inherent in their "optimal" durations. Country weightings also reflect liquidity
and credit quality considerations. To help contain risk, Morgan typically limits
the country-weighted duration of the Portfolio to a range between one year
shorter and one year longer than that of the benchmark.
Sector/security selection: Holdings primarily consist of government and
government-guaranteed bonds, but also include publicly and privately traded
corporates, debt obligations of banks and bank holding companies and of
supranational organizations, and convertible securities. Sectors are over- or
under-weighted when Morgan perceives significant valuation distortions in their
yield spreads. Securities are selected by the portfolio manager, with
substantial input from fixed income analysts and traders as well as from
Morgan's extended network of equity analysts. Credit analysts monitor the
quality of current and prospective holdings and, in conjunction with the credit
committee, recommend purchases and sales.
THE JPM INSTITUTIONAL DIVERSIFIED FUND (the "Diversified Fund") is
designed for investors who wish to invest for long term objectives such as
retirement and who seek to attain real appreciation in their investments over
the long term, but with somewhat less price fluctuation than a portfolio
consisting solely of equity securities. The Diversified Fund's investment
objective is to provide a high total return from a diversified portfolio of
equity and fixed income securities. The Fund attempts to achieve its investment
objective by investing all of its investable assets in The Diversified
Portfolio, a diversified open-end management investment company having the same
investment objective as the Diversified Fund.
THE JPM INSTITUTIONAL SELECTED U.S. EQUITY FUND (the "Selected U.S.
Equity Fund") is designed for investors who want an actively managed portfolio
of selected equity securities that seeks to outperform the S&P 500 Index. The
Selected U.S. Equity Fund's investment objective is to provide a high total
return from a portfolio of selected equity securities. The Fund attempts to
achieve its investment objective by investing all of its investable assets in
The Selected U.S. Equity Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the
Selected U.S.
Equity Fund.
In normal circumstances, at least 65% of the Portfolio's net assets
will be invested in equity securities consisting of common stocks and other
securities with equity characteristics comprised of preferred stock, warrants,
rights, convertible securities, trust certifications, limited partnership
interests and equity participations (collectively, "Equity Securities"). The
Portfolio's primary equity investments are the common stock of large and medium
sized U.S. corporations and, to a limited extent, similar securities of foreign
corporations.
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INVESTMENT PROCESS
Fundamental research: Morgan's 20 domestic equity analysts, each an
industry specialist with an average of 13 years of experience, follow 700
predominantly large- and medium-sized U.S. companies -- 500 of which form the
universe for the Portfolio's investments. Their research goal is to forecast
normalized, longer term earnings and dividends for the most attractive companies
among those they cover. In doing this, they may work in concert with Morgan's
international equity analysts in order to gain a broader perspective for
evaluating industries and companies in today's global economy.
Systematic valuation: The analysts' forecasts are converted into
comparable expected returns by a dividend discount model, which calculates those
expected returns by comparing a company's current stock price with the "fair
value" price forecasted by its estimated long-term earnings power. Within each
sector, companies are ranked by their expected return and grouped into
quintiles: those with the highest expected returns (Quintile 1) are deemed the
most undervalued relative to their long-term earnings power, while those with
the lowest expected returns (Quintile 5) are deemed the most overvalued.
Disciplined portfolio construction: A diversified portfolio is
constructed using disciplined buy and sell rules. Purchases are concentrated
among first-quintile stocks; the specific names selected reflect the portfolio
manager's judgment concerning the soundness of the underlying forecasts, the
likelihood that the perceived misvaluation will be corrected within a reasonable
time frame, and the magnitude of the risks versus the rewards. Once a stock
falls into the third quintile -- because its price has risen or its fundamentals
have deteriorated -- it generally becomes a sale candidate. The portfolio
manager seeks to hold sector weightings close to those of the S&P 500 Index,
reflecting Morgan's belief that its research has the potential to add value at
the individual stock level, but not at the sector level. Sector neutrality is
also seen as a way to help protect the portfolio from macroeconomic risks, and
--together with diversification -- represents an important element of Morgan's
risk control strategy. Morgan's dedicated trading desk handles all transactions
for the Portfolio.
THE JPM INSTITUTIONAL U.S. SMALL COMPANY FUND (the "U.S. Small Company
Fund") is designed for investors who are willing to assume the somewhat higher
risk of investing in small companies in order to seek a higher return over time
than might be expected from a portfolio of stocks of large companies. The U.S.
Small Company Fund's investment objective is to provide a high total return from
portfolio of Equity Securities of small companies. The Fund attempts to achieve
its investment objective by investing all of its investable assets in The U.S.
Small Company Portfolio (the "Portfolio"), a diversified open-end management
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investment company having the same investment objective as the U.S. Small
Company Fund.
The Portfolio attempts to achieve its investment objective by investing
primarily in the common stock of small U.S. companies included in the Russell
2500 Index, which is composed of 2,500 common stocks of U.S. companies with
market capitalizations ranging between $100 million and $1.5 billion.
INVESTMENT PROCESS
Fundamental research: Morgan's 20 domestic equity analysts -- each an
industry specialist with an average of 13 years of experience -- continuously
monitor the small cap stocks in their respective sectors with the aim of
identifying companies that exhibit superior financial strength and operating
returns. Meetings with management and on-site visits play a key role in shaping
their assessments. Their research goal is to forecast normalized, long-term
earnings and dividends for the most attractive small cap companies among those
they monitor -- a universe that generally contains a total of 300-350 names.
Because Morgan's analysts follow both the larger and smaller companies in their
industries -- in essence, covering their industries from top to bottom -- they
are able to bring broad perspective to the research they do on both.
Systematic valuation: The analysts' forecasts are converted into
comparable expected returns by Morgan's dividend discount model, which
calculates those returns by comparing a company's current stock price with the
"fair value" price forecasted by its estimated long-term earnings power. Within
each industry, companies are ranked by their expected returns and grouped into
quintiles: those with the highest expected returns (Quintile 1) are deemed the
most undervalued relative to their long-term earnings power, while those with
the lowest expected returns (Quintile 5) are deemed the most overvalued.
Disciplined portfolio construction: A diversified portfolio is
constructed using disciplined buy and sell rules. Purchases are concentrated
among the stocks in the top two quintiles of the rankings; the specific names
selected reflect the portfolio manager's judgment concerning the soundness of
the underlying forecasts, the likelihood that the perceived misevaluation will
soon be corrected, and the magnitude of the risks versus the rewards. Once a
stock falls into the third quintile -- because its price has risen or its
fundamentals have deteriorated -- it generally becomes a sale candidate. The
portfolio manager seeks to hold sector weightings close to those of the Russell
2500 Index, the Portfolio's benchmark, reflecting Morgan's belief that its
research has the potential to add value at the individual stock level, but not
at the sector level. Sector neutrality is also seen as a way to help to protect
the portfolio from macroeconomic risks, and -- together with diversification --
represents an important element of Morgan's risk control strategy.
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THE JPM INSTITUTIONAL INTERNATIONAL EQUITY FUND (the "International
Equity Fund") is designed for investors with a long term investment horizon who
want to diversify their portfolios by investing in an actively managed portfolio
of non-U.S. securities that seeks to outperform the Morgan Stanley Europe,
Australia and Far East Index (the "EAFE Index"). The International Equity Fund's
investment objective is to provide a high total return from a portfolio of
Equity Securities of foreign corporations. The Fund attempts to achieve its
investment objective by investing all of its investable assets in The Non-U.S.
Equity Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the International Equity Fund.
The Portfolio seeks to achieve its investment objective by investing
primarily in the Equity Securities of foreign corporations. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing at the same time in a significant number of developed
foreign countries render investments in such countries inadvisable.
INVESTMENT PROCESS
Country allocation: Morgan's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then rank countries according to the size of those
deviations. Countries with high (low) rankings are overweighted (underweighted)
in comparisons to the EAFE Index to reflect the above-average (below-average)
attractiveness of their stock markets. In determining weightings, Morgan
analyzes a variety of qualitative factors as well -- including the liquidity,
earnings momentum and interest rate climate of the market at hand. These
qualitative assessments can change the magnitude but not the direction of the
country allocations called for by the risk premium forecast. Morgan places
limits on the total size of the Portfolio's country over- and under-weightings
relative to the EAFE Index.
Stock selection: Morgan's 44 international equity analysts, each an
industry and country specialist, forecast normalized earnings and dividend
payouts for roughly 1,000 non-U.S. companies -- taking a long-term perspective
rather than the short time frame common to consensus estimates. These forecasts
are converted into comparable expected returns by a dividend discount
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model, and then companies are ranked from most to least attractive by industry
and country. A diversified portfolio is constructed using disciplined buy and
sell rules. The portfolio manager's objective is to concentrate the purchases in
the top third of the rankings, and to keep sector weightings close to those of
the EAFE Index, the Fund's benchmark. Once a stock falls into the bottom third
of the rankings , it generally becomes a sales candidate. Where available,
warrants and convertibles may be purchased instead of common stock if they are
deemed a more attractive means of investing in an undervalued company.
Currency management: Currency is actively managed, in conjunction with
country and stock allocation, with the goal of protecting and possibly enhancing
the Fund's return. Morgan's currency decisions are supported by a proprietary
tactical mode which forecasts currency movements based on an analysis of four
fundamental factors -- trade balance trends, purchasing power parity, real
short-term interest differentials, and real bond yields -- plus a technical
factor designed to improve the timing of transactions. Combining the output of
this model with a subjective assessment of economic political and market
factors, Morgan's currency group recommends currency strategies that are
implemented in conjunction with the portfolio's investment strategy.
THE JPM INSTITUTIONAL EMERGING MARKETS EQUITY FUND (the "Emerging
Markets Equity Fund") is designed for investors with a long term investment
horizon who want exposure to the rapidly growing emerging markets. The Emerging
Markets Equity Fund's investment objective is to provide a high total return
from a portfolio of Equity Securities of companies in emerging markets. The Fund
attempts to achieve its investment objective by investing all of its investable
assets in The Emerging Markets Equity Portfolio (the "Portfolio"), a diversified
open-end management investment company having the same investment objective as
the Emerging Markets Equity Fund.
The Portfolio seeks to achieve its investment objective by investing
primarily in Equity Securities of emerging markets issuers. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing at the same time in a significant number of emerging
markets countries render investments in such countries inadvisable.
INVESTMENT PROCESS
Country allocation: Morgan's country allocation decision begins with a
forecast of the expected return of each market in the Portfolio's universe.
These expected returns are calculated using a proprietary valuation method that
is forward looking in
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nature rather than based on historical data. Morgan then evaluates these
expected returns from two different perspectives: first, it identifies those
countries that have high real expected returns relative to their own history and
other nations in their universe. Second, it identifies those countries that it
expects will provide high returns relative to their currency risk. Countries
that rank highly on one or both of these scores are overweighted relative to the
Fund's benchmark, The IFC Investable Index, while those that rank poorly are
underweighted. To help contain risk, Morgan places limits on the total size of
the Portfolio's country over- and under-weightings.
Stock selection: Morgan's 12 emerging market equity analysts -- each an
industry specialist -- monitor a universe of approximately 900 companies in
these countries, developing forecasts of earnings and cash flows for the most
attractive among them. Companies are ranked from most to least attractive based
on this research, and then a diversified portfolio is constructed using
disciplined buy and sell rules. The portfolio manager's objective is to
concentrate the Portfolio's holdings in the stocks deemed most undervalued, and
to keep sector weightings relatively close to those of the index. Stocks are
generally held until they fall into the bottom half of Morgan's rankings.
THE JPM ADVISOR ASIA GROWTH FUND (the "Asia Growth Fund") is designed
for long-term investors who want access to the rapidly growing Asian markets.
The Asia Growth Fund's investment objective is to provide a high total return
from a portfolio of Equity Securities of companies in Asian growth markets. The
Asia Growth Fund attempts to achieve its investment objective by investing all
its investable assets in The Asia Growth Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Asia Growth Fund. For additional information, see "Appendix C
-Investing in Japan and Asian Growth Markets."
The Portfolio seeks to achieve its investment objective by investing
primarily in the Equity Securities of companies in Asian growth markets. Under
normal circumstances, the Portfolio expects to invest at least 65% of its total
assets in such securities. The Portfolio does not intend to invest in U.S.
securities (other than money market instruments), except
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temporarily, when extraordinary circumstances prevailing at the same time in a
significant number of countries considered to be Asian growth markets render
investments in such countries inadvisable.
INVESTMENT PROCESS
Country allocation: Morgan's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of these
deviations. Countries with high (low) rankings are overweighted (underweighted)
to reflect the above-average (below average) attractiveness of their stock
markets. In determining weightings, Morgan analyzes a variety of qualitative
factors as well -- including the liquidity, earnings momentum and interest rate
climate of the market at hand. These qualitative assessments can change the
magnitude but not the direction of the country allocations called for by the
risk-premium forecast. In an effort to contain risk, Morgan places limits on the
total size of the Portfolio's country over- and under-weightings.
Stock selection: Morgan's six Asian equity analysts focused on Asian
markets -- each an industry and country specialist -- forecast normalized,
long-term earnings and dividend payouts for approximately 250 companies in this
region. These forecasts are converted into comparable expected returns by a
dividend discount model, and then companies are ranked from most to least
attractive by industry and country, and are grouped into quintiles. A
diversified portfolio is constructed using disciplined buy and sell rules. The
portfolio manager's objective is to concentrate purchases in the top 20% of the
rankings, and to keep sector weightings close to those of the benchmark. Once a
stock falls into the third quintile -- because its price has risen or its
fundamentals have deteriorated -- it generally becomes a sale candidate. Where
available, warrants and convertibles are purchased when they appear to have the
potential to add value over common stock.
THE JPM ADVISOR EUROPEAN EQUITY FUND (the "European Equity Fund") is
designed for investors who want an actively managed portfolio of European Equity
Securities that seeks to outperform the Morgan Stanley Capital International
Europe Index which is comprised of more than 500 companies in fourteen European
countries. The European Equity Fund's investment objective is to provide a high
total return from a portfolio of Equity Securities of European companies. The
European Equity Fund attempts to achieve its investment objective by investing
all of its investable assets in The European Equity Portfolio (the "Portfolio"),
a diversified open-end management investment company having the same investment
objective as the European Equity Fund.
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The Portfolio seeks to achieve its investment objective by investing
primarily in the Equity Securities of European companies. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing at the same time in a significant number of European
countries render investments in such countries inadvisable.
INVESTMENT PROCESS
Country allocation: Morgan's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of those
deviations. Countries with high (low) rankings are overweighted (underweighted)
in comparison to the Morgan Stanley Capital International Europe Index to
reflect the above-average (below-average) attractiveness of their stock markets.
In determining weightings, Morgan analyzes a variety of qualitative factors as
well -- including the liquidity, earnings momentum and interest rate climate of
the market at hand. These qualitative assessments can change the magnitude but
not the direction of the country allocations called for by the risk-premium
forecast. In an effort to contain risk, Morgan places limits on the total size
of the Portfolio's country over- and under-weightings.
Stock selection: Morgan's 15 equity analysts, each an industry and
country specialist, forecast normalized earnings and dividend payouts for
roughly 600 companies, taking a long-term perspective rather than the short time
frame common to consensus estimates. The analysts' forecasts are converted into
comparable expected returns by a dividend discount model, and then companies are
ranked from most to least attractive by industry and country.
A diversified portfolio is constructed using disciplined buy and sell rules.
The portfolio manager's objective is to concentrate purchases in the top third
of the rankings, and to keep sector weightings close to those of the benchmark.
Once a stock falls into the bottom third of the rankings -- because its price
has risen or its fundamentals have deteriorated -- it generally becomes a sale
candidate.
THE JPM JAPAN EQUITY FUND (the "Japan Equity Fund") is designed for
investors who want an actively managed portfolio of Japanese Equity Securities
that seeks to outperform the Tokyo Stock Price Index ("TOPIX"), a composite
market-capitalization
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weighted-index of all common stocks listed on the First Section of the Tokyo
Stock Exchange. The Japan Equity Fund's investment objective is to provide a
high total return from a portfolio of Equity Securities of Japanese companies.
The Japan Equity Fund attempts to achieve its investment objective by investing
all of its investable assets in The Japan Equity Portfolio (the "Portfolio"), a
non-diversified open-end management investment company having the same
investment objective as the Japan Equity Fund. For additional information, see
"Appendix C - Investing in Japan and Asian Growth Markets."
The Portfolio seeks to achieve its investment objective by investing
primarily in the Equity Securities of Japanese companies. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing in Japan render investments there inadvisable.
INVESTMENT PROCESS
Systematic valuation: Morgan's ten Japanese equity analysts in Tokyo
--each an industry specialist -- follow a total of over 300 Japanese companies.
The most attractive names in that universe are identified by a multifactor model
which screens for low price/earnings ratios, high earnings growth rates and high
sales/price ratios. Within each sector, this subset of the universe is ranked by
these three measures and broken into quintiles; the companies in the top
quintile are considered the most attractive ones from both a growth and
valuation viewpoint. To provide an additional check on the valuation of selected
companies, the analysts prepare normalized, long-term earnings and dividend
forecasts which are converted into comparable expected returns by a dividend
discount model.
Warrant/convertible strategy: Once a company has been identified as a
buy candidate, the portfolio manager analyzes the yields on the company's
available equity vehicles -- stocks, warrants and convertibles -- to determine
which appears the most attractive means of purchase. In an effort to enhance
potential returns, the Portfolio also trades among these vehicles -- a strategy
that seeks to capitalize on the inefficiencies that pervade the Japanese equity
market. If the Portfolio invests in a warrant, it will set aside cash in an
amount approximately equal to the difference in the price of the warrant and the
market value of the underlying common stock. The cash is invested in money
market instruments.
Disciplined portfolio construction: The portfolio is constructed using
disciplined buy and sell rules. The portfolio manager's objective is to
concentrate purchases in the top 20% of the rankings; the specific companies
selected reflect the portfolio manager's judgment concerning the liquidity of an
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issue, the soundness of the underlying forecasts, and the magnitude of the risks
versus the rewards. Once a stock falls into the third quintile -- because its
price has risen or its fundamentals have deteriorated -- it generally becomes a
sale candidate. The portfolio manager strives to hold sector weightings close to
those of the benchmark in an effort to contain risk.
The following discussion supplements the information regarding the
investment objective of each of the Funds and the policies to be employed to
achieve this objective by their corresponding Portfolios as set forth above and
in the Prospectus. The investment objective of each Fund and its corresponding
Portfolio is identical. Accordingly, references below to a Fund also include the
Fund's corresponding Portfolio; similarly, references to a Portfolio also
include the corresponding Fund that invests in the Portfolio unless the context
requires otherwise.
MONEY MARKET INSTRUMENTS
As discussed in the Prospectus, 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, except the
Treasury Money Market Fund, may invest in obligations issued or guaranteed by
U.S. Government agencies or instrumentalities. These obligations 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, each
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, except the Treasury Money
Market 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, both of whose obligations may be satisfied only by the
individual credits of each issuing agency. Securities which are backed by the
full
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faith and credit of the United States include obligations of the Government
National Mortgage Association, the Farmers Home Administration, and the
Export-Import Bank.
FOREIGN GOVERNMENT OBLIGATIONS. Each of the Funds, except the Tax
Exempt Money Market Fund, the Treasury Money Market Fund, the Tax Exempt Bond
Fund and the New York Total Return Bond Fund, subject to its applicable
investment policies, may also invest in short-term obligations of foreign
sovereign governments or of their agencies, instrumentalities, authorities or
political subdivisions. These securities may be denominated in the U.S. dollar
or, in the case of the Short Term Bond, Bond, International Bond, Selected U.S.
Equity, U.S. Small Company, International Equity, Emerging Markets Equity or
Diversified Funds, in another currency. See "Foreign Investments."
BANK OBLIGATIONS. Each of the Funds, except the Treasury Money Market
Fund, unless otherwise noted in the Prospectus or below, 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 (the "Asset Limitation") 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 Tax Exempt Money Market, Tax Exempt Bond
and New York Total Return Bond Funds may not invest in obligations of foreign
branches of foreign banks and the Asset Limitation is not applicable to the
International Bond, International Equity , Emerging Markets Equity, European
Equity or Japan Equity, Asia Growth Funds. See "Foreign Investments." The Funds
will not invest in obligations for which the Advisor, or any of its affiliated
persons, is the ultimate obligor or accepting bank. Each of the Funds, other
than the Tax Exempt Money Market, Treasury Money Market, Tax Exempt Bond and New
York Total Return Bond 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 (except the Treasury Money Market
Fund) 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 Guaranty Trust Company of New York acting as agent, for no additional
fee, in its capacity as investment advisor to the Portfolios and as fiduciary
for other clients for whom it exercises investment discretion. The monies loaned
to the borrower come from accounts managed by the Advisor or its affiliates,
pursuant to arrangements with such accounts. Interest and principal payments are
credited to such accounts.
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The Advisor, 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 the Advisor. 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 an investment the obligation is determined by
the Advisor 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 Funds' 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 Fund is invested in the agreement 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 Treasury Money
Market Fund will only enter into repurchase agreements involving U.S. Treasury
securities. 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 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. The Money Market, Tax Exempt Money Market, and Treasury Money Markets
Funds will be fully collateralized within the meaning of paragraph (a)(3) of
Rule 2a-7 under the Investment Company Act of 1940, as amended (the "1940 Act").
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
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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.
Each of the Funds (other than the Treasury Money Market Fund) may make
investments 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 Tax Exempt Money Market and Tax
Exempt Bond Funds may not invest in foreign bonds or asset-backed securities.
CORPORATE BONDS AND OTHER DEBT SECURITIES
As discussed in the Prospectus, the Bond, Short Term Bond, New York
Total Return Bond, International Bond , Diversified and European Equity Funds
may invest in bonds and other debt securities of domestic and (except for the
New York Total Return Bond Fund) foreign issuers to the extent consistent with
their investment objectives 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. Most of these risks are related to limited interests
in applicable collateral. 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 underlying sales contracts are not realized. Because
asset-backed securities are relatively new, the market experience in these
securities is limited and the market's ability to sustain liquidity through all
phases of the market cycle has not been tested.
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TAX EXEMPT OBLIGATIONS
As discussed in the Prospectus, the Tax Exempt Money Market, Tax Exempt
Bond and New York Total Return Bond Funds and, in certain circumstances, the
Bond and Short Term Bond Funds, may invest in tax exempt obligations to the
extent consistent with each Fund's investment objective and policies. A
description of the various types of tax exempt obligations which may be
purchased by the Funds 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.
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 institutions.
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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 each Fund may invest are payable, or are
subject to purchase, on demand usually on 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 each 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. The interest on such obligations is, in the
opinion of counsel for the borrower, exempt from federal income tax. 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 each Fund to be liquid because
they are payable upon demand. The Funds have no specific percentage limitations
on investments in master demand obligations.
The Tax Exempt Money Market Fund may purchase securities of the type
described above if they have effective maturities within thirteen months. As
required by regulation of the Securities and Exchange Commission (the "SEC"),
this means that on the date of acquisition the final stated maturity (or if
called for redemption, the redemption date) must be within thirteen months or
the maturity must be deemed to be no more than thirteen months because of a
maturity shortening mechanism, such as a variable interest rate, coupled with a
conditional or unconditional right to resell the investment to the issuer or a
third party. See "Variable Rate Demand Notes" and "Puts." A substantial portion
of the Tax Exempt Money Market Fund's portfolio is subject to maturity
shortening mechanisms consisting of variable interest rates coupled with
unconditional rights to resell the securities to the issuers either directly or
by drawing on a domestic or foreign bank letter of credit or other credit
support arrangement. See "Foreign Investments."
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PUTS. The Tax Exempt Money Market, Tax Exempt Bond and New York Total
Return Bond Funds 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 each Fund's investment objective and subject to
the supervision of the Trustees, the purpose of this practice is to permit each
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. The Advisor 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 the Advisor
revises its evaluation of the creditworthiness of the issuer of the underlying
security. In determining whether to exercise puts prior to their expiration date
and in selecting which puts to exercise, the Advisor considers the amount of
cash available to each 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 each
Fund's portfolio and the yield, quality and maturity dates of the underlying
securities.
The Tax Exempt Money Market Fund values any municipal bonds and notes
which are subject to puts at amortized cost. No value is assigned to the put.
The cost of any such put is carried as an unrealized loss from the time of
purchase until it is exercised or expires. The Tax Exempt Bond and New York
Total Return Bond Funds value any municipal bonds and notes subject to puts with
remaining maturities of less than 60 days by the amortized cost method. If the
Tax Exempt Bond and New York Total Return Bond Funds 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. The Board of Trustees would, in connection
with the
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determination of the value of a put, consider, 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. Prior to investing in such securities, the Tax
Exempt Bond and New York Total Return Bond Funds, if deemed necessary based upon
the advice of counsel, will apply to the SEC for an exemptive order, which may
not be granted, relating to the valuation of such securities.
Since the value of the put is partly dependent on the ability of the
put writer to meet its obligation to repurchase, each Fund's policy is to enter
into put transactions only with municipal securities dealers who are approved by
the Advisor. Each dealer will be approved on its own merits, and it is each
Fund's general policy to enter into put transactions only with those dealers
which are determined to present minimal credit risks. In connection with such
determination, the Trustees will review regularly the Advisor's list of approved
dealers, taking into consideration, among other things, the ratings, if
available, of their equity and debt securities, their reputation in the
municipal securities markets, their net worth, their efficiency in consummating
transactions and any collateral arrangements, such as letters of credit,
securing the puts written by them. 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. In the case of the Tax Exempt Bond and New York Total
Return Bond Funds, 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 Ratings Group ("Standard & Poor's"), or will be of comparable
quality in the Advisor's opinion or such put writers' obligations will be
collateralized and of comparable quality in the Advisor's opinion. The Trustees
have directed the Advisor not to enter into put transactions with any dealer
which in the judgment of the Advisor becomes more than a minimal credit risk. In
the event that a dealer should default on its obligation to repurchase an
underlying security, the Funds are unable to predict whether all or any portion
of any loss sustained could subsequently be recovered from such dealer.
The Trust has been advised by counsel that the Funds will be considered
the owner of the securities subject to the puts so that the interest on the
securities is tax exempt income to the Funds. Such advice of counsel is based on
certain assumptions concerning the terms of the puts and the attendant
circumstances.
EQUITY INVESTMENTS
As discussed in the Prospectus, the Portfolios for the Selected U.S.
Equity, U.S. Small Company, International Equity , the equity portion of the
Diversified Fund, Emerging Markets Equity, European Equity, Japan
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Equity Funds, and Asia Growth (collectively, the "Equity Portfolios") invest
primarily in Equity Securities. The Equity Securities in which the Equity
Portfolios invest include those listed on any domestic or foreign securities
exchange or traded in the over-the-counter market as well as certain restricted
or unlisted securities. A discussion of the various types of equity investments
which may be purchased by these Portfolios appears in the Prospectus and below.
See "Quality and Diversification Requirements."
EQUITY SECURITIES. The Equity Securities in which the Equity Portfolios
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 Portfolios 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.
WARRANTS
The Equity Portfolios may invest in warrants, which entitle the holder
to buy common stock from the issuer at a specific price (the strike price) for a
specific period of time. The strike price of warrants sometimes is much lower
than the current market price of the underlying securities, yet warrants are
subject to similar price fluctuations. As a result, warrants may be more
volatile investments than the underlying securities.
Warrants do not entitle the holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date.
FOREIGN INVESTMENTS
The International Bond, International Equity , Emerging Markets Equity,
European Equity, Japan Equity Funds, and Asia Growth make substantial
investments in foreign countries. The
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Money Market, Bond, Short Term Bond, Selected U.S. Equity, U.S. Small Company
and Diversified Funds may invest in certain foreign securities. The Bond, Short
Term Bond, Selected U.S. Equity, U.S. Small Company and Diversified Funds do not
expect to invest more than 25%, 25%, 30%, 30% and 30%, respectively, of their
total assets at the time of purchase in securities of foreign issuers. All
investments of the Money Market Fund must be U.S. dollar-denominated. The
Selected U.S. Equity and U.S. Small Company Funds do not expect more than 10% of
their respective foreign investments to be in securities which are not listed on
a national securities exchange or which are not denominated or principally
traded in the U.S. dollar. In the case of the Money Market, Bond and Short Term
Bond Funds, any foreign commercial paper must not be subject to foreign
withholding tax at the time of purchase. Foreign investments may be made
directly in securities of foreign issuers or in the form of American Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs"). Generally, ADRs and
EDRs are receipts issued by a bank or trust company that evidence ownership of
underlying securities issued by a foreign corporation and that are designed for
use in the domestic, in the case of ADRs, or European, in the case of EDRs,
securities markets.
Since investments in foreign securities may involve foreign currencies,
the value of a Fund's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. The International Bond, Short Term
Bond, Bond, Selected U.S. Equity, U.S. Small Company, International Equity,
Emerging Markets Equity and Diversified Funds may enter into forward commitments
for the purchase or sale of foreign currencies in connection with the settlement
of foreign securities transactions or to manage the Funds' currency exposure
related to foreign investments. The Funds will not enter into such commitments
for speculative purposes.
For a description of the risks associated with investing in foreign
securities, see "Additional Investment Information and Risk Factors" in the
Prospectus. To the extent that the Tax Exempt Money Market, Tax Exempt Bond and
New York Total Return Bond Funds invest in municipal bonds and notes backed by
credit support arrangements with foreign financial institutions, the risks
associated with investing in foreign securities may be relevant to these Funds.
INVESTING IN JAPAN. Investing in Japanese securities may involve the
risks associated with investing in foreign securities generally. In addition,
because it invests in Japan, the International Equity and Japan Equity
Portfolios will be subject to the general economic and political conditions in
Japan.
Share prices of companies listed on Japanese stock exchanges and on the
Japanese OTC market reached historical peaks (which were later referred to as
the "bubble") as well as historically
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high trading volumes in 1989 and 1990. Since then, stock prices in both markets
decreased significantly, with listed stock prices reaching their lowest levels
in the third quarter of 1992 and OTC stock prices reaching their lowest levels
in the fourth quarter of 1992. During the period from January 1, 1989 through
December 31, 1994, the highest Nikkei stock average and Nikkei OTC average were
38,915.87 and 4,149.20, respectively, and the lowest for each were 14,309.41 and
1,099.32, respectively. There can be no assurance that additional market
corrections will not occur.
The common stocks of many Japanese companies continue to trade at high
price earnings ratios in comparison with those in the United States, even after
the recent market decline. Differences in accounting methods make it difficult
to compare the earnings of Japanese companies with those of companies in other
countries, especially the United States.
Since the International Equity and Japan Equity Portfolios invest in
securities denominated in yen, changes in exchange rates between the U.S. dollar
and the yen affect the U.S. dollar value of these Portfolio's assets. Such rate
of exchange is determined by forces of supply and demand on the foreign exchange
markets. These forces are in turn affected by the international balance of
payments and other economic, political and financial conditions, government
intervention, speculation and other factors. See Foreign Currency Exchange
Transactions.
Japanese securities held by the International Equity and Japan Equity
Portfolios are not registered with the SEC nor are the issuers thereof subject
to its reporting requirements. There may be less publicly available information
about issuers of Japanese securities than about U.S. companies and such issuers
may not be subject to accounting, auditing and financial reporting standards and
requirements comparable to those to which U.S. companies are subject.
Although the Japanese economy has grown substantially over the past
four decades, recently the rate of growth had slowed substantially. During 1991,
1992 and 1993, the Japanese economy grew at rates of 4.3%, 1.1% and 0.1%,
respectively, as measured by real gross domestic product.
Japan's success in exporting its products has generated a sizeable
trade surplus. Such trade surplus has caused tensions at times between Japan and
some of its trading partners. In particular, Japan's trade relations with the
United States have recently been the subject of discussion and negotiation
between the two nations. The United States has imposed certain measures designed
to address trade issues in specific industries. These measures and similar
measures in the future may adversely affect the performance of these Portfolio.
Japan's economy has typically exhibited low inflation and low interest
rates. There can be no assurance that low inflation
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and low interest rates will continue, and it is likely that a reversal of such
factors would adversely affect the Japanese economy. Moreover, the Japanese
economy may differ, favorably or unfavorably, from the U.S. economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resources, self-sufficiency and balance of payments position.
Japan has a parliamentary form of government. In 1993 a coalition
government was formed which, for the first time since 1955, did not include the
Liberal Democratic Party. Since mid-1993, there have been several changes in
leadership in Japan. What, if any, effect the current political situation will
have on prospective regulatory reforms of the economy in Japan cannot be
predicted. Recent and future developments in Japan and neighboring Asian
countries may lead to changes in policy that might adversely affect the
International Equity and Japan Portfolios.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each of the Portfolios 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 for money market instruments and other
fixed income investments no interest accrues to a Portfolio until settlement
takes place. At the time a Portfolio 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 Portfolio
will maintain with the Custodian a segregated account with liquid assets,
consisting of cash, U.S. Government securities or other appropriate securities,
in an amount at least equal to such commitments. On delivery dates for such
transactions, each Portfolio will meet its obligations from maturities or sales
of the securities held in the segregated account and/or from cash flow. If a
Portfolio 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. It is the
current policy of each Portfolio not to enter into when-issued commitments
exceeding in the aggregate 15% of the market value of the Portfolio's total
assets, less liabilities other than the obligations created by when-issued
commitments.
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INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by each of the Funds and their corresponding Portfolios to the
extent permitted under the 1940 Act. These limits require that, as determined
immediately after a purchase is made, (i) not more than 5% of the value of a
Fund's total assets will be invested in the securities of any one investment
company, (ii) not more than 10% of the value of its total assets will be
invested in the aggregate in securities of investment companies as a group, and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by a Fund, provided however, that a Fund may invest all of
its investable assets in an open-end investment company that has the same
investment objective as the Fund (its corresponding Portfolio). As a shareholder
of another investment company, a Fund would bear, along with other shareholders,
its pro rata portion of the other investment company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that a Fund bears directly in connection with its own operations.
REVERSE REPURCHASE AGREEMENTS. Each of the Portfolios may enter into
reverse repurchase agreements. In a reverse repurchase agreement, a Portfolio
sells a security and agrees to repurchase the same security at a mutually agreed
upon date and price. The Portfolio for the Treasury Money Market Fund will only
enter into reverse repurchase agreements involving Treasury securities. For
purposes of the 1940 Act it is also considered as the borrowing of money by the
Portfolio and, therefore, a form of leverage. The Portfolios will invest the
proceeds of borrowings under reverse repurchase agreements. In addition, a
Portfolio will enter into a reverse repurchase agreement only when the interest
income to be earned from the investment of the proceeds is greater than the
interest expense of the transaction.
A Portfolio will not invest the proceeds of a reverse repurchase
agreement for a period which exceeds the duration of the reverse repurchase
agreement. A Portfolio may not enter into reverse repurchase agreements
exceeding in the aggregate one-third of the market value of its total assets,
less liabilities other than the obligations created by reverse repurchase
agreements. Each Portfolio will establish and maintain with the Custodian a
separate account with a segregated portfolio of securities in an amount at least
equal to its purchase obligations under its reverse repurchase agreements. If
interest rates rise during the term of a reverse repurchase agreement, entering
into the reverse repurchase agreement may have a negative impact on the Money
Market, Tax Exempt Money Market and Treasury Money Market Funds' ability to
maintain a net asset value of $1.00 per share. See "Investment Restrictions."
MORTGAGE DOLLAR ROLL TRANSACTIONS. The Portfolios for the Short Term
Bond Fund and the Bond Fund may engage in mortgage dollar roll transactions with
respect to mortgage securities issued by the Government National Mortgage
Association, the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation. In a mortgage dollar roll transaction, the
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Portfolio sells a mortgage backed security and simultaneously agrees to
repurchase a similar security on a specified future date at an agreed upon
price. During the roll period, the Portfolio will not be entitled to receive any
interest or principal paid on the securities sold. The Portfolio is compensated
for the lost interest on the securities sold by the difference between the sales
price and the lower price for the future repurchase as well as by the interest
earned on the reinvestment of the sales proceeds. The Portfolio may also be
compensated by receipt of a commitment fee. When the Portfolio enters into a
mortgage dollar roll transaction, liquid assets in an amount sufficient to pay
for the future repurchase are segregated with the Custodian. Mortgage dollar
roll transactions are considered reverse repurchase agreements for purposes of
the Portfolio's investment restrictions.
LOANS OF PORTFOLIO SECURITIES. Each of the Portfolios 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 Portfolio 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 Portfolio
any income accruing thereon. Loans will be subject to termination by the
Portfolios 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
Portfolio and its respective investors. The Portfolios may pay reasonable
finders' and custodial fees in connection with a loan. In addition, a Portfolio
will consider all facts and circumstances including the creditworthiness of the
borrowing financial institution, and no Portfolio will make any loans in excess
of one year. The Portfolios will not lend their securities to any officer,
Trustee, Director, employee or other affiliate of the Portfolios, the Advisor or
the Distributor, unless otherwise permitted by applicable law.
PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. The Portfolios
for each of the Funds (except the Treasury Money Market Fund) may invest in
privately placed, restricted, Rule 144A or other unregistered securities as
described in the Prospectus.
As to illiquid investments, a Portfolio is subject to a risk that
should the Portfolio decide to sell them when a ready buyer is not available at
a price the Portfolio deems representative of their value, the value of the
Portfolio's net assets could be adversely affected. Where an illiquid security
must be registered under the Securities Act of 1933, as amended (the "1933
Act"), before it may be sold, a Portfolio may be obligated to pay all or part of
the registration expenses, and a considerable period may elapse between the time
of the decision
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to sell and the time the Portfolio may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, a Portfolio might obtain a less favorable price than
prevailed when it decided to sell.
SYNTHETIC VARIABLE RATE INSTRUMENTS. The Portfolios for the Tax Exempt
Money Market, Tax Exempt Bond and New York Total Return Bond Funds may invest in
certain synthetic variable rate instruments as described in the Prospectus. In
the case of some types of instruments credit enhancement is not provided, and if
certain events, which may include (a) default in the payment of principal or
interest on the underlying bond, (b) downgrading of the bond below investment
grade or (c) a loss of the bond's tax exempt status, occur, then (i) the put
will terminate, (ii) the risk to a Fund will be that of holding a long-term
bond, and (iii) in the case of the Tax Exempt Money Market Fund, the disposition
of the bond may be required which could be at a loss.
QUALITY AND DIVERSIFICATION REQUIREMENTS
Each of the Funds, except the New York Total Return Bond ,
International Bond and Japan Equity Funds, intends to meet the diversification
requirements of the 1940 Act. To meet these requirements, 75% of the assets of
these Funds is subject to the following fundamental limitations: (1) the Fund
may not invest more than 5% of its total assets in the securities of any one
issuer, except obligations of the U.S. Government, its agencies and
instrumentalities, and (2) the Fund may not own more than 10% of the outstanding
voting securities of any one issuer. As for the other 25% of the Fund's assets
not subject to the limitation described above, there is no limitation on
investment of these assets under the 1940 Act, so that all of such assets may be
invested in securities of any one issuer, subject to the limitation of any
applicable state securities laws, or with respect to the Money Market and
Treasury Money Market Funds, as described below. Investments not subject to the
limitations described above could involve an increased risk to a Fund should an
issuer, or a state or its related entities, be unable to make interest or
principal payments or should the market value of such securities decline.
Although the New York Total Return Bond , International Bond and Japan
Equity Funds are not limited by the diversification requirements of the 1940
Act, these Funds will comply with the diversification requirements imposed by
the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as
a regulated investment company. To meet these requirements, each Fund must
diversify its holdings so that, with respect to 50% of the Fund's assets, no
more than 5% of its assets are invested in the securities of any one issuer
other than the U.S. Government at the close of each quarter of the Fund's
taxable year. The Fund may with respect to the remaining 50% of its assets,
invest up to 25% of its assets in the securities of any one issuer (except this
limitation does not apply to U.S. Government Securities).
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With respect to the Tax Exempt Money Market and Tax Exempt Bond Funds,
for purposes of diversification and concentration under the 1940 Act,
identification of the issuer of municipal bonds or notes depends on the terms
and conditions of the obligation. With respect to the New York Total Return Bond
Fund, for purposes of diversification under the Code and concentration under the
1940 Act, identification of the issuer of municipal bonds or notes also 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 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. Since securities issued or
guaranteed by states or municipalities are not voting securities, there is no
limitation on the percentage of a single issuer's securities which a Fund may
own so long as it does not invest more than 5% of its total assets that are
subject to the diversification limitation in the securities of such issuer,
except obligations issued or guaranteed by the U.S. Government. Consequently,
the Funds may invest in a greater percentage of the outstanding securities of a
single issuer than would an investment company which invests in voting
securities. See "Investment Restrictions."
MONEY MARKET FUND. In order to attain the Money Market Fund's objective
of maintaining a stable net asset value, the Portfolio for the Money Market Fund
will (i) limit its investment in the securities (other than U.S. Government
securities) of any one issuer to no more than 5% of its assets, measured at the
time of purchase, except for investments held for not more than three business
days (subject, however, to the investment restriction No. 4 set forth under
"Investment Restrictions" below); and (ii) limit investments to securities that
present minimal credit risks and securities (other than U.S. Government
securities) that are rated within the highest short-term rating category by at
least two nationally recognized statistical rating organizations ("NRSROs") or
by the only NRSRO that has rated the security. Securities which originally had a
maturity of over one year are subject to more complicated, but generally similar
rating requirements. A description of illustrative credit ratings is set forth
in Appendix A attached to this Statement of Additional Information. The
Portfolio may also purchase unrated securities that are of comparable quality to
the rated securities described above. Additionally, if the issuer of a
particular security has
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issued other securities of comparable priority and security and which have been
rated in accordance with (ii) above, that security will be deemed to have the
same rating as such other rated securities.
In addition, the Board of Trustees has adopted procedures which (i)
require the Board of Trustees to approve or ratify purchases by the Portfolio of
securities (other than U.S. Government securities) that are rated by only one
NRSRO or that are unrated; (ii) require the Portfolio to maintain a
dollar-weighted average portfolio maturity of not more than 90 days and to
invest only in securities with a remaining maturity of not more than thirteen
months; and (iii) require the Portfolio, in the event of certain downgradings of
or defaults on portfolio holdings, to dispose of the holding, subject in certain
circumstances to a finding by the Trustees that disposing of the holding would
not be in the Portfolio's best interest.
TAX EXEMPT MONEY MARKET FUND. In order to attain the Tax Exempt Money
Market Fund's objective of maintaining a stable net asset value, the Portfolio
for the Tax Exempt Money Market Fund will limit its investments to securities
that present minimal credit risks and securities (other than New York State
municipal notes) that are rated within the highest rating assigned to short-term
debt securities (or, in the case of New York State municipal notes, within one
of the two highest ratings assigned to short-term debt securities) by at least
two NRSROs or by the only NRSRO that has rated the security. Securities which
originally had a maturity of over one year are subject to more complicated, but
generally similar rating requirements. The Portfolio may also purchase unrated
securities that are of comparable quality to the rated securities described
above. Additionally, if the issuer of a particular security has issued other
securities of comparable priority and security and which have been rated in
accordance with the criteria described above that security will be deemed to
have the same rating as such other rated securities.
In addition, the Board of Trustees has adopted procedures which (i)
require the Portfolio to maintain a dollar-weighted average portfolio maturity
of not more than 90 days and to invest only in securities with a remaining
maturity of not more than thirteen months and (ii) require the Portfolio, in the
event of certain downgrading of or defaults on portfolio holdings, to dispose of
the holding, subject in certain circumstances to a finding by the Trustees that
disposing of the holding would not be in the Portfolio's best interest.
The credit quality of variable rate demand notes and other municipal
obligations is frequently enhanced by various credit support arrangements with
domestic or foreign financial institutions, such as letters of credit,
guarantees and insurance, and these arrangements are considered when investment
quality is evaluated. The rating of credit-enhanced municipal obligations by a
NRSRO may be based primarily or exclusively on the credit support arrangement.
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TREASURY MONEY MARKET FUND. In order to attain its objective of
maintaining a stable net asset value, the Treasury Money Market Fund will limit
its investments to direct obligations of the U.S. Treasury including Treasury
bills, notes and bonds with remaining maturities of thirteen months or less at
the time of purchase and will maintain a dollar-weighted average portfolio
maturity of not more than 90 days.
SHORT TERM BOND, BOND, INTERNATIONAL BOND AND DIVERSIFIED FUNDS. The
Short Term Bond, Bond and International Bond Funds and the fixed income portion
of the Diversified Fund invest principally in a diversified portfolio of "high
grade" and "investment grade" securities. Investment grade debt is rated, on the
date of investment, within the four highest ratings of Moody's, currently Aaa,
Aa, A and Baa, or of Standard & Poor's, currently AAA, AA, A and BBB, while high
grade debt is rated, on the date of the investment, within the two highest of
such ratings. The Bond Fund may also invest up to 5% of its total assets in
securities which are "below investment grade." Such securities must be rated, on
the date of investment, Ba by Moody's or BB by Standard & Poor's. The Funds 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 the Advisor, such
securities are of comparable quality to the rated securities discussed above. In
addition, at the time the Funds invest in any 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 the Advisor's opinion.
TAX EXEMPT BOND FUND. The Tax Exempt Bond Fund invests principally in a
diversified portfolio of "high grade" and "investment grade" tax exempt
securities. On the date of investment (i) municipal bonds must be rated within
the three highest ratings of Moody's, currently Aaa, Aa and A, or of Standard &
Poor's, currently AAA, AA, and A, (ii) municipal notes must be rated MIG-1 by
Moody's or SP-1 by Standard & Poor's (or, in the case of New York State
municipal notes, MIG-1 or MIG-2 by Moody's or SP-1 or SP-2 by Standard & Poor's)
and (iii) municipal commercial paper must be rated Prime-1 by Moody's or A-1 by
Standard & Poor's or, if not rated by either Moody's or Standard & Poor's,
issued by an issuer either (a) having an outstanding debt issue rated A or
higher by Moody's or Standard & Poor's or (b) having comparable quality in the
opinion of the Advisor. The Fund may invest in other tax exempt securities which
are not rated if, in the opinion of the Advisor, such securities are of
comparable quality to the rated securities discussed above. In addition, at the
time the Fund invests in
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any 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 the Advisor's
opinion.
NEW YORK TOTAL RETURN BOND FUND. The New York Total Return Bond Fund
invests principally in a diversified portfolio of "investment grade" tax exempt
securities. An investment grade bond is rated, on the date of investment within
the four highest ratings of Moody's, currently Aaa, Aa, A and Baa, or of
Standard & Poor's, currently AAA, AA, A and BBB, while high grade debt is rated,
on the date of the investment within the two highest of such ratings. Investment
grade municipal notes are rated, on the date of investment, MIG-1 or MIG-2 by
Standard & Poor's or SP-1 and SP-2 by Moody's. Investment grade municipal
commercial paper is rated, on the date of investment, Prime 1 or Prime 2 by
Moody's and A-1 or A-2 by Standard & Poor's. The New York Total Return Bond Fund
may also invest up to 5% of its total assets in securities which are "below
investment grade." Such securities must be rated, on the date of investment, Ba
by Moody's or BB by Standard & Poor's. The New York Total Return Bond 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 the Advisor, such
securities are of comparable quality to the rated securities discussed above. In
addition, 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 the Advisor's opinion.
SELECTED U.S. EQUITY, U.S. SMALL COMPANY, INTERNATIONAL EQUITY,
EMERGING MARKETS EQUITY , DIVERSIFIED, EUROPEAN EQUITY, JAPAN EQUITY AND ASIA
GROWTH FUNDS. The Equity Portfolios may invest in convertible debt securities,
for which there are no specific quality requirements. In addition, at the time
the Portfolio invests in any 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 the Advisor's opinion. At the time the Portfolio invests
in any other short-term debt securities, they must be rated A or higher by
Moody's or Standard & Poor's, or if unrated, the investment must be of
comparable quality in the Advisor's opinion.
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In determining suitability of investment in a particular unrated
security, the Advisor 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 Portfolios will be traded on a securities exchange or will be purchased or
sold by securities dealers (over-the-counter or OTC options) that meet
creditworthiness standards approved by the Portfolio's Board of Trustees. While
exchange-traded options are obligations of the Options Clearing Corporation, in
the case of OTC options, a Portfolio relies on the dealer from which it
purchased the option to perform if the option is exercised. Thus, when a
Portfolio 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 Portfolio as well as loss of the expected benefit of the transaction.
The staff of the SEC has taken the position that, in general, purchased
OTC options and the underlying securities used to cover written OTC options are
illiquid securities. However, a Portfolio may treat as liquid the underlying
securities used to cover written OTC options, provided it has arrangements with
certain qualified dealers who agree that the Portfolio may 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 Portfolios permitted to
enter into futures and options transactions may purchase or sell (write) futures
contracts and purchase put and call options, including put and call options on
futures contracts. In addition, the Portfolios for the International Bond,
Diversified, Emerging Markets Equity , European Equity, Japan Equity and Asia
Growth 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 and on indexes of fixed income securities and indexes of equity
securities.
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Unlike a futures contract, which 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, an option on a futures
contract entitles its holder to decide on or before a future 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 payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures 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 Portfolio are paid by the Portfolio into a segregated
account, in the name of the Futures Commission Merchant, as required by the 1940
Act and the SEC's interpretations thereunder.
COMBINED POSITIONS. The Portfolios permitted to purchase and write options may
do so in combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, certain Portfolios may purchase a 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 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
Portfolio's current or anticipated investments exactly. A Portfolio may invest
in options and futures contracts based on securities with different issuers,
maturities, or other characteristics from the securities in which it typically
invests, which involves a risk that the options or futures position will not
track the performance of the Portfolio's other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match the
Portfolio's investments well. Options and futures contracts prices are affected
by such factors as current and anticipated short term interest rates, changes in
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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 imposition of daily price
fluctuation limits or trading halts. A Portfolio 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 Portfolio'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 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 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
Portfolio 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 Portfolio to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, the
Portfolio's access to other assets held to cover its options or futures
positions could also be impaired. (See "Exchange Traded and Over-the-Counter
Options" above for a discussion of the liquidity of options not traded on an
exchange.)
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 Portfolio or the Advisor 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 Portfolios
intend to comply with Section 4.5 of the regulations under the Commodity
Exchange Act, which limits the extent to which a Portfolio can commit assets to
initial margin deposits and option premiums. In addition, the Portfolios will
comply with guidelines established by the SEC with respect to coverage of
options and futures contracts by mutual funds, and if the guidelines so require,
will set aside appropriate liquid assets in a segregated custodial account in
the amount prescribed. Securities held in a segregated account cannot be sold
while the
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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 Portfolio's assets could impede portfolio management or the
Portfolio's ability to meet redemption requests or other current obligations.
RISK MANAGEMENT
The Portfolios for the New York Total Return Bond, International Bond,
Diversified , Emerging Markets Equity, European Equity, Japan Equity and Asia
Growth Funds may employ non-hedging risk management techniques. Examples of such
strategies include synthetically altering the duration of a portfolio or the mix
of securities in a portfolio. For example, if the Advisor wishes to extend
maturities in a fixed income 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 Portfolio to purchase
futures contracts on long term debt securities. Similarly, if the Advisor wishes
to decrease fixed income securities or purchase equities, it could cause the
Portfolio 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 because they involve leverage include, as do all leveraged
transactions, the possibility of losses as well as gains that are greater than
if these techniques involved the purchase and sale of the securities themselves
rather than their synthetic derivatives.
SPECIAL FACTORS AFFECTING THE NEW YORK TOTAL RETURN BOND FUND. The New York
Total Return Bond Fund intends to invest a high proportion of its assets in
municipal obligations of the State of New York and its political subdivisions,
municipalities, agencies, instrumentalities and public authorities. Payment of
interest and preservation of principal is dependent upon the continuing ability
of New York issuers and/or obligators of state, municipal and public authority
debt obligations to meet their obligations thereunder.
The fiscal stability of New York State is related, at least in part, to
the fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State through lease-purchase arrangements, other
contractual arrangements or moral obligation provisions. While debt service is
normally paid out of revenues generated by projects of such State 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 State agencies and local
governments require State assistance to meet their financial obligations, the
ability of the State to
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meet its own obligations as they become due or to obtain additional financing
could be adversely affected.
On July 10, 1995, Standard & Poor's downgraded its rating on New York
City's outstanding general obligation bonds to BBB+ from A-, citing the city's
chronic structural budget problems and weak economic outlook. Other factors
contributing to Standard & Poor's downgrade include the city's reliance on
one-time revenue measures to close annual budget gaps, a dependence on
unrealized labor savings, overly optimistic estimates of revenues and of state
and federal aid, and the city's continued high debt levels.
For further information concerning New York municipal obligations, see
Appendix B to this Statement of Additional Information. The summary set forth
above and in Appendix B is included for the purpose of providing a general
description of New York State and New York City credit and financial conditions.
This summary is based on information from an official statement of New York
general obligation municipal obligations and does not purport to be complete.
PORTFOLIO TURNOVER
Set forth below are the portfolio turnover rates for the Portfolios
corresponding to the Funds. A rate of 100% indicates that the equivalent of all
of the Portfolio'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 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.
THE SHORT TERM BOND PORTFOLIO (Short Term Bond Fund) -- For the fiscal year
ended October 31, 1994: 230%.
THE TAX EXEMPT BOND PORTFOLIO (Tax Exempt Bond Fund) -- For the fiscal year
ended August 31, 1994: 32.57%.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO (New York Total Return Bond Fund) --
For the period April 11, 1994 (commencement of operations) through March 31,
1995: 63%.
THE U.S. FIXED INCOME PORTFOLIO (Bond Fund) -- For the fiscal year ended October
31, 1994: 234%.
THE SELECTED U.S. EQUITY PORTFOLIO (Selected U.S. Equity Fund) -- For the period
July 19, 1993 (commencement of operations) through May 31, 1994: 76% For the
fiscal year ended May 31, 1995: 71%.
THE U.S. SMALL COMPANY PORTFOLIO (U.S. Small Company Fund) -- For the period
July 19, 1993 (commencement of operations) through May 31, 1994: 97%. For the
fiscal year ended May 31, 1995: 75%.
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THE NON-U.S. EQUITY PORTFOLIO (International Equity Fund) -- For the fiscal year
ended October 31, 1994: 56%.
THE EMERGING MARKETS EQUITY PORTFOLIO (Emerging Markets Equity Fund) -- For the
fiscal year ended October 31, 1994: 27.48%.
THE DIVERSIFIED PORTFOLIO (Diversified Fund) -- For the period July 8, 1993
(commencement of operations) through June 30, 1994: 115%. For the fiscal year
ended June 30, 1995: $[ ]%.
The estimated portfolio turnover rate for each of the European Equity,
Japan Equity and Asia Growth Portfolios generally should not exceed 100%.
INVESTMENT RESTRICTIONS
The investment restrictions of each Fund and its corresponding
Portfolio are identical, unless otherwise specified. Accordingly, references
below to a Fund also include the Fund's corresponding Portfolio unless the
context requires otherwise; similarly, references to a Portfolio also include
its corresponding Fund unless the context requires otherwise.
The investment restrictions below have been adopted by the Trust with
respect to each Fund and by each corresponding Portfolio. Except where 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 or Portfolio, as the case may be. 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 the
purchase of securities. Whenever a Fund is requested to vote on a change in the
fundamental investment restrictions of its corresponding Portfolio, the Trust
will hold a meeting of Fund shareholders and will cast its votes as instructed
by the Fund's shareholders.
The MONEY MARKET FUND and its corresponding PORTFOLIO may not:
1. Acquire any illiquid securities, such as repurchase agreements
with more than seven days to maturity or fixed time deposits with
a duration of over seven calendar days, if as a result thereof,
more than 10% of the market value of the Fund's total assets
would be in investments which are illiquid;
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2. Enter into reverse repurchase agreements exceeding in the
aggregate one-third of the market value of the Fund's total
assets, less liabilities other than obligations created by reverse
repurchase agreements;
3. Borrow money, except from banks for extraordinary or emergency
purposes and then only in amounts not to exceed 10% of the value
of the Fund's total assets, taken at cost, at the time of such
borrowing. Mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not to exceed
10% of the value of the Fund's net assets at the time of such
borrowing. The Fund will not purchase securities while borrowings
exceed 5% of the Fund's total assets; provided, however, that the
Fund may increase its interest in an open-end management
investment company with the same investment objective and
restrictions as the Fund while such borrowings are outstanding.
This borrowing provision is included to facilitate the orderly
sale of portfolio securities, for example, in the event of
abnormally heavy redemption requests, and is not for investment
purposes and shall not apply to reverse repurchase agreements;
4. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the
Fund's total assets would be invested in securities or other
obligations of any one such issuer; provided, however, that the
Fund may invest all or part of its investable assets in an
open-end management investment company with the same investment
objective and restrictions as the Fund. This limitation shall not
apply to issues of the U.S. Government, its agencies or
instrumentalities and to permitted investments of up to 25% of the
Fund's total assets;
5. Purchase the securities or other obligations of issuers conducting
their principal business activity in the same industry if,
immediately after such purchase, the value of its investment in
such industry would exceed 25% of the value of the Fund's total
assets; provided, however, that the Fund may invest all or part of
its investable assets in an open-end management investment company
with the same investment objective and restrictions as the Fund.
For purposes of industry concentration, there is no percentage
limitation with respect to investments in U.S. Government
securities, negotiable certificates of deposit, time deposits, and
bankers' acceptances of U.S. branches of U.S. banks;
6. Make loans, except through purchasing or holding debt obligations,
or entering into repurchase agreements, or loans of portfolio
securities in accordance with the Fund's investment objective and
policies (see "Investment Objectives and Policies");
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7. Purchase or sell puts, calls, straddles, spreads, or any
combination thereof, real estate, commodities, or commodity
contracts or interests in oil, gas, or mineral exploration or
development programs. However, the Fund may purchase bonds or
commercial paper issued by companies which invest in real estate
or interests therein including real estate investment trusts;
8. Purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall
not be deemed to be applicable to the purchase or sale of
when-issued securities or of securities for delivery at a future
date;
9. Acquire securities of other investment companies, except as
permitted by the 1940 Act; or
10. Act as an underwriter of securities.
The TAX EXEMPT MONEY MARKET FUND and its corresponding
PORTFOLIO may not:
1. Borrow money, except from banks for temporary, extraordinary or
emergency purposes and then only in amounts up to 10% of the value
of the Fund's total assets, taken at cost at the time of such
borrowing; or mortgage, pledge or hypothecate any assets except in
connection with any such borrowing in amounts up to 10% of the
value of the Fund's net assets at the time of such borrowing. The
Fund will not purchase securities while borrowings exceed 5% of
the Fund's total assets, provided, however, that the Fund may
increase its interest in an open-end management investment company
with the same investment objective and restrictions as the Fund's
while such borrowings are outstanding. This borrowing provision,
for example, facilitates the orderly sale of portfolio securities
in the event of abnormally heavy redemption requests or in the
event of redemption requests during periods of tight market
supply. This provision is not for leveraging purposes;
2. Invest more than 25% of its total assets in securities of
governmental units located in any one state, territory, or
possession of the United States. The Fund may invest more then 25%
of its total assets in industrial development and pollution
control obligations whether or not the users of facilities
financed by such obligations are in the same industry;1
3. Purchase industrial revenue bonds if, as a result of such
purchase, more than 5% of total Fund assets would be invested in
industrial revenue bonds where payment of principal and interest
are the responsibility of
--------
1Pursuant to an interpretation of the staff of the SEC, the Fund
may not invest more than 25% of its assets in industrial
development bonds in projects of similar type or in the same
state. The Fund shall comply with this interpretation until such
time as it may be modified by the staff or the SEC.
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companies with fewer than three years of operating
history;
4. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the
Fund's total assets would be invested in securities or other
obligations of any one such issuer, provided, however, that the
Fund may invest all or part of its investable assets in an
open-end management investment company with the same investment
objective and restrictions as the Fund's. Each state and each
political subdivision, agency or instrumentality of such state and
each multi-state agency of which such state is a member will be a
separate issuer if the security is backed only by the assets and
revenues of that issuer. If the security is guaranteed by another
entity, the guarantor will be deemed to be the issuer. This
limitation shall not apply to securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities or to
permitted investments of up to 25% of the Fund's total assets;2
5. Make loans, except through the purchase or holding of debt
obligations, repurchase agreements, or loans of portfolio
securities in accordance with the Fund's investment objective and
policies (see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any
combination thereof except to the extent that securities subject
to a demand obligation, stand-by commitments and puts may be
purchased (see "Investment Objectives and Policies"); real estate;
commodities; commodity contracts; or interests in oil, gas, or
mineral exploration or development programs. However, the Fund may
purchase municipal bonds, notes or commercial paper secured by
interests in real estate;
7. Purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall
not be deemed to be applicable to the purchase or sale of
when-issued securities or of securities for delayed delivery;
8. Acquire securities of other investment companies, except as
permitted by the 1940 Act; or
9. Act as an underwriter of securities.
The TREASURY MONEY MARKET FUND and its corresponding
PORTFOLIO may not:
1. Enter into reverse repurchase agreements which together
with any other borrowing exceeds in the aggregate
--------
2For purposes of interpretation of Investment Restriction No. 4
"guaranteed by another entity" includes credit substitutions,
such as letters of credit or insurance, unless the Advisor
determines that the security meets the Fund's credit standards
without regard to the credit substitution.
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one-third of the market value of the Fund's or the Portfolio's
total assets, less liabilities other than the obligations created
by reverse repurchase agreements;
2. Borrow money (not including reverse repurchase agreements), except
from banks for temporary or extraordinary or emergency purposes
and then only in amounts up to 10% of the value of the Fund's or
the Portfolio's total assets, taken at cost at the time of such
borrowing (and provided that such borrowings and reverse
repurchase agreements do not exceed in the aggregate one-third of
the market value of the Fund's and the Portfolio's total assets
less liabilities other than the obligations represented by the
bank borrowings and reverse repurchase agreements). Mortgage,
pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts up to 10% of the value of the Fund's
or the Portfolio's net assets at the time of such borrowing. The
Fund or the Portfolio will not purchase securities while
borrowings exceed 5% of the Fund's or the Portfolio's total
assets, respectively; provided, however, that the Fund may
increase its interest in an open-end management investment company
with the same investment objective and restrictions as the Fund
while such borrowings are outstanding. This borrowing provision is
included to facilitate the orderly sale of portfolio securities,
for example, in the event of abnormally heavy redemption requests,
and is not for investment purposes;
3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the
Fund's or the Portfolio's total assets would be invested in
securities or other obligations of any one such issuer; provided,
however, that the Fund may invest all or part of its investable
assets in an open-end management investment company with the same
investment objective and restrictions as the Fund. This limitation
also shall not apply to issues of the U.S. Government and
repurchase agreements related thereto;
4. Purchase the securities or other obligations of issuers conducting
their principal business activity in the same industry if,
immediately after such purchase, the value of its investment in
such industry would exceed 25% of the value of the Fund's or the
Portfolio's total assets; provided, however, that the Fund may
invest all or part of its assets in an open-end management
investment company with the same investment objective and
restrictions as the Fund. For purposes of industry concentration,
there is no percentage limitation with respect to investments in
U.S. Government securities and repurchase agreements related
thereto;
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5. Make loans, except through purchasing or holding debt obligations,
repurchase agreements, or loans of portfolio securities in
accordance with the Fund's or the Portfolio's investment objective
and policies (see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any
combination thereof, real estate, commodities, or commodity
contracts or interests in oil, gas, or mineral exploration or
development programs;
7. Purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall
not be deemed to be applicable to the purchase or sale of
when-issued securities or of securities for delivery at a future
date;
8. Acquire securities of other investment companies, except as
permitted by the 1940 Act or in connection with a merger,
consolidation, reorganization, acquisition of assets or an offer
of exchange; provided, however, that nothing in this investment
restriction shall prevent the Trust from investing all or part of
the Fund's assets in an open-end management investment company
with the same investment objective and restrictions as the Fund;
or
9. Act as an underwriter of securities.
The SHORT TERM BOND FUND and its corresponding PORTFOLIO may
not:
1. Purchase securities or other obligations of issuers conducting
their principal business activity in the same industry if,
immediately after such purchase the value of its investments in
such industry would exceed 25% of the value of the Fund's total
assets; provided, however, that the Fund may invest all or part of
its investable assets in an open-end management investment company
with the same investment objective and restrictions as the Fund's.
For purposes of industry concentration, there is no percentage
limitation with respect to investments in U.S. Government
securities;
2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the
Fund's total assets would be invested in securities or other
obligations of any one such issuer; provided, however, that the
Fund may invest all or part of its investable assets in an
open-end management investment company with the same investment
objective and restrictions as the Fund's. This limitation shall
not apply to securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities or to permitted
investments of up to 25% of the Fund's total assets;
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3. Purchase the securities of an issuer if, immediately after such
purchase, the Fund owns more than 10% of the outstanding voting
securities of such issuer; provided, however, that the Fund may
invest all or part of its investable assets in an open-end
management investment company with the same investment objective
and restrictions as the Fund's. This limitation shall not apply to
permitted investments of up to 25% of the Fund's total assets;
4. Borrow money (not including reverse repurchase agreements), except
from banks for temporary or extraordinary or emergency purposes
and then only in amounts up to 30% of the value of the Fund's or
the Portfolio's total assets, taken at cost at the time of such
borrowing (and provided that such borrowings and reverse
repurchase agreements do not exceed in the aggregate one-third of
the market value of the Fund's and the Portfolio's total assets
less liabilities other than the obligations represented by the
bank borrowings and reverse repurchase agreements). The Fund will
not mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not to exceed
30% of the value of the Fund's or the Portfolio's net assets at
the time of such borrowing. The Fund or the Portfolio will not
purchase securities while borrowings exceed 5% of the Fund's total
assets; provided, however, that the Fund may increase its interest
in an open-end management investment company with the same
investment objective and restrictions as the Fund's while such
borrowings are outstanding. Collateral arrangements for premium
and margin payments in connection with the Fund's hedging
activities are not deemed to be a pledge of assets;
5. Issue any senior security, except as appropriate to evidence
indebtedness which constitutes a senior security and which the
Fund is permitted to incur pursuant to Investment Restriction No.
4 and except that the Fund may enter into reverse repurchase
agreements, provided that the aggregate of senior securities,
including reverse repurchase agreements, shall not exceed
one-third of the market value of the Fund's total assets, less
liabilities other than obligations created by reverse repurchase
agreements. The Fund's arrangements in connection with its hedging
activities as described in "Investment Objectives and Policies"
shall not be considered senior securities for purposes hereof;
6. Make loans, except through the purchase or holding of debt
obligations (including privately placed securities) or the
entering into of repurchase agreements, or loans
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of portfolio securities in accordance with the Fund's
investment objective and policies;
7. Purchase or sell puts, calls, straddles, spreads, or any
combination thereof, real estate, commodities, or commodity
contracts, except for the Fund's interests in hedging activities
as described under "Investment Objectives and Policies"; or
interests in oil, gas, or mineral exploration or development
programs. However, the Fund may purchase securities or commercial
paper issued by companies which invest in real estate or interests
therein, including real estate investment trusts, and purchase
instruments secured by real estate or interests therein;
8. Purchase securities on margin, make short sales of securities, or
maintain a short position in securities, except to obtain such
short-term credit as necessary for the clearance of purchases and
sales of securities; provided that this restriction shall not be
deemed to be applicable to the purchase or sale of when-issued
securities or delayed delivery securities;
9. Acquire securities of other investment companies, except
as permitted by the 1940 Act or in connection with a
merger, consolidation, reorganization, acquisition of
assets or an offer of exchange; provided, however, that
nothing in this investment restriction shall prevent the
Trust from investing all or part of the Fund's assets in
an open-end management investment company with the same
investment objective and restrictions as the Fund; or
10. Act as an underwriter of securities.
The BOND FUND and its corresponding PORTFOLIO may not:
1. Borrow money, except from banks for extraordinary or
emergency purposes and then only in amounts up to 30% of
the value of the Fund's total assets, taken at cost at
the time of such borrowing and except in connection with
reverse repurchase agreements permitted by Investment
Restriction No. 8. Mortgage, pledge, or hypothecate any
assets except in connection with any such borrowing in
amounts up to 30% of the value of the Fund's net assets
at the time of such borrowing. The Fund will not
purchase securities while borrowings (including reverse
repurchase agreements) exceed 5% of the Fund's total
assets; provided, however, that the Fund may increase its
interest in an open-end management investment company
with the same investment objective and restrictions as
the Fund's while such borrowings are outstanding. This
borrowing provision facilitates the orderly sale of
portfolio securities, for example, in the event of
abnormally heavy redemption requests. This provision is
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<PAGE>
not for investment purposes. Collateral arrangements for
premium and margin payments in connection with the Fund's
hedging activities are not deemed to be a pledge of
assets;
2. Purchase the securities or other obligations of any one
issuer if, immediately after such purchase, more than 5%
of the value of the Fund's total assets would be invested
in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all
or part of its investable assets in an open-end
management investment company with the same investment
objective and restrictions as the Fund's. This
limitation shall not apply to securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to
25% of the Fund's total assets;
3. Purchase the securities of an issuer if, immediately
after such purchase, the Fund owns more than 10% of the
outstanding voting securities of such issuer; provided,
however, that the Fund may invest all or part of its
investable assets in an open-end management investment
company with the same investment objective and
restrictions as the Fund's. This limitation shall not
apply to permitted investments of up to 25% of the Fund's
total assets;
4. Purchase securities or other obligations of issuers
conducting their principal business activity in the same
industry if, immediately after such purchase the value of
its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that
the Fund may invest all or part of its investable assets
in an open-end management investment company with the
same investment objective and restrictions as the Fund's.
For purposes of industry concentration, there is no percentage
limitation with respect to investments in U.S.
Government securities;
5. Make loans, except through the purchase or holding of debt
obligations (including privately placed securities) or the
entering into of repurchase agreements, or loans of portfolio
securities in accordance with the Fund's investment objective and
policies;
6. Purchase or sell puts, calls, straddles, spreads, or any
combination thereof, real estate, commodities, commodity
contracts, except for the Fund's interest in hedging
activities as described under "Investment Objectives and
Policies"; or interests in oil, gas, or mineral
exploration or development programs. However, the Fund
may purchase debt obligations secured by interests in
real estate or issued by companies which invest in real
estate or interests therein including real estate
48
<PAGE>
investment trusts;
7. Purchase securities on margin, make short sales of
securities, or maintain a short position in securities,
except in the course of the Fund's hedging activities,
unless at all times when a short position is open the
Fund owns an equal amount of such securities, provided
that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued
securities or delayed delivery securities;
8. Issue any senior security, except as appropriate to
evidence indebtedness which constitutes a senior security
and which the Fund is permitted to incur pursuant to
Investment Restriction No. 1 and except that the Fund may
enter into reverse repurchase agreements, provided that
the aggregate of senior securities, including reverse
repurchase agreements, shall not exceed one-third of the
market value of the Fund's total assets, less liabilities
other than obligations created by reverse repurchase
agreements. The Fund's arrangements in connection with
its hedging activities as described in "Investment
Objectives and Policies" shall not be considered senior
securities for purposes hereof;
9. Acquire securities of other investment companies, except
as permitted by the 1940 Act; or
10. Act as an underwriter of securities.
The TAX EXEMPT BOND FUND and its corresponding PORTFOLIO may
not:
1. Borrow money, except from banks for extraordinary or
emergency purposes and then only in amounts up to 10% of
the value of the Fund's total assets, taken at cost at
the time of such borrowing; or mortgage, pledge, or
hypothecate any assets except in connection with any such
borrowing in amounts up to 10% of the value of the Fund's
net assets at the time of such borrowing. The Fund will
not purchase securities while borrowings exceed 5% of the
Fund's total assets; provided, however, that the Fund may
increase its interest in an open-end management
investment company with the same investment objective and
restrictions as the Fund's while such borrowings are
outstanding. This borrowing provision facilitates the
orderly sale of portfolio securities, for example, in the
event of abnormally heavy redemption requests. This
provision is not for investment purposes. Collateral
arrangements for premium and margin payments in
connection with the Fund's hedging activities are not
deemed to be a pledge of assets;
2. Purchase securities or other obligations of any one
49
<PAGE>
issuer if, immediately after such purchase, more than 5% of the
value of the Fund's total assets would be invested in securities
or other obligations of any one such issuer; provided, however,
that the Fund may invest all or part of its investable assets in
an open-end management investment company with the same
investment objective and restrictions as the Fund's. Each state
and each political subdivision, agency or instrumentality of such
state and each multi-state agency of which such state is a member
will be a separate issuer if the security is backed only by the
assets and revenue of that issuer. If the security is guaranteed
by another entity, the guarantor will be deemed to be the
issuer.3 This limitation shall not apply to securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of the
Fund's total assets;
3. Invest more than 25% of its total assets in securities of
governmental units located in any one state, territory, or
possession of the United States. The Fund may invest more than
25% of its total assets in industrial developments and pollution
control obligations whether or not the users of facilities
financed by such obligations are in that same industry;4
4. Purchase industrial revenue bonds if, as a result of such
purchase, more than 5% of total Fund assets would be invested in
industrial revenue bonds where payment of principal and interest
are the responsibility of companies with fewer than three years
of operating history (including predecessors);
5. Make loans, except through the purchase or holding of debt
obligations (including privately placed securities) or the
entering into of repurchase agreements, or loans of portfolio
securities in accordance with the Fund's investment objective and
policies (see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any
combination thereof except to the extent that securities
subject to a demand obligation, stand-by commitments and
puts may be purchased (see "Investment Objectives and
Policies"); real estate; commodities; commodity
contracts, except for the Fund's interests in hedging
activities as described under "Investment Objectives and
Policies"; or interests in oil, gas, or mineral
exploration or development programs. However, the Fund
may purchase municipal bonds, notes or commercial paper
secured by interests in real estate;
7. Purchase securities on margin, make short sales of
securities, or maintain a short position, except in the
--------
3 For purposes of interpretation of Investment Restriction No. 2,
"guaranteed by another entity" includes credit substitutions,
such as letters of credit or insurance, unless the Advisor
determines that the security meets the Fund's credit standards
without regard to the credit substitution. 4Pursuant to an
interpretation of the staff of the SEC, the Fund may not invest
more than 25% of its assets in industrial development bonds in
projects of similar type or in the same state. The Fund shall
comply with this interpretation until such time as it may be
modified by the staff of the SEC.
50
<PAGE>
course of the Fund's hedging activities, unless at all times when
a short position is open the Fund owns an equal amount of such
securities or owns securities which, without payment of any
further consideration, are convertible into or exchangeable for
securities of the same issue as, and equal in amount to, the
securities sold short; provided that this restriction shall not
be deemed to be applicable to the purchase or sale of when-issued
or delayed delivery securities;
8. Issue any senior security, except as appropriate to evidence
indebtedness which the Fund is permitted to incur pursuant to
Investment Restriction No. 1. The Fund's arrangements in
connection with its hedging activities as described in
"Investment Objectives and Policies" shall not be considered
senior securities for purposes hereof;
9. Acquire securities of other investment companies, except
as permitted by the 1940 Act; or
10. Act as an underwriter of securities.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC
staff interpretations thereof, are amended or modified, the NEW YORK TOTAL
RETURN BOND FUND and its corresponding PORTFOLIO may not:
1. Purchase any security if, as a result, more than 25% of the value
of the Fund's total assets would be invested in securities of
issuers having their principal business activities in the same
industry. This limitation shall not apply to obligations issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities;
2. Borrow money, except that the Fund may (i) borrow money
from banks for temporary or emergency purposes (not for
leveraging purposes) and (ii) enter into reverse
repurchase agreements for any purpose; provided that (i)
and (ii) in total do not exceed 33 1/3% of the value of
the Fund's total assets (including the amount borrowed)
less liabilities (other than borrowings). If at any time
any borrowings come to exceed 33 1/3% of the value of the
Fund's total assets, the Fund will reduce its borrowings
within three business days to the extent necessary to
comply with the 33 1/3% limitation;
3. Make loans to other persons, except through the purchase
of debt obligations, loans of portfolio securities, and
participation in repurchase agreements;
4. Purchase or sell physical commodities or contracts
thereon, unless acquired as a result of the ownership of
securities or instruments, but the Fund may purchase or
sell futures contracts or options (including options on
51
<PAGE>
futures contracts, but excluding options or futures contracts on
physical commodities) and may enter into foreign currency forward
contracts;
5. Purchase or sell real estate, but the Fund may purchase or sell
securities that are secured by real estate or issued by companies
(including real estate investment trusts) that invest or deal in
real estate;
6. Underwrite securities of other issuers, except to the
extent the Fund, in disposing of portfolio securities,
may be deemed an underwriter within the meaning of the
1933 Act;
7. Issue senior securities, except as permitted under the
1940 Act or any rule, order or interpretation thereunder;
or
8. Notwithstanding any other investment restriction of the Fund, the
Fund may invest all of its investable assets in an open-end
management investment company having the same investment
objective and restrictions as the Fund.
The DIVERSIFIED FUND and
its corresponding
PORTFOLIO may not:
1. Purchase the securities or other obligations of issuers
conducting their principal business activity in the same
industry if, immediately after such purchase the value of
its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that
the Fund may invest all or part of its investable assets
in an open-end management investment company with the
same investment objective and restrictions as the Fund's.
For purposes of industry concentration, there is no percentage
limitation with respect to investments in U.S.
Government securities;
52
<PAGE>
2. Purchase the securities or other obligations of any one
issuer if, immediately after such purchase, more than 5%
of the value of the Fund's total assets would be
invested in securities or other obligations of any one
such issuer; provided, however, that the Fund may invest
all or part of its investable assets in an open-end
management investment company with the same investment
objective and restrictions as the Fund's. This
limitation shall not apply to securities
issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or to permitted
investments of up to 25% of the Fund's total assets;
3. Purchase the securities of an issuer if, immediately
after such purchase, the Fund owns more than 10% of the
outstanding voting securities of such issuer; provided,
however, that the Fund may invest all or part of its
investable assets in an open-end management investment
company with the same investment objective and
restrictions as the Fund's. This limitation shall not
apply to permitted investments of up to 25% of the
Fund's total assets;
4. Borrow money (not including reverse repurchase
agreements), except from banks for temporary or
extraordinary or emergency purposes and then only in
amounts up to 30% of the value of the Fund's or the
Portfolio's total assets, taken at cost at the time of
such borrowing (and provided that such borrowings and
reverse repurchase agreements do not exceed in the
aggregate one-third of the market value of the Fund's and
the Portfolio's total assets less liabilities other than
the obligations represented by the bank borrowings and
reverse repurchase agreements). The Fund will not
mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not to
exceed 30% of the value of the Fund's or the Portfolio's
net assets at the time of such borrowing. The Fund or
the Portfolio will not purchase securities while
borrowings exceed 5% of the Fund's total assets;
provided, however, that the Fund may increase its
interest in an open-end management investment company
with the same investment objective and restrictions as
the Fund's while such borrowings are outstanding. This
borrowing provision is included to facilitate the orderly
sale of portfolio securities, for example, in the event
of abnormally heavy redemption requests, and is not for
investment purposes. Collateral arrangements for premium
and margin payments in connection with the Fund's use of
futures contracts and options are not deemed to be a
pledge of assets;
53
<PAGE>
5. Issue any senior security, except as appropriate to
evidence indebtedness which constitutes a senior security
and which the Fund is permitted to incur pursuant to
Investment Restriction No. 4 and except that the Fund may
enter into reverse repurchase agreements, provided that
the aggregate of senior securities, including reverse
repurchase agreements, shall not exceed one-third of the
market value of the Fund's total assets, less liabilities
other than obligations created by reverse repurchase
agreements. The Fund's arrangements in connection with
its use of futures contracts and options shall not be
considered senior securities for purposes hereof;
6. Make loans, except through the purchase or holding of debt
obligations (including privately placed securities), or the
entering into of repurchase agreements, or loans of portfolio
securities in accordance with the Fund's investment objective and
policies (see "Investment Objectives and Policies");
7. Purchase or sell
commodities or
commodity contracts,
but this restriction shall not
prohibit the Fund from purchasing or selling futures
contracts or options (including options on futures
contracts, but excluding options or futures contracts on
physical commodities) or entering into foreign currency
forward contracts; or purchase or sell real estate or
interests in oil, gas, or mineral exploration or
development programs. However, the Fund may purchase
securities or commercial paper issued by companies which
invest in real estate or interests therein, including
real estate investment trusts , and purchase instruments
secured by real estate or interests therein;
8. Purchase securities on margin, make short sales of
securities, or maintain a short position in securities,
except to
obtain such short term credit as necessary for the
clearance of purchases and sales of securities, provided
that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued
securities or delayed delivery securities or to
restrict the Fund's use of futures contracts or options;
9. Acquire securities of other investment companies, except as
permitted by the 1940 Act or in connection with a merger,
consolidation, reorganization, acquisition of assets or an offer
of exchange; provided, however, that nothing in this investment
restriction shall prevent the Trust from investing all or part of
the Fund's assets in
54
<PAGE>
an open-end management investment company with the same
investment objective and restrictions as the Fund; or
10. Act as an underwriter of securities.
Each of the SELECTED U.S. EQUITY FUND and the
U.S. SMALL COMPANY FUND and its corresponding
PORTFOLIOS may not:
1. Purchase the securities or other obligations of issuers
conducting their principal business activity in the same
industry if, immediately after such purchase the value of
its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that
the Fund may invest all or part of its investable assets
in an open-end management investment company with the
same investment objective and restrictions as the Fund's.
For purposes of industry concentration, there is no percentage
limitation with respect to investments in U.S.
Government securities;
2. Borrow money, except from banks for extraordinary or
emergency purposes and then only in amounts not to exceed
10% of the value of the Fund's total assets, taken at
cost, at the time of such borrowing. Mortgage, pledge,
or hypothecate any assets except in connection with any
such borrowing and in amounts not to exceed 10% of the
value of the Fund's net assets at the time of such
borrowing. The Fund will not purchase securities while
borrowings exceed 5% of the Fund's total assets;
provided, however, that the Fund may increase its
interest in an open-end management investment company
with the same investment objective and restrictions as
the Fund's while such borrowings are outstanding. This
borrowing provision is included to facilitate the orderly
sale of portfolio securities, for example, in the event
of abnormally heavy redemption requests, and is not for
investment purposes. Collateral arrangements for premium
and margin payments in connection with the Fund's hedging
activities are not deemed to be a pledge of assets;
3. Purchase the securities or other obligations of any one
55
<PAGE>
issuer if, immediately after such purchase, more than 5% of the
value of the Fund's total assets would be invested in securities
or other obligations of any one such issuer; provided, however,
that the Fund may invest all or part of its investable assets in
an open-end management investment company with the same
investment objective and restrictions as the Fund's. This
limitation shall not apply to issues of the U.S. Government, its
agencies or instrumentalities and to permitted investments of up
to 25% of the Fund's total assets;
4. Purchase the securities of an issuer if, immediately
after such purchase, the Fund owns more than 10% of the
outstanding voting securities of such issuer; provided,
however, that the Fund may invest all or part of its
investable assets in an open-end management investment
company with the same investment objective and
restrictions as the Fund's
56
<PAGE>
;
5. Make loans, except through the purchase or holding of debt
obligations (including privately placed securities), or the
entering into of repurchase agreements, or loans of portfolio
securities in accordance with the Fund's investment objective and
policies (see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any
combination thereof, real estate, commodities, or
commodity contracts,
except for the Fund's interests in hedging activities as
described under "Investment Objectives and Policies"; or
interests in oil, gas, or mineral exploration or
development programs. However, the Fund may purchase
securities or commercial paper issued by companies which
invest in real estate or interests therein, including
real estate investment trusts
;
7. Purchase securities on margin, make short sales of
securities, or maintain a short position ,
except
in
the course of the Fund's hedging activities, provided
that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued
securities or delayed delivery securities
;
8. Acquire securities of other investment companies, except
as permitted by the 1940 Act
;
57
<PAGE>
9. Act as an underwriter of securities;
10. Issue any senior security, except as appropriate to evidence
indebtedness which the Fund is permitted to incur pursuant to
Investment Restriction No. 2. The Fund's arrangements in
connection with its hedging activities as described in
"Investment Objectives and Policies" shall not be considered
senior securities for purposes hereof; or
11. Purchase any equity security if, as a result, the Fund would then
have more than 5% of its total assets invested in securities of
companies (including predecessors) that have been in continuous
operation for fewer than three years.
The INTERNATIONAL EQUITY FUND and its corresponding PORTFOLIO may not:
1. Borrow money, except from banks for extraordinary or
emergency purposes and then only in amounts up to 30% of
the value of the Fund's net assets at the time of
borrowing, and except in connection with reverse
repurchase agreements and then only in amounts up to 33
1/3% of the value of the Fund's net assets; or purchase
securities while borrowings, including reverse repurchase
agreements, exceed 5% of the Fund's total assets;
provided, however, that the Fund may increase its
interest in an open-end management investment company
with the same investment objective and restrictions as
the Fund's while such borrowings are outstanding. The
Fund will not mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in
amounts not to exceed 30% of the value of the Fund's net
assets at the time of such borrowing;
2. Purchase the securities or other obligations of any one
issuer if, immediately after such purchase, more than 5%
of the value of the Fund's total assets would be invested
in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all
or part of its investable assets in an open-end
management investment company with the same investment
objective and restrictions as the Fund's. This
limitation shall not apply to securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to
25% of the Fund's total assets;
3. Purchase the securities of an issuer if, immediately after such
purchase, the Fund owns more than 10% of the outstanding voting
securities of such issuer; provided, however, that the Fund may
invest all or part of its investable assets in an open-end
management investment
58
<PAGE>
company with the same investment objective and
restrictions as the Fund's. This limitation shall not
apply to permitted investments of up to 25% of the Fund's
total assets;
4. Purchase the securities or other obligations of issuers
conducting their principal business activity in the same
industry if, immediately after such purchase, the value
of its investments in such industry would exceed 25% of
the value of the Fund's total assets; provided, however,
that the Fund may invest all or part of its investable
assets in an open-end management investment company with
the same investment objective and restrictions as the
Fund's. For purposes of industry concentration, there is
no percentage limitation with respect to investments in
U.S. Government securities;
5. Make loans, except through the purchase or holding of
debt obligations (including restricted securities), or
the entering into of repurchase agreements, or loans of
portfolio securities in accordance with the Fund's
investment objective and policies, see "Additional
Investment Information" in the Prospectus and "Investment
Objectives and Policies" in this Statement of Additional
Information;
6. Purchase or sell puts, calls, straddles, spreads, or any
combination thereof, real property, including limited
partnership interests, commodities, or commodity
contracts, except for the Fund's interests in hedging and
foreign exchange activities as described under
"Additional Investment Information" in the Prospectus; or
interests in oil, gas, mineral or other exploration or
development programs or leases. However, the Fund may
purchase securities or commercial paper issued by
companies that invest in real estate or interests therein
including real estate investment trusts;
7. Purchase securities on margin, make short sales of securities, or
maintain a short position in securities, except to obtain such
short-term credit as necessary for the clearance of purchases and
sales of securities, provided that this restriction shall not be
deemed to apply to the purchase or sale of when-issued securities
or delayed delivery securities;
8. Acquire securities of other investment companies, except
as permitted by the 1940 Act;
9. Act as an underwriter of securities, except insofar as
the Fund may be deemed to be an underwriter under the
1933 Act by virtue of disposing of portfolio securities;
or
59
<PAGE>
10. Issue any senior security, except as appropriate to evidence
indebtedness which the Fund is permitted to incur pursuant to
Investment Restriction No. 1. The Fund's arrangements in
connection with its hedging activities as described in
"Additional Investment Information" in the Prospectus shall not
be considered senior securities for purposes hereof.
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 of the EMERGING
MARKETS EQUITY , EUROPEAN EQUITY AND ASIA GROWTH FUNDS and its corresponding
PORTFOLIO may not:
1. Purchase any security if, as a result, more than 25% of the value
of the Fund's total assets would be invested in securities of
issuers having their principal business activities in the same
industry. This limitation shall not apply to obligations issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities;
2. Borrow money, except that the Fund may (i) borrow money
from banks for temporary or emergency purposes (not for
leveraging purposes) and (ii) enter into reverse
repurchase agreements for any purpose; provided that (i)
and (ii) in total do not exceed 33 1/3% of the value of
the Fund's total assets (including the amount borrowed)
less liabilities (other than borrowings). If at any time
any borrowings come to exceed 33 1/3% of the value of the
Fund's total assets, the Fund will reduce its borrowings
within three business days to the extent necessary to
comply with the 33 1/3% limitation;
3. With respect to 75% of its total assets, purchase any
security if, as a result, (a) more than 5% of the value
of the Fund's total assets would be invested in
securities or other obligations of any one issuer; or (b)
the Fund would hold more than 10% of the outstanding
voting securities of that issuer. This limitation shall
not apply to Government securities (as defined in the
1940 Act);
4. Make loans to other persons, except through the purchase
of debt obligations, loans of portfolio securities, and
participation in repurchase agreements;
5. Purchase or sell physical commodities or contracts thereon,
unless acquired as a result of the ownership of securities or
instruments, but the Fund may purchase or sell futures contracts
or options (including options on futures contracts, but excluding
options or futures contracts on physical commodities) and may
enter into foreign currency forward contracts;
6. Purchase or sell real estate, but the Fund may purchase
or sell securities that are secured by real estate or
60
<PAGE>
issued by companies (including real estate investment
trusts) that invest or deal in real estate;
7. Underwrite securities of other issuers, except to the
extent the Fund, in disposing of portfolio securities,
may be deemed an underwriter within the meaning of the
1933 Act;
8. Issue senior securities, except as permitted under the
1940 Act or any rule, order or interpretation thereunder;
and
9. Notwithstanding any other investment restriction of the Fund, the
Fund may invest all of its investable assets in an open-end
management investment company having the same investment
objective and restrictions as the Fund.
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 of the INTERNATIONAL
BOND AND JAPAN EQUITY FUNDS and its corresponding PORTFOLIO may not:
1. Purchase any security if, as a result, more than 25% of
the value of the Fund's total assets would be invested in
securities of issuers having their principal business
activities in the same industry. This limitation shall
not apply to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities
;5
2. Borrow money, except that the Fund may (i) borrow money
from banks for temporary or emergency purposes (not for
leveraging purposes) and (ii) enter into reverse
repurchase agreements for any purpose; provided that (i)
and (ii) in total do not exceed 33 1/3% of the value of
the Fund's total assets (including the amount borrowed)
less liabilities (other than borrowings). If at any time
any borrowings come to exceed 33 1/3% of the value of the
Fund's total assets, the Fund will reduce its borrowings
within three business days to the extent necessary to
comply with the 33 1/3% limitation;
3. Make loans to other persons, except through the purchase
of debt obligations, loans of portfolio securities, and
participation in repurchase agreements;
4. Purchase or sell physical commodities or contracts
thereon, unless acquired as a result of the ownership of
--------
5While subject to changing interpretations, so long as a single
foreign government or supranational organization is considered to
be an "industry" for the purposes of this 25% limitation, the
Portfolio will comply therewith. The staff of the SEC considers
all supranational organizations (as a group) to be a single
industry for concentration purposes.
61
<PAGE>
securities or instruments, but the Fund may purchase or sell
futures contracts or options (including options on futures
contracts, but excluding options or futures contracts on physical
commodities) and may enter into foreign currency forward
contracts;
5. Purchase or sell real estate, but the Fund may purchase or sell
securities that are secured by real estate or issued by companies
(including real estate investment trusts) that invest or deal in
real estate;
6. Underwrite securities of other issuers, except to the
extent the Fund, in disposing of portfolio securities,
may be deemed an underwriter within the meaning of the
1933 Act;
7. Issue senior securities, except as permitted under the
1940 Act or any rule, order or interpretation thereunder;
and
8. Notwithstanding any other investment restriction of the Fund, the
Fund may invest all of its investable assets in an open-end
management investment company having substantially the same
investment objective and restrictions as the Fund.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - TAX EXEMPT MONEY MARKET FUND
AND TREASURY MONEY MARKET FUND. The investment restriction described below is
not a fundamental policy of these Funds or their corresponding Portfolios and
may be changed by their respective Trustees. This non-fundamental investment
policy requires that each such Fund may not:
(i) acquire any illiquid securities, such as repurchase agreements
with more than seven days to maturity or fixed time deposits with
a duration of over seven calendar days, if as a result thereof,
more than 10% of the market value of the Fund's total assets
would be in investments that are illiquid.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - SHORT TERM BOND FUND, TAX
EXEMPT BOND FUND, BOND FUND, INTERNATIONAL BOND FUND, SELECTED U.S. EQUITY FUND,
U.S. SMALL COMPANY FUND, INTERNATIONAL EQUITY FUND , DIVERSIFIED FUND, EMERGING
MARKETS EQUITY FUND, EUROPEAN EQUITY FUND, JAPAN EQUITY FUND AND ASIA GROWTH
FUND. The investment restriction described below is not a fundamental policy of
these Funds or their corresponding Portfolios and may be changed by their
respective Trustees. This non-fundamental investment policy requires that each
such Fund may not:
(i) acquire any illiquid securities, such as repurchase agreements
with more than seven days to maturity or fixed time deposits with
a duration of over seven calendar days, if as a result thereof,
more than 15% of the market
62
<PAGE>
value of the Fund's total assets would be in investments
that are illiquid.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - INTERNATIONAL EQUITY FUND AND
DIVERSIFIED FUND. The investment restrictions described below are not
fundamental policies of these Funds or their corresponding Portfolios and may be
changed by their respective Trustees. These non-fundamental investment policies
require that each such Fund may not:
(i) purchase any equity security if, as a result, the Fund would then
have more than 5% of its total assets invested in securities of
companies (including predecessors) that have been in continuous
operation for fewer than three years;
(ii) invest in warrants (other than warrants acquired by the
Fund as part of a unit or attached to securities at the
time of purchase) if, as a result, the investments
(valued at the lower of cost or market) would exceed 5%
of the value of the Fund's net assets or if, as a
result, more than 2% of the Fund's net assets would be
invested in warrants not listed on a recognized United
States or foreign stock exchange, to the extent
permitted by applicable state securities laws; or
(iii) invest in any securities issued by an issuer any of
whose officers, directors, trustees or security holders
is an officer or Trustee of the Trust, or is an officer
of the Investment Advisor, if after the Portfolio's
purchase of the securities of such issuer, one or more
of such persons owns beneficially more than 1/2 of 1%
of the shares or securities, or both, all taken at
market value, of such issuer, and such persons owning
more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares
or securities, or both, all taken at market value.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - NEW YORK TOTAL RETURN BOND
FUND. The investment restrictions described below are not fundamental policies
of the New York Total Return Bond Fund and its corresponding Portfolio and may
be changed by their Trustees. These non-fundamental investment policies require
that the New York Total Return Bond Fund and its corresponding Portfolio may
not:
(i) Acquire securities of other investment companies, except as
permitted by the 1940 Act or any rule, order or interpretation
thereunder, or in connection with a merger, consolidation,
reorganization, acquisition of assets or an offer of exchange;
(ii) Acquire any illiquid securities, such as repurchase
agreements with more than seven days to maturity or
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fixed time deposits with a duration of over seven calendar days,
if as a result thereof, more than 15% of the market value of the
Fund's total assets would be in investments that are illiquid;
(iii) Sell any security short, unless it owns or has the right to
obtain securities equivalent in kind and amount to the securities
sold or unless it covers such short sales as required by the
current rules or positions of the SEC or its staff. Transactions
in futures contracts and options shall not constitute selling
securities short; or
(iv) Purchase securities on margin, but the Fund may obtain
such short term credits as may be necessary for the
clearance of transactions.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - SELECTED U.S. EQUITY FUND AND
U.S. SMALL COMPANY FUND. The investment restrictions described below are not
fundamental policies of these Funds or their corresponding Portfolios and may be
changed by their respective Trustees. These non-fundamental investment policies
require that each such Fund may not:
(i) invest in warrants (other than warrants acquired by the
Fund as part of a unit or attached to securities at the
time of purchase) if, as a result, the investments
(valued at the lower of cost or market) would exceed 5%
of the value of the Fund's net assets or if, as a
result, more than 2% of the Fund's net assets would be
invested in warrants not listed on a recognized U.S. or
foreign stock exchange, to the extent permitted by
applicable state securities laws; or
(ii) invest in any securities issued by an issuer any of
whose officers, directors, trustees or security holders
is an officer or Trustee of the Trust, or is an officer
of the Investment Advisor, if after the Portfolio's
purchase of the securities of such issuer, one or more
of such persons owns beneficially more than 1/2 of 1%
of the shares or securities, or both, all taken at
market value, of such issuer, and such persons owning
more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares
or securities, or both, all taken at market value.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - SELECTED U.S.
EQUITY FUND, U.S. SMALL COMPANY FUND AND DIVERSIFIED FUND. The
investment restrictions described below are not fundamental
policies of these Funds or their corresponding Portfolios and may
be changed by their respective Trustees. These non-fundamental
investment policies require that each such Fund may not:
(i) invest in real estate limited partnership interests; or
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(ii) invest in oil, gas or other mineral leases.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - EMERGING MARKETS EQUITY FUND,
EUROPEAN EQUITY FUND AND ASIA GROWTH FUND. The investment restrictions described
below are not fundamental policies of these Funds or their corresponding
Portfolios and may be changed by their respective Trustees. These
non-fundamental investment policies require that each such Fund may not:
(i) Acquire securities of other investment companies, except as
permitted by the 1940 Act or any rule, order or interpretation
thereunder, or in connection with a merger, consolidation,
reorganization, acquisition of assets or an offer of exchange;
(ii) Purchase any security if, as a result, the Fund would
then have more than 5% of its total assets invested
in securities of companies (including predecessors)
that have been in continuous operation for fewer than
three years;
(iii) Invest in warrants (other than warrants acquired by
the Fund as part of a unit or attached to
securities at the time of purchase) if, as a
result, the investments (valued at the lower of
cost or market) would exceed 5% of the value of the
Fund's net assets or if, as a result, more than 2%
of the Fund's net assets would be invested in
warrants not listed on a recognized U.S. or foreign
stock exchange, to the extent permitted by
applicable state securities laws;
(iv) Sell any security short, unless it owns or has the
right to obtain securities equivalent in kind and
amount to the securities sold or unless it covers
such short sales as required by the current rules or
positions of the SEC or its staff. Transactions in
futures contracts and options shall not constitute
selling securities short;
(v) Purchase securities on margin, but the Fund may
obtain such short term credits as may be necessary
for the clearance of transactions;
(vi) Purchase or retain securities of any issuer if, to
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the knowledge of the Fund, any of the Fund's officers
or Trustees or any officer of the Portfolio's
investment adviser individually owns more than 1/2 of
1% of the issuer's outstanding securities and such
persons owning more than 1/2 of 1% of such securities
together beneficially own more than 5% of such
securities, all taken at market; or
(vii) Invest in real estate limited partnerships or
purchase interests in oil, gas or mineral exploration
or development programs or leases.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - INTERNATIONAL BOND FUND AND
JAPAN EQUITY FUND. The investment restrictions described below are not
fundamental policies of these Funds or their Portfolios and may be changed by
their respective Trustees. These non-fundamental investment policies require
that each such Fund may not:
(i) Acquire securities of other investment companies, except as
permitted by the 1940 Act or any rule, order or interpretation
thereunder, or in connection with a merger, consolidation,
reorganization, acquisition of assets or an offer of exchange;
(ii) Purchase any security if, as a result, the Fund would
then have more than 5% of its total assets invested
in securities of companies (including predecessors)
that have been in continuous operation for fewer than
three years;
(iii) Sell any security short, unless it owns or has the
right to obtain securities equivalent in kind and
amount to the securities sold or unless it covers
such short sales as required by the current rules
or positions of the Securities and Exchange
Commission or its staff. Transactions in futures
contracts and options shall not constitute selling
securities short;
(iv) Purchase or retain securities of any issuer if, to
the knowledge of the Fund, any of the Fund's
officers or Trustees or any officer of the
Portfolio's investment adviser individually owns
more than 1/2 of 1% of the issuer's outstanding
securities and such persons owning more than 1/2 of
1% of such securities together beneficially own more
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than 5% of such securities, all taken at market;
(v) Purchase securities on margin, but the Fund may
obtain such short term credits as may be necessary
for the clearance of transactions; or
(vi) Invest in real estate limited partnerships or
purchase interests in oil, gas or mineral exploration
or development programs or leases.
ALL FUNDS. There will be no violation of any investment restriction if
that restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
TRUSTEES AND OFFICERS
TRUSTEES
The Trustees of the Trust, who are also the Trustees of each of the
Portfolios, their business addresses, and their principal occupations during the
past five years are set forth below.
FREDERICK S. ADDY--Trustee; Retired; Executive Vice President and Chief
Financial Officer from January 1990 to April 1994, Amoco Corporation; Director,
Ensearch Corp. (natural gas), since 1994. His address is 19129 RR 2147 W.
Horseshoe Bay, TX 78654.
WILLIAM G. BURNS--Trustee;
Retired; Limited Partner, Galen Partners L.P. and Vice Chairman,
Galen Associates, since 1990; Chief Executive Officer, Galen
Associates and General Partner, Galen Partners L.P., until 1991.
His address is 4241 S.W. Parkgate Blvd., Palm City, FL 34990.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Senior Vice President, Morgan
Guaranty Trust Company of New York until 1987. His address is 14 Alta Vista
Drive, RD #2, Princeton, NJ 08540.
MATTHEW HEALEY (*)--Trustee; Chairman and Chief Executive Officer, The
Pierpont Funds and The JPM Institutional Funds; Chairman, Pierpont Group, Inc.,
since 1989; Chairman and Chief Executive Officer, Execution Services, Inc. until
October 1991. His address is Pine Tree Club Estates, 10286 Saint Andrew Road,
Boynton Beach, FL 33436.
MICHAEL P. MALLARDI--Trustee; Senior Vice President, Capital
Cities/ABC, Inc., President, Broadcast Group, since 1986. His address is 77 West
66th Street, New York, NY 10017.
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------------------------
(*) Mr. Healey is an "interested person" of the Trust and each
Portfolio as that term is defined in the 1940 Act.
The Trustees of the Trust are the same as the Trustees of each of the
Portfolios. In accordance with applicable state requirements, a majority of the
disinterested Trustees have adopted written procedures reasonably appropriate to
deal with potential conflicts of interest arising from the fact that the same
individuals are Trustees of the Trust, each of the Portfolios and The Pierpont
Funds, up to and including creating a separate board of trustees.
Each Trustee is paid an annual fee as follows for serving as Trustee of
the Trust, each of the Portfolios, The Series Portfolio and The Pierpont Funds,
and is reimbursed for expenses incurred in connection with service as a Trustee.
The compensation paid to the Trustees in calendar 1994 is set forth below. The
Trustees may hold various other directorships unrelated to these funds.
<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION FROM
AGGREGATE RETIREMENT THE TRUST, THE PIERPONT
COMPENSATION BENEFITS ESTIMATED FUNDS AND CORRESPONDING
FROM THE TRUST ACCRUED AS PART ANNUAL BENEFITS PORTFOLIOS PAID TO
DURING 1994 OF FUND EXPENSES UPON RETIREMENT TRUSTEES DURING 1994
<S> <C> <C> <C> <C>
Frederick S. Addy, Trustee $4,372 None None $55,000
William G. Burns, Trustee $4,372 None None $55,000
Arthur C. Eschenlauer, Trustee $4,372 None None $55,000
Matthew Healey, Trustee(*), $4,372 None None $55,000
Chairman and Chief Executive
Officer
Michael P. Mallardi, Trustee $4,372 None None $55,000
</TABLE>
(*) During 1994, Pierpont Group, Inc. paid Mr. Healey, in his role as Chairman
of Pierpont Group, Inc., compensation in the amount of $130,000, contributed
$19,500 to a defined contribution plan on his behalf and paid $20,000 in
insurance premiums for his benefit.
As of April 1, 1995 the annual fee paid to each Trustee for serving as
a Trustee of the Trust, each of the Portfolios, and The Pierpont Funds was
adjusted to $65,000.
The Trustees, in addition to reviewing actions of the Trust's and the
Portfolios' various service providers, decide upon matters of general policy. On
January 15, 1994 each of the Portfolios and the Trust entered into a Fund
Services Agreement with Pierpont Group, Inc. to assist the Trustees in
exercising their overall supervisory responsibilities over the affairs of the
Portfolios and the Trust. Pierpont Group, Inc. was organized in July 1989 to
provide services for The Pierpont Family of Funds, and the Trustees are the
equal and sole shareholders of Pierpont Group, Inc. The Trust and the Portfolios
have agreed to
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<PAGE>
pay Pierpont Group, Inc. a fee in an amount representing its
reasonable costs in performing these services. These costs are
periodically reviewed by the Trustees.
The aggregate fees paid to Pierpont Group, Inc. by each Fund and its
corresponding Portfolio during their respective fiscal years completed after
January 15, 1994 are set forth below:
MONEY MARKET FUND -- For the fiscal year ended November
30, 1994: $16,147.
THE MONEY MARKET PORTFOLIO -- For the fiscal year
ended November 30, 1994: $246,089.
TAX EXEMPT MONEY MARKET FUND -- For the fiscal year ended August
31, 1994: $1,745.
THE TAX EXEMPT MONEY MARKET PORTFOLIO -- For the fiscal year
ended August 31, 1994: $79,046.
TREASURY MONEY MARKET FUND -- For the fiscal year ended October
31, 1994: $6,211.
THE TREASURY MONEY MARKET PORTFOLIO -- For the fiscal year ended
October 31, 1994: $17,104.
SHORT TERM BOND -- For the fiscal year ended October 31, 1994:
$3,935.
THE SHORT TERM BOND PORTFOLIO -- For the fiscal year ended
October 31, 1994: $4,545.
TAX EXEMPT BOND FUND -- For the fiscal year ended August 31,
1994: $686.
THE TAX EXEMPT BOND PORTFOLIO -- For the fiscal year ended August
31, 1994: $35,243.
NEW YORK TOTAL RETURN BOND FUND -- For the period April 11, 1994
through March 31, 1995: $1,297.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO -- For the period April
11, 1994 through March 31, 1995: $4,140.
BOND FUND -- For the fiscal year ended October 31, 1994:
$12,989.
THE U.S. FIXED INCOME PORTFOLIO -- For the fiscal year ended
October 31, 1994: $23,028.
SELECTED U.S. EQUITY FUND -- For the period July 19, 1993 through May 31, 1994:
$1,564. For the fiscal year ended May 31, 1995:
$11,003.
THE SELECTED U.S. EQUITY PORTFOLIO -- For the period July 19,
1993 through May 31, 1994: $20,385. For the fiscal year ended
May 31, 1995: $52,948.
U.S. SMALL COMPANY FUND -- For the period July 19, 1993 through
May 31, 1994: $3,005. For the fiscal year ended May 31, 1995:
$10,158.
THE U.S. SMALL COMPANY PORTFOLIO -- For the period July 19, 1993
through May 31, 1994: $33,435. For the fiscal year ended May 31,
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<PAGE>
1995: $66,256.
INTERNATIONAL EQUITY FUND -- For the fiscal year ended October
31, 1994: $13,902.
THE NON-U.S. EQUITY PORTFOLIO -- For the fiscal year ended
October 31, 1994: $32,512.
EMERGING MARKETS EQUITY FUND -- For the fiscal year ended October
31, 1994: $8,326.
THE EMERGING MARKETS EQUITY PORTFOLIO -- For the fiscal year
ended October 31, 1994: $42,764.
DIVERSIFIED FUND -- For the period July 8, 1993 through June 30,
1994: $2,959. For the fiscal year ended June 30, 1995: $[ ].
THE DIVERSIFIED PORTFOLIO -- For the period July 8, 1993 through
June 30, 1994: $3,434. For the fiscal year ended June 30, 1995:
$[ ].
As of the date of this Statement of Additional Information, the
International Bond Fund , European Equity Fund, Japan Equity Fund, Asia Growth
Fund and their corresponding Portfolios had not completed their initial fiscal
year.
The Trust's and Portfolios' executive officers (listed
below), other than the Chief Executive Officer, are provided and
compensated by Signature Broker-Dealer Services, Inc. ("SBDS"), a
wholly owned subsidiary of Signature Financial Group, Inc.
("Signature"). The officers conduct and supervise the business
operations of the Trust and the Portfolios. The Trust and the
Portfolios have no employees.
OFFICERS
The officers of the Trust and the Portfolios and their principal
occupations during the past five years are set forth below. Unless otherwise
specified, each officer holds the same position with the Trust and each
Portfolio. The business address of each of the officers unless otherwise noted
is Signature Broker-Dealer Services, Inc., 6 St. James Avenue, Boston,
Massachusetts 02116.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
Inc., since 1989; Chairman and Chief Executive Officer, Execution Services, Inc.
until October 1991. His address is Pine Tree Club Estates, 10286 Saint Andrew
Road, Boynton Beach, FL 33436.
PHILIP W. COOLIDGE; President; Chairman,
Chief Executive Officer and President, Signature since December
1988 and SBDS since April 1989.
JAMES B. CRAVER; Treasurer and Secretary;
Senior Vice President and General Counsel, Signature since
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<PAGE>
January 1991; Secretary, SBDS since February 1991; Partner, Baker & Hostetler
prior to January 1991.
DAVID G. DANIELSON; Assistant Treasurer; Assistant Manager,
Signature since May 1991; Graduate Student, Northeastern
University from April 1990 to March 1991.
LINDA T. GIBSON; Assistant Secretary; Legal Counsel and
Assistant Secretary, Signature since June 1991; Assistant
Secretary, SBDS since November 1992; law student, Boston
University School of Law prior to May 1992.
JAMES E. HOOLAHAN; Vice President; Senior
Vice President, Signature since December 1989.
SUSAN JAKUBOSKI; Assistant Secretary and Assistant Treasurer of the
Portfolios only; Manager and Senior Fund Administrator, SFG and Signature
(Cayman) (since August 1994); Assistant Treasurer, SBDS (since September 1994);
Fund Compliance Administrator, Concord Financial Group, Inc. (from November 1990
to August 1994); Senior Fund Accountant, Neuberger & Berman Management
Incorporated (since prior to 1990). Her address is P.O. Box 2494, Elizabethan
Square, George Town, Grand Cayman, Cayman Islands, B.W.I.
JAMES S. LELKO; Assistant Treasurer; Assistant Manager,
Signature since January 1993; Senior Tax Compliance Accountant,
Putnam Companies since prior to December 1992.
THOMAS M. LENZ; Assistant Secretary; Vice President and Associate
General Counsel, Signature since November 1989; Assistant Secretary, SBDS since
February 1991.
MOLLY S. MUGLER; Assistant Secretary; Legal
Counsel and Assistant Secretary, Signature since December 1988;
Assistant Secretary, SBDS since April 1989.
ANDRES E. SALDANA; Assistant Secretary; Legal Counsel and Assistant
Secretary, Signature since November 1992; Assistant Secretary, SBDS since
September 1993; Attorney, Ropes & Gray from September 1990 to November 1992.
DANIEL E. SHEA; Assistant Treasurer; Assistant
Manager of Fund Administration, Signature since November 1993;
Supervisor and Senior Technical Advisor, Putnam Investments since
prior to 1990.
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<PAGE>
Messrs. Coolidge, Craver, Danielson, Hoolahan, Lelko, Lenz,
Saldana and Shea and Mss. Gibson, Mugler and Jakuboski hold
similar positions for other investment companies for which SBDS
or an affiliate serves as principal underwriter.
INVESTMENT ADVISOR
The investment advisor to the Portfolios is Morgan Guaranty Trust
Company of New York, a wholly-owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), a bank holding company organized under the laws of the State of
Delaware. Morgan, whose principal offices are at 60 Wall Street, New York, New
York 10260, is a New York trust company which conducts a general banking and
trust business. Morgan is subject to regulation by the New York State Banking
Department and is a member bank of the Federal Reserve System. Through offices
in New York City and abroad, Morgan offers a wide range of services, primarily
to governmental, institutional, corporate and high net worth individual
customers in the United States and throughout the world.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of $165 billion (of which the Advisor advises over $26 billion).
J.P. Morgan has a long history of service as adviser, 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 as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. 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
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<PAGE>
factors considered in determining the stocks purchased and sold in each sector.
The Advisor's fixed income investment process is based on analysis of real
rates, sector diversification and quantitative and credit analysis.
The investment advisory services the Advisor provides to the Portfolios
are not exclusive under the terms of the Advisory Agreements. The Advisor is
free to and does render similar investment advisory services to others. The
Advisor 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 the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor 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 Portfolios. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolios. 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 Portfolios in which the Funds
invest are currently: The Money Market Portfolio and The Treasury Money Market
Portfolio--IBC/Donoghue's Money Fund Average; The Tax Exempt Money Market
Portfolio--IBC/Donoghue's Tax Exempt Money Fund Average; The Short Term Bond
Portfolio--Merrill Lynch 1-3 Year Treasury Index; The U.S. Fixed Income
Portfolio--Salomon Brothers Broad Investment Grade Bond Index; The Tax Exempt
Bond Portfolio--Lehman Brothers Quality Intermediate Municipal Bond Index; The
New York Total Return Bond Portfolio--Lehman Brothers 1-15 Year Municipal Bond
Index; The Non-U.S. Fixed Income Portfolio--Salomon Brothers Non-U.S. World
Government Bond Index; The Selected U.S. Equity Portfolio--S&P 500 Index; The
U.S. Small Company Portfolio--Russell 2500 Index; The Non-U.S. Equity
Portfolio--EAFE Index; The Emerging Markets Equity Portfolio--IFC Emerging
Markets Index; The Diversified Portfolio--diversified benchmark (52% S&P 500,
35% Solomon Brothers Broad Investment Grade Bond, 3% Russell 2000 and 10% EAFE
indexes). The European Equity Portfolio--the MSCI Europe Index; The Japan Equity
Portfolio--the TOPIX; and The Asia Growth Portfolio--the MSCI indexes for Hong
Kong and Singapore and the International Finance Corporation Investable indexes
for China, Indonesia, Malaysia, Philippines, South Korea, Taiwan and Thailand.
J.P. Morgan Investment Management Inc., a wholly-owned
subsidiary of J.P. Morgan, is a registered investment adviser
under the Investment Advisers Act of 1940, as amended, which
manages employee benefit funds of corporations, labor unions and
state and local governments and the accounts of other
institutional investors, including investment companies. Certain
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<PAGE>
of the assets of employee benefit accounts under its management
are invested in commingled pension trust funds for which the
Advisor serves as trustee. J.P. Morgan Investment Management
Inc. advises the Advisor on investment of the commingled pension
trust funds.
The Portfolios are managed by officers of the Advisor who, in acting
for their customers, including the Portfolios, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan Investment Management Inc. See "Portfolio Transactions" below for a
description of services provided to the Portfolios by J.P.
Morgan Investment Management Inc.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Advisory
Agreements, the Portfolio corresponding to each Fund has agreed to pay the
Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of each Portfolio's average daily net assets shown below.
MONEY MARKET: 0.20% of net assets up to $1 billion and 0.10% of
net assets in excess of $1 billion
TAX EXEMPT MONEY MARKET: 0.20% of net assets up to $1 billion
and 0.10% of net assets in excess of $1 billion
TREASURY MONEY MARKET: 0.20% of net assets up to $1 billion and
0.10% of net assets in excess of $1 billion
SHORT TERM BOND: 0.25%
U.S. FIXED INCOME: 0.30%
TAX EXEMPT BOND: 0.30%
NEW YORK TOTAL RETURN BOND: 0.30%
NON-U.S. FIXED INCOME: 0.35%
SELECTED U.S. EQUITY: 0.40%
U.S. SMALL COMPANY: 0.60%
NON-U.S. EQUITY: 0.60%
EMERGING MARKETS EQUITY: 1.00%
DIVERSIFIED: 0.55%
EUROPEAN EQUITY: 0.65%
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<PAGE>
JAPAN EQUITY: 0.65%
ASIA GROWTH: 0.80%
Below are set forth for each Fund listed the advisory fees paid by its
corresponding Portfolio to Morgan for the fiscal periods indicated. See
"Expenses" in the Prospectus and below for applicable expense limitations.
THE MONEY MARKET PORTFOLIO (Money Market Fund) -- For the period July 12, 1993
(commencement of operations) through November 30, 1993: $1,370,552. For the
fiscal year ended November 30, 1994:
$3,423,576.
THE TAX EXEMPT MONEY MARKET PORTFOLIO (Tax Exempt Money Market
Fund) -- For the period July 12, 1993 (commencement of
operations) through August 31, 1993: $271,454. For the fiscal
year ended August 31, 1994: $2,021,476.
THE TREASURY MONEY MARKET PORTFOLIO (Treasury Money Market Fund)
-- For the period January 4, 1993 (commencement of operations)
through October 31, 1993: $93,370. For the fiscal year ended
October 31, 1994: $339,521.
THE SHORT TERM BOND PORTFOLIO (Short Term Bond Fund) -- For the period July 8,
1993 (commencement of operations) through October 31, 1993: $10,427. For the
fiscal year ended October 31, 1994:
$113,379.
THE U.S. FIXED INCOME PORTFOLIO (Bond Fund) -- For the period July 12, 1993
(commencement of operations) through October 31, 1993: $119,488. For the fiscal
year ended October 31, 1994:
$699,081.
THE TAX EXEMPT BOND PORTFOLIO (Tax Exempt Bond Fund) -- For the period July 12,
1993 (commencement of operations) through August 31, 1993: $200,272. For the
fiscal year ended August 31, 1994:
$1,383,986.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO (New York Total Return Bond Fund) --
For the period April 11, 1994 (commencement of operations) through March 31,
1995: $120,281.
THE SELECTED U.S. EQUITY PORTFOLIO (Selected U.S. Equity Fund) --
For the period July 19, 1993 (commencement of operations) through
May 31, 1994: $1,263,048. For the fiscal year ended May 31,
1995: $2,025,936.
THE U.S. SMALL COMPANY PORTFOLIO (U.S. Small Company Fund) -- For
the period July 19, 1993 (commencement of operations) through May
31, 1994: $2,912,670. For the fiscal year ended May 31, 1995:
$3,514,331.
THE NON-U.S. EQUITY PORTFOLIO (International Equity Fund) -- For
the period October 4, 1993 (commencement of operations) through
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October 31, 1993: $78,550. For the fiscal year ended October
31, 1994: $1,911,202.
THE EMERGING MARKETS EQUITY PORTFOLIO (Emerging Markets Equity Fund) -- For the
period November 15, 1993 (commencement of operations) through October 31, 1994:
$4,122,465.
THE DIVERSIFIED PORTFOLIO (Diversified Fund) -- For the period
July 8, 1993 (commencement of operations) through June 30, 1994:
$197,026. For the fiscal year ended June 30, 1995: $[ ].
As of the date of this Statement of Additional Information, the
Non-U.S. Fixed Income , European Equity, Japan Equity and Asia Growth Portfolios
had not completed their initial fiscal year.
The Investment Advisory Agreements provide that they 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
"Administrator 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 Portfolio's Trustees, or by
a vote of the holders of a majority of the Portfolio's outstanding voting
securities, on 60 days' written notice to the Advisor and by the Advisor on 90
days' written notice to the Portfolio. 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, and 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 continuously engaged in the issuance of its shares, such as
the Trust. The interpretation does not prohibit a holding company or a
subsidiary thereof from acting as investment advisor and custodian to such an
investment company. Morgan believes that it may perform the services for the
Portfolios contemplated by the Advisory Agreements 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
Portfolios.
If Morgan were prohibited from acting as investment advisor to any
Portfolio, it is expected that the Trustees of the
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Portfolio would recommend to investors that they approve the Portfolio's
entering into a new investment advisory agreement with another qualified
investment advisor selected by the Trustees.
Morgan also receives compensation from the Trust and the Portfolios in
its capacity as Services Agent to them (see "Services Agent") and receives
compensation from the Fund as shareholder servicing agent (see "Shareholder
Servicing").
ADMINISTRATOR AND DISTRIBUTOR
SBDS serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for each Fund's shares. In that capacity,
SBDS 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 SBDS. The Distribution
Agreement shall 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 thereto and
is terminable 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 the holders of a majority of
the Fund's outstanding shares as defined under "Additional Information", in any
case without payment of any penalty on not more than 60 days' nor less than 30
days' written notice to the other party. The principal offices of SBDS are
located at 6 St.
James Avenue, Boston, Massachusetts 02116.
SBDS also serves as the Trust's and the Portfolios' Administrator and
in that capacity administers and manages all aspects of the Funds' and the
Portfolios' day-to-day operations subject to the supervision of the Trustees,
except as set forth under Investment Advisor, Services Agent, Custodian, and
Shareholder Services. In connection with its responsibilities as Administrator,
SBDS (i) furnishes ordinary clerical and related services for day-to-day
operations including certain record keeping responsibilities; (ii) takes
responsibility for compliance with all applicable federal and state securities
and other regulatory requirements including, without limitation, preparing and
mailing and filing (but not paying for) registration statements, prospectuses,
statements of additional information, and proxy statements and all required
reports to the Trust's shareholders, the SEC, the Secretary of The Commonwealth
of Massachusetts, and state securities commissions (but not the
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Trust's federal and state tax returns); (iii) is responsible for the
registration of sufficient Fund shares under federal and state securities laws;
(iv) takes responsibility for monitoring each Fund's status as a regulated
investment company under the Code; and (v) performs such administrative and
managerial oversight of the activities of the Trust's and the Portfolios'
custodian and transfer agent as the Trustees may direct from time to time.
Under the Trust's Administration Agreement, the annual administration
fee rate is calculated based on the aggregate daily net assets of The JPM
Institutional Funds, as well as The Pierpont Funds and The JPM Advisor Funds,
which are two other families of mutual funds investing in the Portfolios. The
fee rate is calculated daily in accordance with the following schedule: 0.040%
of the first $1 billion of these funds' aggregate daily net assets, 0.032% of
the next $2 billion of these funds' aggregate daily net assets, 0.024% of the
next $2 billion of these funds' aggregate daily net assets and 0.016% of these
funds' aggregate daily net assets in excess of $5 billion. This fee rate is then
applied to the net assets of each Fund. The Administrator may voluntarily waive
a portion of its fees.
Under the Portfolios' Administration Agreements, the annual
administration fee rate is calculated based on the aggregate average daily net
assets of the Portfolios, as well as all of the other portfolios in which series
of The Pierpont Funds and The JPM Advisor Funds invest. The fee rate is
calculated daily in accordance with the following schedule: 0.010% of the first
$1 billion of these Portfolios' aggregate daily net assets, 0.008% of the next
$2 billion of these Portfolios' aggregate daily net assets, 0.006% of the next
$2 billion of these Portfolios' aggregate daily net assets and 0.004% of these
Portfolios' aggregate daily net assets in excess of $5 billion. This fee rate is
then applied to the net assets of each Portfolio. The Administrator may
voluntarily waive a portion of its fees.
Below are set forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to the Administrator for the fiscal
periods indicated. See "Expenses" in the Prospectus and below for applicable
expense limitations.
THE MONEY MARKET PORTFOLIO -- For the period July 12, 1993 (commencement of
operations) through November 30, 1993: $32,869.
For the fiscal year ended November 30, 1994: $165,519.
MONEY MARKET FUND -- For the period July 12, 1993 (commencement
of operations) through November 30, 1993: $ 1,380. For the
fiscal year ended November 30, 1994: $52,168.
THE TAX EXEMPT MONEY MARKET PORTFOLIO -- For the period July
12, 1993 (commencement of operations) through August 31, 1993:
$0. For the fiscal year ended August 31, 1994: $62,565.
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TAX EXEMPT MONEY MARKET FUND -- For the period July 12, 1993
(commencement of operations) through August 31, 1993: $982. For
the fiscal year ended August 31, 1994: $5,854.
THE TREASURY MONEY MARKET PORTFOLIO -- For the period January 4,
1993 (commencement of operations) through October 31, 1993:
$677. For the fiscal year ended October 31, 1994: $11,777.
TREASURY MONEY MARKET FUND -- For the period January 4, 1993
(commencement of operations) through October 31, 1993: $2,480.
For the fiscal year ended October 31, 1994: $17,006.
THE SHORT TERM BOND PORTFOLIO -- For the period July 8, 1993
(commencement of operations) through October 31, 1993: $210.
For the fiscal year ended October 31, 1994: $3,149.
SHORT TERM BOND FUND -- For the period July 8, 1993 (commencement
of operations) through October 31, 1993: $1,077. For the fiscal
year ended October 31, 1994: $12,264.
THE U.S. FIXED INCOME PORTFOLIO -- For the period July 12, 1993
(commencement of operations) through October 31, 1993: $950.
For the fiscal year ended October 31, 1994: $16,107.
BOND FUND -- For the period July 12, 1993 (commencement of
operations) through October 31, 1993: $3,625. For the fiscal
year ended October 31, 1994: $36,809.
THE TAX EXEMPT BOND PORTFOLIO -- For the period July 12, 1993
(commencement of operations) through August 31, 1993: $0. For
the fiscal year ended August 31, 1994: $28,345.
TAX EXEMPT BOND FUND -- For the period July 12, 1993
(commencement of operations) through August 31, 1993: $0. For
the fiscal year ended August 31, 1994: $1,859.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO -- For the period April 11, 1994
(commencement of operations) through March 31, 1995:
$2,563.
NEW YORK TOTAL RETURN BOND FUND -- For the period April 11, 1994 (commencement
of operations) through March 31, 1995: $3,042.
THE SELECTED U.S. EQUITY PORTFOLIO -- For the period July 19,
1993 (commencement of operations) through May 31, 1994: $19,348.
For the fiscal year ended May 31, 1995: $32,670.
SELECTED U.S. EQUITY FUND -- For the period July 19, 1993
(commencement of operations) through May 31, 1994: $4,845. For
the fiscal year ended May 31, 1995: $30,529.
THE U.S. SMALL COMPANY PORTFOLIO -- For the period July 19, 1993
(commencement of operations) through May 31, 1994: $30,420. For
the fiscal year ended May 31, 1995: $38,215.
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U.S. SMALL COMPANY FUND -- For the period July 19, 1993
(commencement of operations) through May 31, 1994: $8,177. For
the fiscal year ended May 31, 1995: $27,525.
THE NON-U.S. EQUITY PORTFOLIO -- For the period October 4, 1993
(commencement of operations) through October 31, 1993: $1,005.
For the fiscal year ended October 31, 1994: $22,024.
INTERNATIONAL EQUITY FUND -- For the period October 4, 1993
(commencement of operations) through October 31, 1993: $105.
For the fiscal year ended October 31, 1994: $37,065.
THE EMERGING MARKETS EQUITY PORTFOLIO -- For the period November 15, 1993
(commencement of operations) through October 31, 1994:
$30,828.
EMERGING MARKETS EQUITY FUND -- For the period November 15, 1993 (commencement
of operations) through October 31, 1994: $22,572.
THE DIVERSIFIED PORTFOLIO -- For the period July 8, 1993
(commencement of operations) through June 30, 1994: $2,423. For
the fiscal year ended June 30, 1995: $[ ].
DIVERSIFIED FUND -- For the period July 8, 1993 (commencement of
operations) through June 30, 1994: $10,086. For the fiscal year
ended June 30, 1995: $[].
As of the date of this Statement of Additional Information, the
International Bond Fund , European Equity Fund, Japan Equity Fund, Asia Growth
Fund and their corresponding Portfolios had not completed their initial fiscal
year.
The Administration Agreements may be renewed or amended by the
respective Trustees without a shareholder vote. The Administration Agreements
are terminable at any time without penalty by a vote of a majority of the
Trustees of the Trust or the Portfolios, as applicable, on not more than 60
days' written notice nor less than 30 days' written notice to the other party.
The Administrator may subcontract for the performance of its obligations under
the Administration Agreements only if the Trustees approve such subcontract and
find the subcontracting party to be qualified to perform the obligations sought
to be subcontracted, provided, however, that unless the Trust or the Portfolios,
as applicable, expressly agrees in writing, the Administrator shall be fully
responsible for the acts and omissions of any subcontractor as it would for its
own acts or omissions.
SERVICES AGENT
The Trust, on behalf of each Fund, and the Portfolios have entered into
Financial and Fund Accounting Services Agreements with Morgan pursuant to which
Morgan
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is responsible for certain financial and fund accounting services provided to
each Fund and each Portfolio. The services to be provided by Morgan under these
agreements include, but are not limited to, monitoring the fund and shareholder
accounting activities of the Custodian; assisting the Administrator in preparing
tax returns, reviewing financial reports, coordinating annual audits, assisting
in the development of budgets, overseeing preparation of tax information for
Fund shareholders; monitoring the fund accounting activities and daily
partnership allocation; and providing other related services.
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The Trust's agreement provides for each Fund to pay Morgan a fee for
these services which is computed daily and may be paid monthly at the annual
rate of ____% of each Fund's average daily net assets. The Portfolios'
agreements provide for each of the Portfolios to pay Morgan a fee for these
services which is computed daily and may be paid monthly at the annual rate of
____% of average daily net assets . Under the agreements, Morgan may delegate
one or more of its responsibilities to other entities, including SBDS, at
Morgan's expense. The agreements 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.
Below are set forth for each Fund listed and its corresponding
Portfolio the fees paid to Morgan, net of fee waivers and reimbursements, under
the Financial and Fund Accounting Services Agreements for the fiscal periods
indicated. See "Expenses" in the Prospectus and below for applicable expense
limitations.
THE MONEY MARKET PORTFOLIO -- For the period July 12, 1993 (commencement of
operations) through November 30, 1993: $193,980. For the fiscal year ended
November 30, 1994:
$385,012.
MONEY MARKET FUND -- For the period July 12, 1993 (commencement
of operations) through November 30, 1993: $(41,186)*. For the
fiscal year ended November 30, 1994: $(265,806)*.
THE TAX EXEMPT MONEY MARKET PORTFOLIO -- For the period July 12,
1993 (commencement of operations) through August 31, 1993:
$(5,756)*. For the fiscal year ended August 31, 1994: $153,204.
TAX EXEMPT MONEY MARKET FUND -- For the period July 12, 1993 (commencement of
operations) through August 31, 1993: $(25,168)*. For the fiscal year ended
August 31, 1994:
$(103,541)*.
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THE TREASURY MONEY MARKET PORTFOLIO -- For the period January 4, 1993
(commencement of operations) through October 31, 1993: $(30,702)*. For the
fiscal year ended October 31, 1994:
$(13,844)*.
TREASURY MONEY MARKET FUND -- For the period January 4, 1993 (commencement of
operations) through October 31, 1993: $(28,435)*. For the fiscal year ended
October 31, 1994:
$(118,050)*.
THE SHORT TERM BOND PORTFOLIO -- For the period July 8, 1993 (commencement of
operations) through October 31, 1993: $(39,290)*. For the fiscal year ended
October 31, 1994:
$(22,054)*.
SHORT TERM BOND FUND -- For the period July 8, 1993 (commencement
of operations) through October 31, 1993: $(24,299)*. For the
fiscal year ended October 31, 1994: $(89,141)*.
THE U.S. FIXED INCOME PORTFOLIO -- For the period July 12, 1993
(commencement of operations) through October 31, 1993: $7,691.
For the fiscal year ended October 31, 1994: $140,493.
BOND FUND -- For the period July 12, 1993 (commencement of
operations) through October 31, 1993: $(29,422)*. For the
fiscal year ended October 31, 1994: $(141,179)*.
THE TAX EXEMPT BOND PORTFOLIO -- For the period July 12, 1993 (commencement of
operations) through August 31, 1993: $(1,816)*.
For the fiscal year ended August 31, 1994: $210,795.
TAX EXEMPT BOND FUND -- For the period July 12, 1993 (commencement of
operations) through August 31, 1993: $(9,011)*.
For the fiscal year ended August 31, 1994: $(82,093)*.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO -- For the period April 11, 1994
(commencement of operations) through March 31, 1995:
$(11,830)*.
THE NEW YORK TOTAL RETURN BOND FUND -- For the Period April 11, 1994
(commencement of operations) through March 31, 1995:
$(49,096)*.
THE SELECTED U.S. EQUITY PORTFOLIO-- For the period July 19, 1993
(commencement of operations) through May 31, 1994: $155,348.
For the fiscal year ended May 31, 1995: $236,537.
SELECTED U.S. EQUITY FUND -- For the period July 19, 1993
(commencement of operations) through May 31, 1994: $(56,520)*.
For the fiscal year ended May 31, 1995: $(95,210)*.
THE U.S. SMALL COMPANY PORTFOLIO -- For the period July 19, 1993 (commencement
of operations) through May 31, 1994: $203,764.
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For the fiscal year ended May 31, 1995: $241,373.
U.S. SMALL COMPANY FUND -- For the period July 19, 1993
(commencement of operations) through May 31, 1994: $(55,233)*.
For the fiscal year ended May 31, 1995: $(73,786)*.
THE NON-U.S. EQUITY PORTFOLIO -- For the period October 4, 1993
(commencement of operations) through October 31, 1993:
$(22,160)*. For the fiscal year ended October 31, 1994:
$327,569.
INTERNATIONAL EQUITY FUND -- For the period October 4, 1993 (commencement of
operations) through October 31, 1993: $(7,383)*. For the fiscal year ended
October 31, 1994:
$(118,900)*.
THE EMERGING MARKETS EQUITY PORTFOLIO -- For the period November 15, 1993
(commencement of operations) through October 31, 1994:
$347,925.
EMERGING MARKETS EQUITY FUND -- For the period November 15, 1993 (commencement
of operations) through October 31, 1994:
$(120,061)*.
THE DIVERSIFIED PORTFOLIO -- For the period July 8, 1993
(commencement of operations) through June 30, 1994: $(17,807)*.
For the fiscal year ended June 30, 1995: $[ ].
DIVERSIFIED FUND -- For the period July 8, 1993 (commencement of
operations) through June 30, 1994: $(100,039)*. For the fiscal
year ended June 30, 1995: $[ ].
------------------------------------
(*) Indicates a reimbursement by Morgan for expenses in excess of its fees under
a Financial and Fund Accounting Services Agreement. No fees were paid for the
fiscal period. Under fee arrangements prior to September 1, 1995, Morgan as
Services Agent was responsible for reimbursements to the Trust and the
Portfolios for certain fees and expenses. See "Expenses" below.
As of the date of this Statement of Additional Information, the
International Bond Fund , European Equity Fund, Japan Equity Fund, Asia Growth
Fund and their corresponding Portfolio had not completed their initial fiscal
years.
CUSTODIAN
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02101, serves as the Trust's and each of the
Portfolio's Custodian and Transfer and Dividend Disbursing Agent. Pursuant to
the Custodian Contract with each of the Portfolios, it is responsible for
maintaining the books and records of portfolio transactions and holding
portfolio securities and cash.
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In addition, the Custodian has entered into subcustodian agreements on behalf of
the Portfolios for the Tax Exempt Money Market, Tax Exempt Bond and New York
Total Return Bond Funds with Bankers Trust Company for the purpose of holding
TENR Notes and with Bank of New York and Chemical Bank, N.A. for the purpose of
holding certain variable rate demand notes. In the case of foreign assets held
outside the United States, the Custodian employs various subcustodians who were
approved by the Trustees of the Portfolios in accordance with the regulations of
the SEC. 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 its customers and for other Fund investors who are customers
of an Eligible Institution. Under this agreement, Morgan is responsible for
performing shareholder account administrative and servicing functions, which
includes but is 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 the Distributor of the gross amount of purchase orders for Fund
shares; and providing other related services.
Under the Shareholder Servicing Agreement, each Fund has
agreed to pay Morgan for these services a fee at the following
annual rates (expressed as a percentage of the average daily net
asset values of Fund shares owned by or for shareholders for whom
Morgan is acting as shareholder servicing agent): Money Market,
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Treasury Money Market and Tax Exempt Money Market Funds, 0.11%; Short Term Bond,
Bond, Tax Exempt Bond, New York Total Return Bond, International Bond, Selected
U.S. Equity, U.S. Small Company, International Equity, Emerging Markets Equity ,
Diversified European Equity, Japan Equity and Asia Growth Funds, 0.05%. Morgan
acts as shareholder servicing agent for all shareholders.
Below are set forth for each Fund listed the shareholder servicing fees
paid by each Fund to Morgan for the fiscal periods indicated. See "Expenses" in
the Prospectus and below for applicable expense limitations.
MONEY MARKET FUND -- For the period July 12, 1993 (commencement
of operations) through November 30, 1993: $4,720. For the fiscal
year ended November 30, 1994: $200,287.
TAX EXEMPT MONEY MARKET FUND -- For the period July 12, 1993
(commencement of operations) through August 31, 1993: $ 2,803.
For the fiscal year ended August 31, 1994: $22,282.
TREASURY MONEY MARKET FUND -- For the period January 4, 1993
(commencement of operations) through October 31, 1993: $4,147.
For the fiscal year ended October 31, 1994: $64,191.
SHORT TERM BOND FUND -- For the period July 8, 1993 (commencement
of operations) through October 31, 1993: $1,642. For the fiscal
year ended October 31, 1994: $19,528.
BOND FUND -- For the period July 12, 1993 (commencement of
operations)
through October 31, 1993: $4,942. For the fiscal year ended
October 31, 1994: $63,383.
TAX EXEMPT BOND FUND -- For the period July 12, 1993
(commencement of operations) through August 31, 1993: $0. For
the fiscal year ended August 31, 1994: $3,172.
NEW YORK TOTAL RETURN BOND FUND -- For the period April 11, 1994 (commencement
of operations) through March 31, 1995: $6,116.
SELECTED U.S. EQUITY FUND -- For the period July 19, 1993
(commencement of operations) through May 31, 1994: $8,191. For
the fiscal year ended May 31, 1995: $55,090.
U.S. SMALL COMPANY FUND -- For the period July 19, 1993
(commencement of operations) through May 31, 1994: $13,854. For
the fiscal year ended May 31, 1995: $49,479.
INTERNATIONAL EQUITY FUND -- For the period October 4, 1993
(commencement of operations) through October 31, 1993: $0. For
the fiscal year ended October 31, 1994: $63,751.
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EMERGING MARKETS EQUITY FUND -- For the period November 15, 1993 (commencement
of operations) through October 31, 1994: $39,124.
DIVERSIFIED FUND -- For the period July 8, 1993 (commencement of
operations) through June 30, 1994: $16,798. For the fiscal year
ended June 30, 1995: $[].
As of the date of this Statement of Additional Information, the
International Bond , European Equity, Japan Equity and Asia Growth Funds had
completed their initial
fiscal year.
As discussed under "Investment Advisor", the Glass-Steagall Act and
other applicable laws and regulations limit the 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 providing financial and accounting services to the Funds and the Portfolios
under the Financial and Fund Accounting Services Agreements and in acting as
Advisor to the Portfolios under the Investment Advisory Agreements, may raise
issues under these laws. However, Morgan believes that it may properly perform
these services and the other activities described in the Prospectus without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing and Financial and Fund Accounting Services Agreements, the
Trustees would seek an alternative provider of such services. In such event,
changes in the operation of the Funds or the Portfolios 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 Portfolios are Price
Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036. Price
Waterhouse LLP conducts an annual audit of the financial statements of each of
the Funds and the Portfolios, assists in the preparation and/or review of each
of the Fund's and the Portfolio's federal and state income tax returns and
consults with the Funds and the Portfolios as to matters of accounting and
federal and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc.,
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Morgan and SBDS under various agreements discussed under Trustees and Officers,
Investment Advisor, Administrator and Distributor, Services Agent and
Shareholder Servicing above, the Fund and the Portfolio are responsible for
certain usual and customary expenses associated with their respective
operations. Such expenses include organization expenses, legal fees, accounting
expenses, insurance costs, the compensation and expenses of the Trustees,
registration fees under federal securities laws, and extraordinary expenses
applicable to the Fund or the Portfolio. For the Fund, such expenses also
include transfer, registrar and dividend disbursing costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders,
and registration fees under state securities laws. For the Portfolio, such
expenses also include applicable registration fees under foreign securities
laws, custodian fees and brokerage expenses . Under fee arrangements prior to
September 1, 1995 that included higher fees for financial and fund accounting
services, Morgan as Services Agent was responsible for reimbursements to the
Trust and the Portfolio for SBDS's fees as Administrator and the usual and
customary expenses described above (excluding organization and extraordinary
expenses, custodian fees and brokerage 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 shall 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. For additional
information regarding waivers or expense subsidies, see "Management of the Trust
and the Portfolio(s)" in the Prospectus.
The Administrator paid 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 shares as described in
the Prospectus under "Purchase of Shares." References in the Prospectus and this
Statement of Additional Information to customers of Morgan or an Eligible
Institution include customers of their affiliates and references to transactions
by customers with Morgan or an Eligible Institution include transactions with
their affiliates. Only Fund investors who are using the services of a financial
institution acting as
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shareholder servicing agent pursuant to an agreement with the Trust on behalf of
a Fund may make transactions in shares of a Fund.
Each Fund may, at its own option, accept securities in payment for
shares. The securities delivered in are valued by the method described in 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 payment for shares
only if they are, in the judgment of Morgan, appropriate investments for the
Fund's corresponding Portfolio. In addition, securities accepted in payment for
shares must: (i) meet the investment objective and policies of the acquiring
Fund's corresponding Portfolio; (ii) be acquired by the applicable Fund for
investment and not for resale (other than for resale to the Fund's corresponding
Portfolio); (iii) be liquid securities which are not restricted as to transfer
either by law or liquidity of market; 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 shares as described in the Prospectus under
"Redemption of Shares." Shareholders redeeming shares of the Money Market, Tax
Exempt Money Market or Treasury Money Market Funds should be aware that these
Funds attempt to maintain a stable net asset value of $1.00 per share; however,
there can be no assurance that they will be able to continue to do so, and in
that case the net asset value of the Funds' shares might deviate from $1.00 per
share. Accordingly, a redemption request might result in payment of a dollar
amount which differs from the number of shares redeemed. See "Net Asset Value"
in the Prospectus and below.
If the Trust on behalf of a Fund and its corresponding Portfolio
determine that it would be detrimental to the best interest of the remaining
shareholders of a Fund to make payment wholly or partly in cash, payment of the
redemption price may be made in whole or in part by a distribution in kind of
securities from the Portfolio, in lieu of cash, in conformity with the
applicable rule of the SEC. If shares are redeemed in kind, the redeeming
shareholder might incur transaction costs in converting the assets into cash.
The method of valuing portfolio securities is described under "Net Asset Value,"
and such valuation will be made as of the same time the redemption price is
determined. The
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Trust on behalf of all of the Funds and their corresponding Portfolios (except
the Non-U.S. Fixed Income , European Equity, Japan Equity and Asia Growth
Portfolios) have elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which the Funds and the corresponding Portfolios are obligated to
redeem shares solely in cash up to the lesser of $250,000 or one percent of the
net asset value of the Fund during any 90 day period for any one shareholder.
The Trust will redeem Fund shares in kind only if it has received a redemption
in kind from the corresponding Portfolio and therefore shareholders of the Fund
that receive redemptions in kind will receive securities of the Portfolio. The
Portfolios have advised the Trust that the Portfolios will not redeem in kind
except in circumstances in which a Fund is permitted to redeem in kind.
FURTHER REDEMPTION INFORMATION. The Trust, on behalf of a Fund, and the
Portfolios reserve 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 on such Exchange 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
Portfolio 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 shares from any JPM Institutional Fund into
any other JPM Institutional Fund or Pierpont 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. Requests for exchange are made in the same manner as requests for
redemptions. See "Redemption of Shares." 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. The Trust reserves the right to
discontinue, alter or limit the exchange privilege at any time.
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares and pays dividends and distributions as described
under "Dividends and Distributions" in the Prospectus.
Net investment income of the Money Market, Tax Exempt Money
Market and Treasury Money Market Funds consists of accrued
interest or discount and amortized premium, less the accrued
expenses of the Fund applicable to that dividend period including
the fees payable to Morgan. See "Net Asset Value."
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Determination of the net income for Money Market, Tax Exempt Money
Market, Treasury Money Market, Short Term Bond, Bond, Tax Exempt Bond,
International Bond and New York Total Return Bond Funds is made at the times
described in the Prospectus; in addition, net investment income for days other
than business days is determined at the time net asset value is determined on
the prior business day.
NET ASSET VALUE
Each of the Funds computes its net asset value once daily on Monday
through Friday as described under "Net Asset Value" in the Prospectus. The net
asset value will not be computed on a day in which no orders to purchase or
redeem Fund shares have been received or 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 and the Portfolios would expect to close for purchases and redemptions
at the same time. The days on which net asset value is determined are the Funds'
business days.
The net asset value of each Fund is equal to the value of the Fund's
investment in its corresponding Portfolio (which is equal to the Fund's pro rata
share of the total investment of the Fund and of any other investors in the
Portfolio less the Fund's pro rata share of the Portfolio's liabilities) less
the Fund's liabilities. The following is a discussion of the procedures used by
the Portfolios corresponding to each Fund in valuing their assets.
MONEY MARKET, TAX EXEMPT MONEY MARKET AND TREASURY MONEY MARKET FUNDS.
In the case of the Portfolios for the Money Market, Tax Exempt Money Market and
Treasury Money Market Funds, all portfolio securities are valued by the
amortized cost method.
The purpose of this method of calculation is to attempt to maintain a constant
net asset value per share of the Fund of $1.00. No assurances can be given that
this goal can be attained. The amortized cost method of valuation values a
security at its cost at the time of purchase and thereafter assumes a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. If a
difference of more than 1/2 of 1% occurs between valuation based on the
amortized cost method and valuation based on market value, the Trustees will
take steps necessary to reduce such deviation, such as changing the Fund's
dividend policy, shortening the average portfolio maturity, realizing gains or
losses, or reducing the number of outstanding Fund shares. Any reduction of
outstanding shares will be effected by having each shareholder contribute to a
Fund's capital the necessary shares on a pro rata basis. Each shareholder will
be deemed to have agreed to such contribution in these circumstances by his
investment in the Funds. See "Taxes
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."
BOND, TAX EXEMPT BOND, NEW YORK TOTAL RETURN BOND, SHORT TERM BOND,
INTERNATIONAL BOND AND DIVERSIFIED FUNDS. In the case of the Bond, Tax Exempt
Bond, New York Total Return Bond, International Bond and Short Term Bond Funds,
and the fixed income portion of the Diversified Fund, portfolio securities with
a maturity of 60 days or more, 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, indication as to value from dealers
and general market conditions. If such prices are not supplied by the
Portfolio's independent pricing service, such securities are priced in
accordance with procedures adopted by the Trustees. All portfolio securities
with a remaining maturity of less than 60 days are valued by the amortized cost
method. Securities listed on a foreign exchange are valued at the last quoted
sale price available before the time when net assets are valued. 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.
Trading in securities in most foreign markets is normally completed
before trading in U.S. markets and may also take place on days on which the U.S.
markets are closed. If events materially affecting the value of securities occur
between the time when the market in which they are traded closes and the time
when a Portfolio's net asset value is calculated, such securities will be valued
at fair value in accordance with procedures established by and under the general
supervision of the Trustees.
SELECTED U.S. EQUITY, U.S. SMALL COMPANY, INTERNATIONAL EQUITY,
EMERGING MARKETS EQUITY , DIVERSIFIED, EUROPEAN EQUITY, JAPAN EQUITY AND ASIA
GROWTH FUNDS. In the case of the Equity Portfolios, the value of investments
listed on a domestic securities exchange, other than options on stock indexes,
is based on the last sale prices on the New York Stock Exchange at 4:00 P.M. or,
in the absence of recorded sales, at the average of readily available closing
bid and asked prices on such exchange. Securities listed on a foreign exchange
are valued at the last quoted sale price available before the time when net
assets are valued. Unlisted securities are valued at the average of the quoted
bid and asked prices in the over-the-counter market. 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
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calculating net asset value all assets and liabilities initially expressed in
foreign 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
Portfolio was more than 60 days, unless this is determined not to represent fair
value by the Trustees.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the New York Stock Exchange
and may also take place on days on which the New York Stock Exchange is closed.
If events materially affecting the value of securities occur between the time
when the exchange on which they are traded closes and the time when a
Portfolio's net asset value is calculated, such securities will be valued at
fair value in accordance with procedures established by and under the general
supervision of the Trustees.
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of yield,
actual distributions, total return or capital appreciation in reports, sales
literature and advertisements published by the Trust. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See "Additional
Information" in the Prospectus.
YIELD QUOTATIONS. As required by regulations of the SEC, current yield
for the Money Market, Tax Exempt Money Market and Treasury Money Market Funds is
computed by determining the net change exclusive of capital changes in the value
of a hypothetical pre-existing account having a balance of one share at the
beginning of a seven-day calendar period, dividing the net change in account
value of the account at the beginning of the
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period, and multiplying the return over the seven-day period by 365/7. For
purposes of the calculation, net change in account value reflects the value of
additional shares purchased with dividends from the original share and dividends
declared on both the original share and any such additional shares, but does not
reflect realized gains or losses or unrealized appreciation or depreciation.
Effective yield for the Money Market, Tax Exempt Money Market and Treasury Money
Market Funds is computed by annualizing the seven-day return with all dividends
reinvested in additional Fund shares. In the case of the Tax Exempt Money Market
Fund, the tax equivalent yield is computed by first computing the yield as
discussed above. Then the portion of the yield attributable to securities the
income of which was exempt for federal income tax purposes is determined. This
portion of the yield is then divided by one minus the stated assumed federal
income tax rate for individuals and then added to the portion of the yield that
is not attributable to securities, the income of which was not tax exempt.
As required by regulations of the SEC, the annualized yield for the
Bond, Tax Exempt Bond, International Bond, New York Total Return Bond and Short
Term Bond Funds is computed by dividing each Fund's 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 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 semi-annual reinvestment and
compounding of net investment income, as described under "Additional
Information" in the Prospectus.
Below is set forth historical yield information for the periods
indicated:
MONEY MARKET FUND (11/30/94): 7-day current yield: 5.41%; 7-day
effective yield: 5.56%.
TAX EXEMPT MONEY MARKET FUND (2/28/95): 7-day current yield:
3.72%; 7-day Tax equivalent yield at 39% tax rate: 6.10%; 7-day
effective yield: 3.79%.
TREASURY MONEY MARKET FUND (4/30/95): 7-day current yield: 5.87%;
7-day effective yield: 6.04%.
SHORT TERM BOND FUND (4/30/95): 30-day yield: 6.14%.
BOND FUND (4/30/95): 30-day yield: 7.11%.
INTERNATIONAL BOND (3/31/95): 30-day yield: 5.94%.
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TAX EXEMPT BOND FUND (2/28/95): 30-day yield: 5.15%; 30-day tax
equivalent yield at 39% tax rate: 8.44%.
NEW YORK TOTAL RETURN BOND FUND (3/31/95): 30-day yield: 5.22%;
30-day tax equivalent yield at 39% tax rate: 8.56%.
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TOTAL RETURN QUOTATIONS. As required by regulations of the SEC, the
annualized total return of the Bond, Tax Exempt Bond, New York Total Return
Bond, Short Term Bond, International Bond, Selected U.S. Equity, U.S. Small
Company, International Equity, Emerging Markets Equity , Diversified, European
Equity, Japan Equity and Asia Growth Funds 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
annualized 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.
Historical performance information for any period or portion
thereof prior to the establishment of a Fund will be that of its
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corresponding predecessor Pierpont Fund, as permitted by applicable SEC staff
interpretations, if the
Pierpont Fund commenced operations before its corresponding JPM Institutional
Fund. The applicable financial information in the registration statement for The
Pierpont Funds (Registration Nos. 33-54632 and 811-7340) is hereby incorporated
by reference.
Below is set forth historical return information for the Funds for the
periods indicated:
MONEY MARKET FUND (11/30/94): Average annual total return, 1 year: 3.92%;
average annual total return, 5 years: 4.99%; average annual total return, 10
years: 6.24%; aggregate total return, 1 year: 3.92%; aggregate total return, 5
years: 27.57%; aggregate total return, 10 years: 83.18%.
TAX EXEMPT MONEY MARKET FUND (2/28/95): Average annual total return, 1 year:
2.90%; Average annual total return, 5 years: 3.37%; average annual total return,
10 years: 4.16; aggregate total return, 1 year: 2.90%; aggregate total return, 5
years: 18.02%; aggregate total return, 10 years: 50.32%.
TREASURY MONEY MARKET FUND (4/30/95): Average annual total return, 1 year:
4.91%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 3.74%; aggregate total return, 1
year: 4.91%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 8.61%.
SHORT TERM BOND FUND (4/30/95): Average annual total return, 1 year: 5.46%;
average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 3.42%; aggregate total return, 1
year: 5.46%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 6.06%.
BOND FUND (4/30/95): Average annual total return, 1 year: 6.95%; average annual
total return, 5 years: 8.33%; average annual total return, commencement of
operations(*) to period end: 7.86%; aggregate total return, 1 year: 6.95%;
aggregate total return, 5 years: 49.19%; aggregate total return, commencement of
operations(*) to period end: 70.91%.
TAX EXEMPT BOND FUND (2/28/95): Average annual total return, 1 year: 2.71%;
average annual total return, 5 years: 7.12%; average annual total return, 10
years: 8.06%; aggregate total return, 1 year: 2.71%; aggregate total return, 5
years: 41.04%; aggregate total return, 10 years: 116.89%.
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NEW YORK TOTAL RETURN BOND FUND (3/31/95): Average annual total return, 1 year:
N/A%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 5.49%; aggregate total return, 1
year: N/A; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 5.49%.
DIVERSIFIED FUND (6/30/95): Average annual total return, 1 year: [ ]%; average
annual total return, 5 years: [ ]%; average annual total return, commencement of
operations(*) to period end: [ ]%; aggregate total return, 1 year: [ ]%;
aggregate total return, 5 years: [ ]%; aggregate total return, commencement of
operations(*) to period end: [ ]%.
SELECTED U.S. EQUITY FUND (5/31/95): Average annual total return, 1 year: [ ]%;
average annual total return, 5 years: [ ]%; average annual total return,
commencement of operations(*) to period end: [ ]%; aggregate total return, 1
year: 0.69%; aggregate total return, 5 years: [ ]%; aggregate total return,
commencement of operations(*) to period end: [ ]%.
U.S. SMALL COMPANY FUND (5/31/95): Average annual total return, 1 year: [ ]%;
average annual total return, 5 years: [ ]%; average annual total return,
commencement of operations(*) to period end: [ ]%; aggregate total return, 1
year: [ ]%; aggregate total return, 5 years: [ ]%; aggregate total return,
commencement of operations(*) to period end: [ ]%.
INTERNATIONAL EQUITY FUND (4/30/95): Average annual total return, 1 year: 0.61%;
average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 3.96%; aggregate total return, 1
year: 0.61%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 21.04%.
EMERGING MARKETS EQUITY FUND (4/30/95): Average annual total return, 1 year:
(9.40%); average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: (2.60)%; aggregate total return, 1
year: (-9.40)%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: (3.66)%.
--------------------
(*) The Treasury Money Market, Short Term Bond, Diversified, Emerging Markets
Equity and New York Total Return Bond Funds commenced operations on January 4,
1993, July 8, 1993, July 8, 1993, November 15, 1993 and April 11, 1994,
respectively. The predecessor Pierpont Bond, Equity, Capital Appreciation and
International Equity Funds commenced operations on March 11, 1988, June 27,
1985, June 27, 1985 and June 1, 1990, respectively.
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GENERAL. A Fund's performance will vary from time to time depending
upon market conditions, the composition of its corresponding Portfolio, and its
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 the Funds' shares, including data from Lipper Analytical Services,
Inc., Micropal, Inc., Ibbotson Associates, Morningstar Inc., the Dow Jones
Industrial Average, the Frank Russell Indexes and other industry publications.
The Money Market and Treasury Money Market Funds may compare their performance
to IBC/Donoghue's Money Market fund average and the Tax Exempt Money Market Fund
may compare its performance to IBC/Donoghue's Tax Free Money Market fund
average, respectively.
In order to illustrate the benefits of balanced investing across asset
classes over longer periods of time, the Diversified Fund may use performance
data that will be based on the return of, as appropriate, the S&P 500 Index, the
Salomon Broad Investment Grade Bond Index, the Frank Russell 2000 and 2500
Indexes, and the EAFE Index. The quoted performance will illustrate what results
could have been achieved had the Fund invested specified percentages of the
Fund's assets in classes of securities that would have produced a return equal
to the relevant index over the time period at issue.
From time to time, the Funds may quote performance in terms of yield,
actual distributions, total return, or capital appreciation in reports, sales
literature, and advertisements published by the Funds. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See "Additional
Information" in the Prospectus.
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PORTFOLIO TRANSACTIONS
J.P. Morgan Investment Management Inc., acting as agent for Morgan,
places orders for all Portfolios for all purchases and sales of portfolio
securities. Morgan enters into repurchase agreements and reverse repurchase
agreements and executes loans of portfolio securities on behalf of all the
Portfolios. 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.
MONEY MARKET, TAX EXEMPT MONEY MARKET, TREASURY MONEY MARKET, BOND,
SHORT TERM BOND, TAX EXEMPT BOND, NEW YORK TOTAL RETURN BOND AND INTERNATIONAL
BOND FUNDS. Portfolio transactions for the Portfolios corresponding to the Money
Market, Tax Exempt Money Market, Treasury Money Market, Bond, Short Term Bond,
Tax Exempt Bond, New York Total Return Bond and International Bond Funds will be
undertaken principally to accomplish a Portfolio's objective in relation to
expected movements in the general level of interest rates. The Portfolios
corresponding to the Money Market, Treasury Money Market, Bond, Tax Exempt Bond,
New York Total Return Bond, Short Term Bond and International Bond Funds may
engage in short-term trading consistent with their objectives. The Tax Exempt
Money Market Portfolio will not seek profits through short-term trading, but the
Portfolio may dispose of any portfolio security prior to its maturity if it
believes such disposition is appropriate even if this action realizes profits or
losses.
In connection with portfolio transactions for the Portfolios, J.P.
Morgan Investment Management Inc. intends to seek best price and execution on a
competitive basis for both purchases and sales of securities.
The Portfolios corresponding to the Money Market, Tax Exempt Money
Market and Treasury Money Market Funds have a policy of investing only in
securities with maturities of less than thirteen months, which policy will
result in high portfolio turnovers. The Portfolio corresponding to the Short
Term Bond Fund has a policy of maintaining a short duration, which policy will
also result in a high portfolio turnover. Since brokerage commissions are not
normally paid on investments which the Portfolios make, turnover resulting from
such investments should not adversely affect the net asset value or net income
of the
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Portfolios.
SELECTED U.S. EQUITY, U.S. SMALL COMPANY, INTERNATIONAL EQUITY,
EMERGING MARKETS EQUITY , DIVERSIFIED, EUROPEAN EQUITY, JAPAN EQUITY AND ASIA
GROWTH FUNDS. In connection with portfolio transactions for the Equity
Portfolios, the overriding objective is to obtain the best possible execution of
purchase and sale orders.
In selecting a broker, J.P. Morgan Investment Management Inc. 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 firm's financial condition; as well as 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 Investment Management Inc.
decides that the broker chosen will provide the best possible execution. J.P.
Morgan Investment Management Inc. and Morgan monitor the reasonableness of the
brokerage commissions paid in light of the execution received. The Trustees of
each Portfolio review regularly the reasonableness of commissions and other
transaction costs incurred by the Portfolios in light of facts and circumstances
deemed relevant from time to time, and, in that connection, will receive reports
from the Advisor and published data concerning transaction costs incurred by
institutional investors generally. Research services provided by brokers to
which J.P. Morgan Investment Management Inc. 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 the benefit of all the Advisor's clients and not solely or
necessarily for the benefit of an individual Portfolio. The Advisor believes
that the value of research services received is not determinable and does not
significantly reduce its expenses. The Portfolios do not reduce their fee to the
Advisor by any amount that might be attributable to the value of such services.
The Portfolios or their predecessors corresponding to the Selected U.S.
Equity, U.S. Small Company, International Equity, Emerging Markets Equity and
Diversified Funds paid the following approximate brokerage commissions for the
indicated fiscal years:
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DIVERSIFIED FUND (June): 1995: $[ ]; 1994: $78,737; 1993: N/A.
SELECTED U.S. EQUITY FUND (May): 1995: $1,179,132; 1994:
$744,676; 1993: $293,698.
U.S. SMALL COMPANY FUND (May): 1995: $1,217,016; 1994:
$1,760,320; 1993: $142,310.
INTERNATIONAL EQUITY FUND (October): 1994: $1,413,238; 1993:
$639,000; 1992: $157,000.
EMERGING MARKETS EQUITY FUND (October): 1994: $1,262,905; 1993:
N/A; 1992: N/A.
The increases in brokerage commissions reflected above were due to
increased portfolio activity and an increase in net investments by shareholders
in a Portfolio or its predecessor.
Subject to the overriding objective of obtaining the best possible
execution of orders, J.P. Morgan Investment Management Inc. may allocate a
portion of a Portfolio's brokerage transactions to affiliates of Morgan. In
order for affiliates of Morgan to effect any portfolio transactions for a
Portfolio, 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
Trustees of each Portfolio, 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 Portfolios' Administrator, Distributor or Advisor or any
"affiliated person" (as defined in the 1940 Act) of the Administrator,
Distributor or Advisor when such entities are acting as principals, except to
the extent permitted by law. In addition, the Portfolios will not purchase
securities during the existence of any underwriting group relating thereto of
which the Advisor or an affiliate of the Advisor is a member, except to the
extent permitted by law.
On those occasions when Morgan deems the purchase or sale of a security
to be in the best interests of a Portfolio as well as
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other customers including other Portfolios, J.P. Morgan Investment Management
Inc. 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 Portfolio
with those to be sold or purchased for other customers 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 Investment Management
Inc. in the manner it considers to be most equitable and consistent with
Morgan's fiduciary obligations to a Portfolio. In some instances, this procedure
might adversely affect a Portfolio.
If a Portfolio that writes options effects a closing purchase
transaction with respect to an option written by it, normally such transaction
will be executed by the same broker-dealer who executed the sale of the option.
The writing of options by a Portfolio will be subject to limitations established
by each of the exchanges governing the maximum number of options in each class
which may be written by a single investor or group of investors acting in
concert, regardless of whether the options are written on the same or different
exchanges or are held or written in one or more accounts or through one or more
brokers. The number of options which a Portfolio may write may be affected by
options written by the Advisor for other investment advisory clients. An
exchange may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as 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. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall 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 shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of
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such provision is given, except possibly in a few jurisdictions. With respect to
all types of claims in the latter jurisdictions, (i) tort claims, (ii) contract
claims where the provision referred to is omitted from the undertaking, (iii)
claims for taxes, and (iv) certain statutory liabilities in other jurisdictions,
a shareholder may be held personally liable to the extent that claims are not
satisfied by the Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Funds.
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of a Fund 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. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of a
Fund. With the exceptions stated, 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.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which each Fund represents a separate series of
shares of beneficial interest. 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 and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in a Fund (or in the assets of other series, if applicable). To
date shares of the sixteen series 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.
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. See
"Massachusetts Trust."
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Shares of a Fund have no preemptive or conversion rights and are fully paid and
nonassessable. The rights of redemption and exchange are described in the
Prospectus and elsewhere in this Statement of Additional Information.
The shareholders of the Trust are entitled to a full vote for each full
share held and to a fractional vote for each fractional share. Subject to the
1940 Act, the Trustees themselves 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 appoint
their own successors, PROVIDED, HOWEVER, that immediately after such appointment
the requisite majority of the Trustees have been elected by the shareholders of
the Trust. The voting rights of shareholders are not cumulative so that holders
of more than 50% of the shares voting can, if they choose, elect all Trustees
being selected while the shareholders of the remaining shares would be unable to
elect any Trustees. It is the intention of the Trust not to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for action
by shareholder vote as may be 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 more than two-thirds of its outstanding shares, 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 record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion
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either such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statements
filed, the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing to
sustain any of them. If the SEC shall enter an order refusing to sustain any of
such objections, or if, after the entry of an order sustaining one or more of
such objections, the SEC shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have authorized the issuance and sale to the public of
shares of thirteen series of the Trust. The Trustees have no current intention
to create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see
"Redemption of Shares" in the Prospectus.
As of [ ], 1995, the following owned of record or, to the knowledge of
management, beneficially owned more than 5% of the outstanding shares of:
[COMPLETE]
Unless otherwise noted, the address of each owner listed above is c/o
Morgan, 9 West 57th Street, New York, New York, 10019. As of the date of this
Statement of Additional Information, the officers and Trustees as a group owned
less than 1% of the shares of each Fund. Shareholders owning 25% or more of the
outstanding shares of a Fund may take actions without the approval of any other
investor in that Fund.
TAXES
Each Fund qualifies and intends to 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
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). 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
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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 Tax Exempt Money Market, Tax Exempt Bond and New York Total Return
Bond Funds intend to qualify to pay exempt-interest dividends to their
respective shareholders by having, at the close of each quarter of their
respective taxable years, at least 50% of the value of their respective total
assets consist of tax exempt securities. An exempt-interest dividend is that
part of dividend distributions made by the Funds which consists of interest
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 Funds. In view of each Fund's investment policies, it is expected that
a substantial portion of all dividends will be exempt-interest dividends,
although the Funds may from time to time realize and distribute net short-term
capital gains and may invest limited amounts in taxable securities under certain
circumstances. See "Investment Objective(s) and Policies" in the Prospectus.
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. The Selected U.S. Equity, U.S. Small Company and Diversified
Funds expect that a portion of these distributions to corporate shareholders
will be eligible for the dividends-received deduction. Distributions to
corporate shareholders of the Money Market, Tax Exempt Money Market, Treasury
Money Market, Tax Exempt Bond, New York Total Return Bond, Bond, Short Term
Bond, International Bond, International Equity , Emerging Markets Equity,
European Equity, Japan Equity and Asia Growth Funds are not eligible for the
dividends received deduction. 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
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disposition, such as pursuant to reinvestment of a dividend in shares of the
Fund.
To maintain a constant $1.00 per share net asset value, the Trustees of
the Money Market, Tax Exempt Money Market and Treasury Money Market Funds may
direct that the number of outstanding shares be reduced pro rata. If this
adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses. The adjustment may result in a shareholder
having more dividend income than net income in his account for a period. When
the number of outstanding shares of a Fund is reduced, the shareholder's basis
in the shares of the Fund may be adjusted to reflect the difference between
taxable income and net dividends actually distributed. This difference may be
realized as a capital loss when the shares are liquidated. See "Net Asset
Value."
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 Portfolio lapses
or is terminated through a closing transaction, such as a repurchase by the
Portfolio of the option from its holder, the Portfolio 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 Portfolio in the closing transaction. If securities
are purchased by a Portfolio pursuant to the exercise of a put option written by
it, the Portfolio will subtract the premium received from its cost basis in the
securities purchased.
Under the Code, gains or losses attributable to disposition of foreign
currency or to foreign currency contracts, or to fluctuations in exchange rates
between the time a Portfolio accrues income or receivables or expenses or other
liabilities denominated in a foreign currency and the time a Portfolio actually
collects such income or pays such liabilities, are treated as ordinary income or
ordinary loss. Similarly, gains or losses on the disposition of debt securities
held by a Portfolio, if any, denominated in foreign currency, to the extent
attributable to fluctuations in exchange rates between the acquisition and
disposition dates are also treated as ordinary income or loss.
Forward currency contracts, options and futures contracts entered into
by a Portfolio 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
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities. Straddles may also result in the loss of
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the holding period of underlying securities for purposes of the 30% of gross
income test described above, and therefore, a Portfolio's ability to enter into
forward currency contracts, options and futures contracts may be limited.
Certain options, futures and foreign currency contracts held by a
Portfolio 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 Portfolio has held such options
or futures. Any gain or loss recognized on foreign currency contracts will be
treated as ordinary income.
The Equity Portfolios may invest in Equity Securities of foreign
issuers. If a Portfolio purchases shares in certain foreign investment funds
(referred to as passive foreign investment companies ("PFICs") under the Code),
the Portfolio 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 each year include 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.
Pursuant to proposed regulations, open-end regulated investment
companies such as the Portfolios would be entitled to elect to mark to market
their stock in certain PFICs. Marking to market in this context means
recognizing as gain for each taxable year the excess, as of the end of that
year, of the fair market value of each PFIC's stock over the owner's adjusted
basis in that stock (including mark to market gains of a prior year for which an
election was in effect).
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 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 gains to foreign shareholders will not be
subject to U.S. tax unless the distributions are effectively connected with
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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. See "Taxes" in the Prospectus. 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.
FOREIGN TAXES. It is expected that the International Bond, Selected
U.S. Equity, U.S. Small Company, International Equity, Emerging Markets Equity ,
Diversified, European Equity, Japan Equity and Asia Growth Funds may be subject
to foreign withholding taxes with respect to income received from sources within
foreign countries. In the case of the International Bond, International Equity ,
Emerging Markets Equity, European Equity, Japan Equity and Asia Growth Funds, so
long as more than 50% in value of the total assets of the Fund's corresponding
Portfolio at the close of any taxable year consists of stock or securities of
foreign corporations, the Fund may elect to treat any foreign income taxes paid
by it as paid directly by its shareholders. These Funds will make such an
election only if they deem it to be in the best interest of their respective
shareholders. The Funds will notify their respective shareholders in writing
each year if they make the election and of the amount of foreign income taxes,
if any, to be treated as paid by the shareholders. If a Fund makes the election,
each shareholder will be required to include in his income his proportionate
share of the amount of foreign income taxes paid by the Fund and will be
entitled to claim either a credit (subject to the limitations discussed below)
or, if he itemizes deductions, a deduction for his share of the foreign income
taxes in computing federal income tax liability. (No deduction will be permitted
in computing an individual's alternative minimum tax liability.) A shareholder
who is a nonresident alien individual or a foreign corporation may be subject to
U.S. withholding tax on the income resulting from the election described in this
paragraph, but may not be able to claim a credit or deduction against such U.S.
tax for the foreign taxes treated as having been paid by such shareholder. A
tax-exempt shareholder will not ordinarily benefit from this election.
Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes will be subject to the limitation that the credit may not exceed
the shareholder's U.S. tax (determined without regard to the availability of the
credit) attributable to his or her total foreign source taxable income. For this
purpose, the portion of
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dividends and distributions paid by each of the International Bond,
International Equity , Emerging Markets Equity, European Equity, Japan Equity
and Asia Growth Funds from its foreign source net investment income will be
treated as foreign source income. Each of these Funds' gains and losses from the
sale of securities will generally be treated as derived from U.S. sources,
however, and certain foreign currency gains and losses likewise will be treated
as derived from U.S. sources. The limitation on the foreign tax credit is
applied separately to foreign source "passive income," such as the portion of
dividends received from the Fund which qualifies as foreign source income. In
addition, the foreign tax credit is allowed to offset only 90% of the
alternative minimum tax imposed on corporations and individuals. Because of
these limitations, shareholders may be unable to claim a credit for the full
amount of their proportionate shares of the foreign income taxes paid by the
International Bond, International Equity , Emerging Markets Equity, European
Equity, Japan Equity and Asia Growth Funds.
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. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor any Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that the
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolios are organized as New York trusts. The Portfolios are
not subject to any federal income taxation or income or franchise tax in the
State of New York or The Commonwealth of Massachusetts. The investment by a Fund
in its corresponding Portfolio does not cause the Fund to be liable for any
income or franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting, if the holders of more than 50% of the Fund's
outstanding shares are present or represented by proxy, or (ii) more than 50% of
the Fund's outstanding shares or the Portfolio's outstanding voting securities,
whichever is less.
Telephone calls to the Funds, Morgan or Eligible Institutions as
shareholder servicing agent may be tape recorded.
With respect to the securities offered hereby, this Statement of
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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 and the Portfolios' Registration Statements filed under the
1940 Act. Pursuant to the rules and regulations of the SEC, certain portions
have been omitted. The Registration Statements including the exhibits filed
therewith may be examined at the office of the SEC in Washington D.C.
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 the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by any Fund or by the
Distributor 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
the Distributor to make such offer in such jurisdictions.
FINANCIAL STATEMENTS
Each of The JPM Institutional Funds' current reports to shareholders
filed with the SEC pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1
thereunder are hereby incorporated herein by reference. A copy of each such
report will be provided, without charge, to each person receiving this Statement
of Additional Information.
Attached are the audited statement of assets and liabilities and the
reports thereon of Price Waterhouse LLP for the European Equity, Japan Equity
and Asia Growth Portfolios as of March 24, 1995 and for the Non-U.S. Fixed
Income Portfolio as of October 6, 1994.
JPM454A
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THE NON-U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 6, 1994
ASSETS
Cash $100,100
Deferred Organization Expenses 35,000
--------
Total Assets 135,100
LIABILITIES
Organization Expenses Payable 35,000
--------
Net Assets $100,100
========
NOTES TO FINANCIAL STATEMENT
NOTE 1 - ORGANIZATION OF PORTFOLIO
The Non-U.S. Fixed Income Portfolio (the "Portfolio") was organized as a New
York trust on June 16, 1993, and has been inactive since that date except for
matters relating to its organization and registration as an investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"), the sales
of beneficial interests at the respective prices of $100 to Signature Financial
Group, Inc. and $100,000 to JPM International Bond Fund, Ltd. (the "initial
beneficial interests").
Morgan Guaranty Trust Company of New York ("Morgan") has agreed to pay the
organization expenses of the Portfolio. The Portfolio has agreed to reimburse
Morgan for these costs which are being amortized by the Portfolio on a
straight-line basis over a sixty-month period from the commencement of
operations. The amount paid by the Portfolio on any decrease or withdrawal by
any current holder of the initial beneficial interests in the Portfolio will be
reduced by the pro rata portion of any unamortized organization expenses which
the amount of the initial beneficial interests of the Portfolio being decreased
bears to the total amount of beneficial interests of the Portfolio held by such
holder immediately prior to such withdrawal.
NOTE 2 - VALUATION OF INVESTORS' BENEFICIAL INTERESTS
At 4:00 p.m. New York time on each business day of the Portfolio, the value of
an investor's beneficial interest in the Portfolio is equal to the product of
(i) the aggregate net asset value of the Portfolio, multiplied by (ii) the
percentage representing that investor's share of the aggregate beneficial
interest in the Portfolio effective for that day.
NOTE 3 - SERVICE AGREEMENT WITH AFFILIATES
The Portfolio has entered into separate Investment Advisory and Financial and
Fund Accounting Services agreements with Morgan as described in the registration
statement of the Portfolio on Form N-1A under the 1940 Act. The Portfolio has
also entered into separate Administration and Exclusive Placement Agent
agreements with Signature Broker-Dealer Services, Inc., and a Fund Services
agreement with Pierpont Group, Inc. as described in such registration statement.
The officers of the Portfolio are employees of Signature Broker-Dealer Services,
Inc. The Trustees of the Portfolio are the sole shareholders of Pierpont Group,
Inc.
<PAGE>
NOTE 4 - SUBSEQUENT EVENT
The Portfolio commenced operations on October 11, 1994. On that date, JPM
International Bond Fund, Ltd. increased its beneficial interest in the Portfolio
by contributing certain assets and liabilities, including securities, with a
value of $112,714,902.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Investors and Trustees of
The Non-U.S. Fixed Income Portfolio
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The Non-U.S. Fixed
Income Portfolio (the "Portfolio") at October 6, 1994, in conformity with
generally accepted accounting principles. This financial statement is the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on this financial statement based on our audit. We conducted our
audit of this financial statement in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a seasonable basis for the opinion expressed above.
/S/PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
November 1, 1994
<PAGE>
THE SERIES PORTFOLIO - THE ASIA GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 24, 1995
ASSETS
Cash $ 200
Deferred Organization Expenses 33,000
Total Assets 33,200
------
LIABILITIES
Organization Expenses Payable 33,000
Total Liabilities 33,000
Commitments and Contingencies (See Note 3) -
Net Assets $ 200
=======
NOTES TO FINANCIAL STATEMENT
NOTE 1 - ORGANIZATION
The Asia Growth Portfolio (the "Portfolio") is a series of The Series Portfolio
(the "Series Portfolio"), a trust organized under the laws of the State of New
York on June 24, 1994, and has been inactive since that date except for matters
relating to its organization and registration as an investment company under the
Investment Company Act of 1940, as amended, and the sales of beneficial
interests in the Portfolio in the respective amounts of $100 to The JPM Advisor
Asia Growth Fund (the "Fund") and $100 to JPM Asia Growth Fund, Ltd. (the
"initial beneficial interests").
The Portfolio has incurred $33,000 in organization expenses based on its
allocable pro rata share of total organization expenses for the three Portfolios
in the Series Portfolio. These costs are being deferred and will be amortized on
a straight line basis over a period not to exceed five years beginning with the
commencement of operations of the Portfolio. The Portfolio will receive upon a
redemption by Signature (the purchaser of the Fund's initial shares) from the
Fund, a pro rata portion of the unamortized organization expenses of the
Portfolio. The amount paid by the Portfolio on any withdrawal of an initial
beneficial interest by the Fund, JPM Asia Growth Fund, Ltd. or any other current
holder of such initial beneficial interest will be reduced by a pro rata portion
of any unamortized organization expenses. This reduction will be determined with
respect to each withdrawal of an initial beneficial interest by calculating the
proportion of the amount of the initial beneficial interest withdrawn to the
aggregate initial beneficial interests then outstanding.
NOTE 2 - VALUATION OF INVESTORS' BENEFICIAL INTERESTS
At 4:15 p.m. New York time on each business day of the Portfolio, the value of
an investor's beneficial interest in the Portfolio is equal to the product of
(i) the aggregate net asset value of the Portfolio, effective for that day, and
(ii) the percentage representing that investor's pro rata share of the aggregate
beneficial interests in the Portfolio, on that day.
<PAGE>
NOTE 3 - SERVICE AGREEMENTS WITH AFFILIATES
The Series Portfolio has entered into separate investment advisory and financial
and fund accounting services agreements with Morgan Guaranty Trust Company of
New York ("'Morgan") to provide investment advisory and financial and fund
accounting services for the Portfolio as described in the Series Portfolio's
accompanying registration statement on Form N-lA. The Series Portfolio has also
entered into separate administration and exclusive placement agent agreements
with Signature Broker-Dealer Services, Inc.("SBDS"), to provide for
administrative and placement services for the Portfolio, and a fund services
agreement with Pierpont Group, Inc. ("Pierpont Group"), each as described in
such registration statement. The officers of the Series Portfolio, excluding its
Chief Executive Officer, are employees of SBDS. The Trustees of the Series
Portfolio represent all the existing shareholders of Pierpont Group.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Investors and Trustees of
The Asia Growth Portfolio
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The Asia Growth
Portfolio (one of three portfolios comprising The Series Portfolio, hereafter
referred to as the "Portfolio") at March 24, 1995, in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Portfolio's management; our responsibility is to express an opinion on
this financial statement based on our audit. We conducted our audit of this
financial statement in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/S/PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
March 24, 1995
<PAGE>
THE SERIES PORTFOLIO - THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 24, 1995
ASSETS
Cash $ 200
Deferred Organization Expenses 33,000
Total Assets 33,200
------
LIABILITIES
Organization Expenses Payable 33,000
Total Liabilities 33,000
Commitments and Contingencies (See Note 3) -
Net Assets $ 200
=======
NOTES TO FINANCIAL STATEMENT
NOTE 1 - ORGANIZATION
The European Equity Portfolio (the "Portfolio") is a series of The Series
Portfolio (the "Series Portfolio"), a trust organized under the laws of the
State of New York on June 24, 1994, and has been inactive since that date except
for matters relating to its organization and registration as an investment
company under the Investment Company Act of 1940, as amended, and the sales of
beneficial interests in the Portfolio in the respective amounts of $100 to The
JPM Advisor European Equity Fund (the "Fund") and $100 to JPM Europe Fund, Ltd.
(the "initial beneficial interests").
The Portfolio has incurred $33,000 in organization expenses based on its
allocable pro rata share of total organization expenses for the three Portfolios
in the Series Portfolio. These costs are being deferred and will be amortized on
a straight line basis over a period not to exceed five years beginning with the
commencement of operations of the Portfolio. The Portfolio will receive upon a
redemption by Signature (the purchaser of the Fund's initial shares) from the
Fund, a pro rata portion of the unamortized organization expenses of the
Portfolio. The amount paid by the Portfolio on any withdrawal of an initial
beneficial interest by the Fund, JPM Europe Fund, Ltd. or any other current
holder of such initial beneficial interests will be reduced by a pro rata
portion of any unamortized organization expenses. This reduction will be
determined with respect to each withdrawal of an initial beneficial interest by
calculating the proportion of the amount of the initial beneficial interest
withdrawn to the aggregate initial beneficial interests then outstanding.
NOTE 2 - VALUATION OF INVESTORS' BENEFICIAL INTERESTS
At 4:15 p.m. New York time on each business day of the Portfolio, the value of
an investor's beneficial interest in the Portfolio is equal to the product of
(i) the aggregate net asset value of the Portfolio, effective for that day, and
(ii) the percentage representing that investor's pro rata share of the aggregate
beneficial interests in the Portfolio, on that day.
<PAGE>
NOTE 3 - SERVICE AGREEMENTS WITH AFFILIATES
The Series Portfolio has entered into separate investment advisory and financial
and fund accounting services agreements with Morgan Guaranty Trust Company of
New York ("Morgan") to provide investment advisory and financial and fund
accounting services for the Portfolio as described in the Series Portfolio's
accompanying registration statement on Form N-lA. The Series Portfolio has also
entered into separate administration and exclusive placement agent agreements
with Signature Broker-Dealer Services, Inc. ("SBDS"), to provide for
administrative and placement services for the Portfolio, and a fund services
agreement with Pierpont Group, Inc. ("Pierpont Group"), each as described in
such registration statement. The officers of the Series Portfolio, excluding its
Chief Executive Officer, are employees of SBDS. The Trustees of the Series
Portfolio represent all the existing shareholders of Pierpont Group.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Investors and Trustees of
The European Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The European Equity
Portfolio (one of three portfolios comprising The Series Portfolio, hereafter
referred to as the "Portfolio") at March 24, 1995, in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Portfolio's management; our responsibility is to express an opinion on
this financial statement based on our audit. We conducted our audit of this
financial statement in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/S/PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
March 24, 1995
<PAGE>
THE SERIES PORTFOLIO - THE JAPAN EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 24, 1995
ASSETS
Cash $ 100,100
Deferred Organization Expenses 33,000
------
Total Assets 133,100
LIABILITIES
Organization Expenses Payable 33,000
Total Liabilities 33,000
Commitments and Contingencies (See Note 3) -
Net Assets $ 100,100
=========
NOTES TO FINANCIAL STATEMENT
NOTE 1 - ORGANIZATION
The Japan Equity Portfolio (the "Portfolio") is a series of The Series Portfolio
(the "Series Portfolio"), a trust organized under the laws of the State of New
York on June 24, 1994, and has been inactive since that date except for matters
relating to its organization and registration as an investment company under the
Investment Company Act of 1940, as amended, and the sales of beneficial
interests in the Portfolio in the respective amounts of $100 to The JPM Advisor
Japan Equity Fund (the "Fund") and $100,000 to JPM Japan Equity Fund, Ltd. (the
"initial beneficial interests").
The Portfolio has incurred $33,000 in organization expenses based on its
allocable pro rata share of total organization expenses for the three Portfolios
in the Series Portfolio. These costs are being deferred and will be amortized on
a straight line basis over a period not to exceed five years beginning with the
commencement of operations of the Portfolio. The Portfolio will receive upon a
redemption by Signature (the purchaser of the Fund's initial shares) from the
Fund, a pro rata portion of the unamortized organization expenses of the
Portfolio. The amount paid by the Portfolio on any withdrawal of an initial
beneficial by the Fund, JPM Japan Equity Fund, Ltd. or any other current holder
of such initial beneficial interests be reduced by a pro rata portion of any
unamortized organization expenses. This reduction will be determined with
respect to each withdrawal of an initial beneficial interest by calculating the
proportion of the amount of the initial beneficial interest withdrawn to the
aggregate initial beneficial interests then outstanding.
NOTE 2 - VALUATION OF INVESTORS' BENEFICIAL INTEREST
At 4:15 p.m. New York time on each business day of the Portfolio, the value of
an investor's beneficial interest in the Portfolio is equal to the product of
(i) the aggregate net asset value of the Portfolio, effective for that day, and
(ii) the percentage representing that investor's pro rata share of the aggregate
beneficial interests in the Portfolio, on that day.
<PAGE>
NOTE 3 - SERVICE AGREEMENTS WITH AFFILIATES
The Series Portfolio has entered into separate investment advisory and financial
and fund accounting services agreements with Morgan Guaranty Trust Company of
New York ("Morgan") to provide investment advisory and financial and fund
accounting services for the Portfolio, as described in the Series Portfolio's
accompanying registration statement on Form N-lA. The Series Portfolio has also
entered into separate administration and exclusive placement agent agreements
with Signature Broker-Dealer Services, Inc.("SBDS"), to provide for
administrative and placement services for the Portfolio, and a fund services
agreement with Pierpont Group, Inc. ("Pierpont Group"), each as described in
such registration statement. The officers of the Series Portfolio, excluding its
Chief Executive Officer, are employees of SBDS. The Trustees of the Series
Portfolio represent all the existing shareholders of Pierpont Group.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Investors and Trustees of
The Japan Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The Japan Equity
Portfolio (one of three portfolios comprising The Series Portfolio, hereafter
referred to as the "Portfolio") at March 24, 1995, in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Portfolio's management; our responsibility is to express an opinion on
this financial statement based on our audit. We conducted our audit of this
financial statement in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/S/PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
March 24, 1995
<PAGE>
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
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
A-1
<PAGE>
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 Aaa 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. 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.
A-2
<PAGE>
- 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.
JPM454A
A-3
<PAGE>
APPENDIX B
ADDITIONAL INFORMATION CONCERNING NEW YORK MUNICIPAL OBLIGATIONS
The following information is a summary of special factors affecting
investments in New York municipal obligations. It does not purport to be a
complete description and is based on information from the Annual Information
Statement of the State of New York dated June 23, 1995.
GENERAL
New York (the "State") is the third most populous state in the nation
and has a relatively high level of personal wealth. The State's economy is
diverse with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location, air transport
facilities and natural harbors have made it an important link in international
commerce. Travel and tourism constitute an important part of the economy. The
State has a declining proportion of its work force engaged in manufacturing and
an increasing proportion engaged in service industries. This transition reflects
a national trend.
The State has historically been one of the wealthiest states in the
nation. For decades, however, the State economy has grown more slowly than that
of the nation as a whole, resulting in the gradual erosion of its relative
economic affluence. Statewide, urban centers have experienced significant
changes
B-1
<PAGE>
involving migration of the more affluent to the suburbs and an influx of
generally less affluent residents. Regionally, the older Northeast cities have
suffered because of the relative success that the South and the West have had in
attracting people and business. New York City (the "City") has also had to face
greater competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City.
Although industry and commerce are broadly spread across the State,
particular activities are concentrated in the following areas: Westchester
County -- headquarters for several major corporations; Buffalo -- diverse
manufacturing base; Rochester -- manufacture of photographic and optical
equipment; Syracuse and Utica-Rome area -- production of machinery and
transportation equipment; Albany-Troy-Schenectady -- government and education
center and production of electrical products; Binghamton -- original site of the
International Business Machines Corporation and continued concentration of
employment in computer and other high technology manufacturing; and New York
City -- headquarters for the nation's securities business and for a major
portion of the nation's major commercial banks, diversified financial
institutions and life insurance companies. In addition, the City houses the home
offices of three major radio and television broadcasting networks, most of the
national magazines and a substantial portion of the nation's book publishers.
The City also retains leadership in the design and manufacture of men's and
women's apparel.
ECONOMIC OUTLOOK
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the Federal government, that
are not under the control of the State. The State Financial Plan is based upon
forecasts of national and State economic activity. Economic forecasts have
frequently failed to predict accurately the timing and magnitude of changes in
the national and the State economies. Many uncertainties exist in forecasts of
both the national and State economies, including consumer attitudes toward
spending, the extent of corporate and governmental restructuring, Federal
financial and monetary policies, the availability of credit, the level of
interest rates, and the condition of the world economy, which would have an
adverse effect on the State. There can be no assurance that the State economy
will not experience results in the current fiscal year that are worse than
predicted, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
B-2
<PAGE>
The national economy began to expand in 1991, although the growth rate for the
first two years of the expansion was modest by historical standards. The State
economy remained in recession until 1993, when employment growth resumed. Since
November 1992, the State has added approximately 185,000 jobs. Employment growth
has been hindered during recent years by significant cutbacks in the computer
and instrument manufacturing, utility, and defense industries. Personal income
increased substantially in 1992 and 1993, aided significantly by large bonus
payments in banking and financial industries.
The national economy performed better in 1994 than in any year since
the recovery began in 1991. National job and income growth were substantial. In
response, the Federal Reserve Board shifted to a policy of monetary tightening
by raising interest rates throughout the year. As a result, the national
economic growth is expected to weaken, but not turn negative, during the course
of 1995 before beginning to rebound by the end of the year. This dynamic is
often described as a "soft landing." The overall rate of growth of the national
economy during calendar year 1995 will be slightly below the "consensus" of a
widely followed survey of national economic forecasters. Growth in the real
gross domestic product during 1995 is projected to be moderate (3.0 percent),
with declines in defense spending and net exports more than offset by increases
in consumption and investment. Continuing efforts by business and government to
reduce costs are expected to exert a drag on economic growth. Inflation, as
measured by the Consumer Price Index, is projected to remain about 3 percent due
to moderate wage growth and foreign competition. Personal income and wages are
projected to increase by about 6 percent or more.
The State economy had a mixed performance during 1994. The moderate
employment growth that characterized 1993 continued into mid-1994, then
virtually ceased. New York's economy is expected to continue to expand modestly
during 1995, but there will be a pronounced slow-down during the course of the
year. Although industries that export goods and services abroad are expected to
benefit from the lower dollar, growth will be slowed by government cutbacks at
all levels. On an average annual basis, employment growth will be about the same
as 1994. Both personal income and wages are expected to record moderate gains in
1995. Bonus payments in the securities industry are expected to increase from
last year's depressed level. Personal income rose 4.0 percent in 1994.
The State has for many years had a very high State and local tax burden
relative to other States. The State and its localities have used these taxes to
develop and maintain their transportation networks, public schools and colleges,
public health systems, other social services and recreational facilities.
Despite these benefits, the burden of State and local
B-3
<PAGE>
taxation, in combination with the many other causes of regional economic
dislocation, may have contributed to the decisions of some businesses and
individuals to relocate outside, or not locate within, the State.
To stimulate the State's economic growth, the State has developed
programs, including the provision of direct financial assistance, designed to
assist businesses to expand existing operations located within the State and to
attract new businesses to the State. Local industrial development agencies
raised an aggregate of approximately $7.8 billion in separate tax-exempt bond
issues through December 31, 1993. There are currently over 100 county, city,
town and village agencies. In addition, the New York State Urban Development
Corporation is empowered to issue, subject to certain State constitutional
restrictions and to approval by the Public Authorities Control Board, bonds and
notes on behalf of private corporations for economic development projects. The
State has also taken advantage of changes in Federal bank regulations to
establish a free international banking zone in the City.
In addition, the State has provided various tax incentives to encourage
business relocation and expansion. These programs include direct tax abatements
from local property taxes for new facilities (subject to locality approval) and
investment tax credits that are applied against the State corporation franchise
tax. Furthermore, legislation passed in 1986 authorizes the creation of up to 40
"economic development zones" in economically distressed regions of the State.
Businesses in these zones are provided a variety of tax and other incentives to
create jobs and make investments in the zones.
STATE FINANCIAL PLAN
The State Constitution requires the Governor to submit to the
Legislature a balanced Executive Budget which contains a complete plan of
expenditures (the "State Financial Plan") for the ensuing fiscal year and all
moneys and revenues estimated to be available therefor, accompanied by bills
containing all proposed appropriations or reappropriations and any new or
modified revenue measures to be enacted in connection with the Executive Budget.
A final budget must be approved before the statutory deadline of April 1. The
State Financial Plan is updated quarterly pursuant to law.
The State's fiscal year, which commenced on April 1, 1995, and ends on
March 31, 1996, is referred to herein as the State's 1995-96 fiscal year.
The State's budget for the 1995-96 fiscal year was enacted by the
Legislature on June 7, 1995, more than two months after the start of the fiscal
year. Prior to adoption of the budget, the Legislature enacted appropriations
for disbursements considered to be necessary for State operations and other
B-4
<PAGE>
purposes, including all necessary appropriations for debt service. The State
Financial Plan for the 1995-96 fiscal year was formulated on June 20, 1995, and
is based on the State's budget as enacted by the Legislature and signed into law
by the Governor. The State Financial Plan will be updated quarterly pursuant to
law in July, October and January.
The 1995-96 budget is the first to be enacted in the administration of
the Governor, who assumed office on January 1. It is the first budget in over
half a century which proposed and, as enacted, projects an absolute
year-over-year decline in General Fund disbursements. Spending for State
operations is projected to drop even more sharply, by 4.6 percent. Nominal
spending from all State funding sources (I.E., excluding Federal aid) is
proposed to increase by only 2.5 percent from the prior fiscal year, in contrast
to the prior decade when such spending growth averaged more than 6.0 percent
annually.
In his Executive Budget, the Governor indicated that in the 1995-96
fiscal year, the State Financial Plan, based on then-current law governing
spending and revenues, would be out of balance by almost $4.7 billion, as a
result of the projected structural deficit resulting from the ongoing disparity
between sluggish growth in receipts, the effect of prior-year tax changes, and
the rapid acceleration of spending growth; the impact of unfunded 1994-95
initiatives, primarily for local aid programs; and the use of one-time
solutions, primarily surplus funds from the prior year, to fund recurring
spending in the 1994-95 budget. The Governor proposed additional tax cuts, to
spur economic growth and provide relief for low- and middle-income tax payers,
which were larger than those ultimately adopted, and which added $240 million to
the then projected imbalance or budget gap, bringing the total to approximately
$5 billion.
This gap is projected to be closed in the 1995-96 State Financial Plan
based on the enacted budget, through a series of actions, mainly spending
reductions and cost containment measures and certain reestimates that are
expected to be recurring, but also through the use of one-time solutions. The
State Financial Plan projects (i) nearly $1.6 billion in savings from cost
containment, disbursement reestimates, and other savings in social welfare
programs, including Medicaid, income maintenance and various child and family
care programs; (ii) $2.2 billion in savings from State agency actions to reduce
spending on the State work force, SUNY and CUNY, mental hygiene programs,
capital projects, the prison system and fringe benefits; (iii) $300 million in
savings from local assistance reforms, including actions affecting school aid
and revenue sharing while proposing program legislation to provide relief from
certain mandates that increase local spending; (iv) over $400 million in revenue
measures, primarily a new Quick Draw Lottery game, changes to tax payment
schedules, and the sale of assets; and (v) $300 million from reestimates in
receipts.
B-5
<PAGE>
The Executive Budget indicates that for years State revenues have grown
at a slower rate than State spending, producing an increasing structural
deficit, and that as the Executive Budget is enacted, the State will start to
eliminate the structural imbalance that has characterized the State's fiscal
record. There can, however, be no assurances that the tax and spending cuts will
eliminate potential imbalances in future fiscal years. The Governor's
recommended multi-year personal income tax cuts are designed to reduce the yield
on that tax by about one-third by 1998, and could require significant additional
spending cuts in those years, increased economic growth to provide additional
revenues, additional revenue measures, or a combination of those factors.
GOVERNMENT FUNDS
The four governmental fund types that comprise the State Financial Plan
are the General Fund, the Special Revenue Funds, the Capital Projects Funds, and
the Debt Service Funds.
GENERAL FUND RECEIPTS
The General Fund is the principal operating fund of the State and is
used to account for all financial transactions, except those required to be
accounted for in another fund. It is the State's largest fund and receives
almost all State taxes and other resources not dedicated to particular purposes.
In the State's 1995-96 fiscal year, the General Fund is expected to account for
approximately 49 percent of total governmental-funded disbursements and 71
percent of total State-funded disbursements. General Fund moneys are also
transferred to other funds, primarily to support certain capital projects and
debt service on long-term bonds, where these costs are not funded from other
sources.
The Financial Plan for the 1995-96 fiscal year released on February 1,
1995, projects General Fund receipts, including transfers from other funds, of
$33.110 billion, a reduction of $48 million from the total receipts in the
1994-95 fiscal year. Tax receipts are projected at $29.793 billion for the
1995-96 fiscal year. Although growth in the base for tax receipts is expected to
accelerate during the 1995-96 fiscal year, tax receipts are expected to fall by
3.5 percent, principally due to the combined effect of implementing during the
1995-96 fiscal year (1) a portion of the tax reductions originally enacted in
1987 and deferred each year since 1990, (2) additional tax cuts to prevent tax
increases also originally enacted in 1987 from taking effect and (3) the
proposed employer day care credit ($5 million), together with the incremental
cost of the tax reductions enacted in 1994 (more than $500 million), which
effectively negate the effect of projected growth in the recurring revenue base.
In addition, certain nonrecurring revenues in the 1994-95 receipts base,
including the 1993-94
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surplus of $1.026 billion, additional earmarking to dedicated funds (more than
$210 million) and other miscellaneous one-time receipts (more than $100 million)
are not available in the 1995-96 fiscal year, thereby reducing potential
year-over-year growth by another 4 percentage points.
The projected yield of personal income tax in the 1995-96 fiscal year
of $17.285 billion is a decrease of $305 million from reported collections in
the State's 1994-95 fiscal year. The decrease reflects both the effects of the
tax reductions and the fact that reported collections in the preceding year were
affected by net refund reserve transactions that buoyed collections in that year
by $862 million that will be unavailable in the current year. Without these
changes, the yield of the tax would have grown by more than $1.0 billion (6
percent), reflecting liability growth for the 1995 tax year projected at
approximately the same rate. The income base for the tax is projected to rise
approximately 5 percent for the 1995 tax year. Personal income tax receipts
showed a sharp increase in 1994-95 and are expected to decline in 1995-96.
Personal income tax reductions recommended in the Executive Budget are projected
to produce taxpayer savings of $720 million in calendar year 1995 reflecting the
scheduled implementation of the 1987 tax reductions. The tax reductions
recommended by the Governor are part of a multi-year program designed to reduce
the yield of the income tax by about one-third by 1998.
Receipts in user taxes and fees in the State's 1995-96 fiscal year are
expected to total $6.697 billion, an increase of $73 million from reported
1994-95 results. Growth in user taxes and fees is expected to slow to about 1
percent in 1995-96, reflecting nearly $70 million of additional tax relief in
this category in the coming year resulting from tax reductions enacted in 1994,
the absence of extraordinary audit collections received in 1994-95, and a
slowdown in the underlying growth rate of sales and use tax collections, offset
by a projected improvement of $41 million as a result of recommended legislation
to enhance sales tax collection procedures. Business tax receipts are projected
at $4.709 billion, a decline of $360 million from reported 1994-95 results. The
decline in the 1995-96 fiscal year largely reflecting the effect of tax
reductions enacted in 1994.
Total receipts from other taxes in the State's 1995-96 fiscal year are
projected at $1.102 billion, $6 million less than in the preceding year. The
estimates reflect 1994 and 1995 legislation reducing the burden of the real
property gains tax and the estate tax as well as diversion of a portion of the
real estate transfer tax proceeds to the Environmental Protection Fund.
Miscellaneous receipts in the State's 1995-96 fiscal year are expected to total
$1.596 billion, an increase of $335 million above the amount received in the
prior State fiscal year. Growth in overall collections from miscellaneous
receipts in the coming fiscal year is expected to result largely from several
discrete actions involving settlement of environmental litigation, the
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recommended merger of public authorities, and transactions with the Power
Authority, which together account for over $200 million of projected
miscellaneous receipts anticipated in 1995-96. Transfers from other funds
continue at prior year levels, with the addition of the transfer of $220 million
in excess funds from the Metropolitan Mass Transportation Operating Assistance
Fund.
GENERAL FUND DISBURSEMENTS
General Fund disbursements are projected to total $33.055 billion in
1995-96, a decrease of $344 million from the total amount disbursed in the prior
fiscal year. This decline reflects a broad agenda of cost containment actions,
more than offsetting modest increases for fixed costs, such as pensions, debt
service on bonds sold during the current year and capital projects under
construction.
Disbursements from grants to local governments are projected to total
$22.910 billion in the 1995-96 State Financial Plan, a decrease of $392 million
from 1994-95 levels. Although spending in this category is reduced, direct
payments to local governments, including school aid and revenue sharing are
maintained largely at last year's levels. This category of the State Financial
Plan includes $10.823 billion in aid for elementary, secondary, and higher
education. Costs for social services, such as Medicaid, income maintenance and
child support services account for $8.706 billion. Remaining disbursements
primarily support community-based mental hygiene programs, community and public
health programs, local transportation programs, and revenue sharing.
Significant decreases from the prior year result largely from cost
containment initiatives in Medicaid and other social welfare programs. Payments
for Medicaid from the General Fund are projected to be $506 million lower than
in 1994-95. $128 Million in operating aid to the New York City Transit Authority
will be eliminated, matching the reduction in New York City support of the
Authority.
Spending for State operations is projected at $6.020 billion, a
decrease of $288 million. Recommendations in the Executive Budget reduce the
work force by approximately 3,200 positions (most of which reduce disbursements
in this category).
Spending for general State charges is projected at $2.080 billion in
the 1995-96 State Financial Plan, and are virtually unchanged from the 1994-95
level. The budgeted amount for general State charges assumes the use of $110
million from a special reserve for pension supplementation, established in 1970
and funded through State and local employer contributions in the early 1970's,
to offset the State's pension contribution. The Comptroller, as sole trustee of
the Common Retirement Fund and administrative head of the Retirement System, is
in the process of reviewing the legislation that directs the use of these
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reserves to determine whether or not to commence legal proceedings to prevent
such proposed use in the enacted 1995-96 State budget as a violation of the
State Constitution, and there is a substantial likelihood that he will do so.
The Executive considers the proposed use of these reserves to be a credit for
prior-year supplementation payments and, therefore, in compliance with the State
Constitution.
Debt service in the General Fund for 1995-96 reflects only the $9
million interest cost of the State's commercial paper program. No cost is
included for a TRAN borrowing, since none is expected to be undertaken. General
Fund debt service on short-term obligations of the State reflects the
elimination of the State's spring borrowing. Transfers in support of debt
service are projected to total $1.583 billion, and increase of $157 million.
This increase is heightened by the use of one-time reimbursements from other
funds in the 1994-95 fiscal year. Transfers in support of capital projects are
projected to total $375 million, an increase of $169 million, which reflects
significant investments in both new and ongoing capital programs. All other
transfers are projected to total $78 million, an increase of $9 million from
1994-95 levels.
The 1995-96 opening fund balance of $158 million includes $157 million
which is reserved in the Tax Stabilization Reserve Fund, as well as $1 million
which is reserved in the Contingency Reserve Fund. The Contingency Reserve Fund
was established in 1993-94 to set aside moneys to address adverse judgments or
settlements resulting from litigation against the State. The closing fund
balance in the General Fund of $213 million reflects a balance of $172 million
in the Tax Stabilization Reserve Fund, following an additional payment of $15
million during the year, and a balance of $41 million in the Contingency Reserve
Fund.
The 1995-96 Financial Plan includes over $600 million in non-recurring
resources. These actions include items discussed above, as well as retroactive
Federal reimbursements and some non-recurring social welfare cost containment
actions. The Budget Division believes that recommendations included in the
Executive Budget will provide fully annualized savings in 1996-97 that more than
offset the non-recurring resources used in 1995-96.
SPECIAL REVENUE FUNDS
Special Revenue Funds are used to account for the proceeds of specific
revenue sources such as Federal grants that are legally restricted, either by
the Legislature or outside parties, to expenditures for specified purposes. For
1995-96, the State Financial Plan projects disbursements of $26.002 billion from
these funds, an increase of $1.641 billion over 1994-95 levels. Disbursements
from Federal funds, primarily the Federal share of Medicaid and other social
services programs, are projected to total $19.209 billion in the 1995-96 fiscal
year. Remaining projected spending of $6.793 billion primarily reflects aid to
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SUNY supported by tuition and dormitory fees, education aid funded from lottery
receipts, operating aid payments to the Metropolitan Transportation Authority
funded from the proceeds of dedicated transportation taxes, and costs of a
variety of self-supporting programs which deliver services financed by user
fees.
CAPITAL PROJECTS FUNDS
Capital Projects Funds are used to account for the financial resources
used for the acquisition, construction, or rehabilitation of major state capital
facilities and for capital assistance grants to certain local government or
public authorities. This fund type consists of the Capital Projects Fund, which
is supported by tax dollars transferred from the General Fund, and 37 other
capital funds established to distinguish specific capital construction purposes
supported by other revenues.
Disbursements from the Capital Projects Funds in 1995-96 are projected
at $4.160 billion, an increase of $541 million over prior-year levels. Spending
for capital projects will be financed through a combination of sources: Federal
grants, public authority bond proceeds, general obligation bond proceeds, and
current revenues. Total receipts in this fund type are projected at $4.170
billion, not including $364 million expected to be available from the proceeds
of general obligation bonds.
DEBT SERVICE FUNDS
Debt Service Funds are used to account for the payment of principal of,
and interest on, long-term debt of the State and to meet commitments under
lease-purchase and other contractual-obligation financing arrangements.
Disbursements are estimated at $2.506 billion in the 1995-96 fiscal year, an
increase of $303 million from 1994-95. The transfer from the General Fund of
$1.583 billion is expected to finance 63 percent of these payments. The
remaining payments are expected to be financed by pledged revenues, including
$1.794 billion in taxes, $228 million in dedicated fees, and $2.200 billion in
patient revenues, including transfers of Federal reimbursements. After
impoundment for debt service, as required, $3.481 billion is expected to be
transferred to the General Fund and other funds in support of State operations.
The largest transfer - $1.761 billion - is made to the Special Revenue Fund
type, in support of operations of the mental hygiene agencies. Another $1.341
billion in excess sales taxes is expected to be transferred to the General Fund,
following payment of projected debt service on bonds of LGAC.
The increase in debt service costs recommended in the Executive Budget
primarily reflects prior capital commitments financed by bonds issued by the
State and State-supported debt issued by its public authorities, and the
completion of the LGAC
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program. The increase has been moderated by the reductions to bond-financed
capital spending as discussed above, and reflects debt issuances in 1994-95 and
1995-96 which are lower than they would have been, absent the Governor's review
of capital spending.
CASH FLOW
For the second time in many years, the State will meet its cash flow
needs without relying on a spring borrowing. However, this achievement is
predicated on two actions: the issuance of all remaining LGAC bonds authorized
in the 1990 statute; and the passage of proposed legislation permitting the
State to use, for cash flow purposes only, balances in the Lottery Fund.
Temporary transfers will be returned within five months so that all available
Lottery moneys as well as advances of additional aid can be paid to school
districts in September.
The lingering impact of the 1994-95 receipts shortfall -- as well as
the impact of the potential $5 billion 1995-96 imbalance on cash operations --
exerts substantial pressures on the State's cash balance position in the first
three months of the fiscal year. These pressures are expected to abate later in
the 1995-96 fiscal year, as cash outlays decline from previous levels consistent
with cost-savings initiatives proposed in the Executive Budget.
PRIOR FISCAL YEARS
New York State's financial operations have improved during recent
fiscal years. During the period 1989-90 through 1991-92, the State incurred
General Fund operating deficits that were closed with receipts from the issuance
of tax and revenue anticipation notes ("TRANs"). First, the national recession,
and then the lingering economic slowdown in the New York and regional economy,
resulted in repeated shortfalls in receipts and three budget deficits. For its
1992-93 and 1993-94 fiscal years, the State recorded balanced budgets on a cash
basis, with substantial fund balances in each year as described below.
1994-95 FISCAL YEAR
The State's budget for the 1994-95 fiscal year was enacted by the
Legislature on June 7, 1994, more than two months after the start of the fiscal
year. Prior to adoption of the budget, the Legislature enacted appropriations
for disbursements considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt service.
The 1994-95 budget contained a significant investment in efforts to
spur economic growth. The budget included provisions to reduce the level of
business taxation in New York, with cuts in the corporate tax surcharge, the
alternative minimum tax
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imposed on business and the petroleum business tax, repeal of the State's hotel
occupancy tax, and reductions in the real property gains tax to stimulate
construction and facilitate the real estate industry's access to capital.
Complementing the elimination of the hotel tax was a $10 million investment of
State funds in the "I Love New York" program designed to spur tourism activity
throughout the State.
To help strengthen the State's economic recovery, the 1994-95 budget
also included more than $200 million in additional funding for economic
development programs. Special emphasis was placed on programs intended to enable
New York State to: (i) invest in high technology industries; (ii) expand access
to foreign markets; (iii) strengthen assistance to small businesses,
particularly those owned by women and minorities; (iv) retain and attract new
manufacturing jobs; (v) help companies and communities impacted by continued
cutbacks in Federal defense spending and ongoing corporate downsizings; and (vi)
bolster the tourism industry. In addition, the budget included increased levels
of support for programs to rebuild and maintain State infrastructure, and
provisions to create 21 new economic development zones.
New York State ended its 1994-95 fiscal year with the General Fund in
balance. The closing fund balance of $158 million reflects $157 million in the
Tax Stabilization Reserve Fund and $1 million in the Contingency Reserve Fund
("CRF"). The CRF was established in State Fiscal year 1993-94, funded partly
with surplus moneys, to assist the State in financing the 1994-95 fiscal year
costs of extraordinary litigation known or anticipated at that time; the opening
fund balance in State fiscal year 1994-95 was $265 million. The $241 million
change in the fund balance reflects the use of $264 million in the CRF as
planned, as well as the required deposit of $23 million to the Tax Stabilization
Reserve Fund. In addition, $278 million was on deposit in the tax refund reserve
account, $250 million of which was deposited at the end of the State's 1994-95
fiscal year to continue the process of restructuring the State's cash flow as
part of the LGAC program.
Compared to the State Financial Plan for 1994-95 as formulated on June
16, 1994, reported receipts fell short of original projections by $1.163
billion, primarily in the categories of personal income and business taxes. Of
this amount, the personal income tax accounts for $800 million, reflecting weak
estimated tax collections and lower withholding due to reduced wage and salary
growth, more severe reductions in brokerage industry bonuses than projected
earlier, and deferral of capital gains realizations in anticipation of potential
Federal tax changes. Business taxes fell short by $373 million, primarily
reflecting lower payments from banks as substantial overpayments of 1993
liability depressed net collections in the 1994-95 fiscal year. These shortfalls
were offset by better performance in the remaining taxes, particularly the user
taxes
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and fees, which exceeded projections by $210 million. Of this amount, $227
million was attributable to certain restatements for accounting treatment
purposes pertaining to the CRF and LGAC; these restatements had no impact on
balance in the General Fund.
Disbursements were also reduced from original projections by $848
million. After adjusting for the net impact of restatements relating to the CRF
and LGAC which raised disbursements by $38 million, the variance is $886
million. Well over two-thirds of this variance is in the category of grants to
local governments, primarily reflecting the conservative nature of the original
estimates of projected costs for social services and other programs. Lower
education costs are attributable to the availability of $110 million in
additional lottery proceeds and the use of LGAC bond proceeds.
The spending reductions also reflect $188 million in actions initiated
in January 1995 by the Governor to reduce spending to avert a potential gap in
the 1994-95 State Financial Plan. These actions included savings from a hiring
freeze, halting the development of certain services, and the suspension of
non-essential capital projects. These actions, together with $71 million in
other measures comprised the Governor's $259 million gap-closing plan, submitted
to the Legislature in connection with the 1995-96 Executive Budget.
1993-94 FISCAL YEAR
The State ended its 1993-94 fiscal year with a balance of $1.140
billion in the tax refund reserve account, $265 million in its Contingency
Reserve Fund and $134 million in its Tax Stabilization Reserve Fund. These fund
balances were primarily the result of an improving national economy, State
employment growth, tax collections that exceeded earlier projections and
disbursements that were below expectations. Deposits to the personal income tax
refund reserve have the effect of reducing reported personal income tax receipts
in the fiscal year when made and withdrawals from such reserve increase receipts
in the fiscal year when made. The balance in the tax refund reserve account will
be used to pay taxpayer refunds, rather than drawing from 1994-95 receipts.
1992-93 FISCAL YEAR
The State ended its 1992-93 fiscal year with a balance of $671 million
in the tax refund reserve account and $67 million in the Tax Stabilization
Reserve Fund. The State's 1992-93 fiscal year was characterized by performance
that was better than projected for the national and regional economies. National
gross domestic product, State personal income, and State employment and
unemployment performed better than originally projected in April 1992. This
favorable economic performance, particularly at year end, combined with a
tax-induced acceleration of income into 1992, was the primary cause of the
General Fund surplus. Personal
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income tax collections were more than $700 million higher than originally
projected (before reflecting the tax refund reserve account transaction),
primarily in the withholding and estimated payment components of the tax. There
were, however, large and mainly offsetting variances in other categories of
receipts.
CERTAIN LITIGATION
Certain litigation pending against New York or its officers or
employees could have a substantial or long-term adverse effect on New York
finances. Among the more significant of these cases are those that involve: (i)
the validity of agreements and treaties by which various Indian tribes
transferred to New York title to certain land in New York; (ii) certain aspects
of New York's Medicaid rates and regulations, including reimbursements to
providers of mandatory and optional Medicaid services, and the eligibility for
and nature of home care services; (iii) challenges to provisions of Section
2807-C of the Public Health Law, which impose a 13% surcharge on inpatient
hospital bills paid by commercial insurers and employee welfare benefit plans
and portions of Chapter 55 of the laws of 1992, which require hospitals to
impose and remit to the State an 11% surcharge on hospital bills paid by
commercial insurers and which require health maintenance organizations to remit
to the State a surcharge of up to 9%; (iv) an action against the State of New
York and New York City officials alleging that the present level of shelter
allowance for public assistance recipients is inadequate under statutory
standards to maintain proper housing; (v) challenges to the practice of
reimbursing certain Office of Mental Health patient care expenses from the
client's Social Security benefits; (vi) alleged responsibility of New York
officials to assist in remedying racial segregation in the City of Yonkers;
(vii) a challenge to the constitutionality of financing programs of the Thruway
Authority authorized by Chapters 166 and 410 of the Laws of 1991; and (viii) a
claim that the State's Department of Environmental Conservation prevented the
completion of a cogeneration facility by the projected date by failing to
provide data in a timely manner and that the plaintiff thereby suffered damages.
In addition, aspects of petroleum business taxes are the subject of
administrative claims and litigation.
THE CITY OF NEW YORK
The fiscal health of the State of New York is closely related to the
fiscal health of its localities, particularly the City, which has required and
continues to require significant financial assistance from New York. The City's
independently audited operating results for each of its 1981 through 1993 fiscal
years showed a General Fund surplus reported in accordance with GAAP. In
addition, the City's financial statements for the 1993 fiscal year received an
unqualified opinion from the City's independent auditors, the eleventh
consecutive year the City received such an opinion.
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The 1996-1999 Financial Plan reflects a program of proposed actions by
the City to close the gaps between projected revenues and expenditures of $888
million, $1.5 billion and $1.4 billion for the 1997, 1998 and 1999 fiscal years,
respectively. These actions, a substantial number of which are not specified in
detail, include additional agency spending reductions, reduction in
entitlements, government procurement initiatives, revenue initiatives and the
availability of the general reserve.
The Office of the State Deputy Comptroller for the City of New York
(the "OSDC") and the State Financial Control Board continue their respective
budgetary oversight activities.
In response to the City's fiscal crisis in 1975, the State took action
to assist the City in returning to fiscal stability. Among those actions, the
State established the Municipal Assistance Corporation for the City of New York
(the "MAC") to provide financing assistance to the City; the New York State
Financial Control Board (the "Control Board") to oversee the City's financial
affairs; the Office of the State Deputy Comptroller for the City of New York to
assist the Control Board in exercising its powers and responsibilities; and a
"Control Period" from 1975 to 1986 during which the City was subject to certain
statutorily-prescribed fiscal-monitoring arrangements. Although the Control
Board terminated the Control Period in 1986 when certain statutory conditions
were met, thus suspending certain Control Board powers, the Control Board, MAC
and OSDC continue to exercise various fiscal-monitoring functions over the City,
and upon the occurrence or "substantial likelihood and imminence" of the
occurrence of certain events, including, but not limited to a City operating
budget deficit of more than $100 million, the Control Board is required by law
to reimpose a Control Period. Currently, the City and its Covered Organizations
(I.E., those which receive or may receive monies from the City directly,
indirectly or contingently) operate under a four-year financial plan which the
City prepares annually and periodically updates.
The staffs of the OSDC and the Control Board issue periodic reports on
the City's financial plans, as modified, analyzing forecasts of revenues and
expenditures, cash flow, and debt service requirements, as well as compliance
with the financial plan, as modified, by the City and its Covered Organizations.
OSDC staff reports issued during the mid-1980's noted that the City's budgets
benefitted from a rapid rise in the City's economy, which boosted the City's
collection of property, business and income taxes. These resources were used to
increase the City's work force and the scope of discretionary and mandated City
services. Subsequent OSDC staff reports examined the 1987 stock market crash and
the 1989-92 recession, which affected the New York City region more severely
than the nation, and attributed an erosion of City revenues and increasing
strain on City expenditures to that recession. According to a recent OSDC
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staff report, the City's economy is now slowly recovering, but the scope of that
recovery is uncertain and unlikely, in the foreseeable future, to match the
expansion of the mid-1980's. Also, staff reports of OSDC and the Control Board
have indicated that the City's recent balanced budgets have been accomplished,
in part, through the use of non-recurring resources, tax increases and
additional State assistance; that the City has not yet brought its long-term
expenditures in line with recurring revenues; and that the City is therefore
likely to continue to face future projected budget gaps requiring the City to
increase revenues and/or reduce expenditures. According to the most recent staff
reports of OSDC and the Control Board, during the four-year period covered by
the current financial plan, the City is relying on obtaining substantial
resources from initiatives needing approval and cooperation of its municipal
labor unions, Covered Organizations, and City Council, as well as the State and
Federal governments, among others.
The City requires significant amounts of financing for seasonal and
capital purposes. The City issued $1.75 billion of notes for seasonal financing
purposes during its fiscal year ending June 30, 1994. The City's capital
financing program projects long-term financing requirements of approximately $17
billion for the City's fiscal years 1995 through 1998. The major capital
requirements include expenditures for the City's water supply and sewage
disposal systems, roads, bridges, mass transit, schools, hospitals and housing.
OTHER LOCALITIES
In addition to the City, certain localities, including the City of
Yonkers, could have financial problems leading to requests for additional State
assistance during the State's 1995-96 fiscal year and thereafter..
Municipalities and school districts have engaged in substantial short-term and
long-term borrowings. In 1993, the total indebtedness of all localities in the
State other than New York City was approximately $17.7 billion.
From time to time, Federal expenditure reductions could reduce, or in
some cases, eliminate, Federal funding of some local programs, and, accordingly,
might impose substantial increased expenditure requirements on affected
localities. If the State, the City or any of the public authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within the State could be adversely affected. Localities also face
anticipated and potential problems resulting from certain pending litigation,
judicial decisions and long-range economic trends. Long-range potential problems
of declining urban population, increasing expenditures and other economic trends
could adversely affect localities and require increasing State assistance in the
future.
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AUTHORITIES
The fiscal stability of the State is related, in part, to the fiscal
stability of its public authorities. Public authorities are not subject to the
constitutional restrictions on the incurrence of debt which apply to the State
itself and may issue bonds and notes within the amounts, and as otherwise
restricted by, their legislative authorization. As of September 30, 1994, there
were 18 public authorities that had aggregate outstanding debt of $70.3 billion.
Some authorities also receive moneys from State appropriations to pay for the
operating costs of certain of their programs.
The Metropolitan Transit Authority (the "MTA"), which receives the bulk
of the appropriated moneys from the State, oversees the operation of the City's
bus and subway system by its affiliates, the New York City Transit Authority and
Manhattan and Bronx Surface Transit Operating Authority (collectively, the
"TA"). The MTA has depended and will continue to depend upon Federal, state and
local government support to operate the transit system because fare revenues are
insufficient.
Over the past several years, the State has enacted several taxes
(including a surcharge on the profits of banks, insurance corporations and
general business corporations doing business in the 12-county region served by
the MTA and a special one-quarter of one percent regional sales and use tax)
that provide additional revenues for mass transit purposes, including assistance
to the MTA. In addition, a one-quarter of one percent regional mortgages
recording tax paid on certain mortgages creates an additional source of
recurring revenues for the MTA. Further, in 1993, the State dedicated a portion
of the State petroleum business tax to assist the MTA. For the 1995-96 State
fiscal year, total State assistance to the MTA is estimated at approximately
$1.1 billion.
In 1993, State legislation authorized the funding of a five-year $9.56
billion MTA capital plan for the five-year period, 1992 through 1996 (the
"1992-96 Capital Program"). The MTA has received approval of the 1992-96 Capital
Program based on this legislation from the 1992-96 Capital Program Review Board,
as State law requires. This is the third five-year plan since the Legislature
authorized procedures for the adoption, approval and amendment of a five-year
plan in 1981 for a capital program designed to upgrade the performance of the
MTA's transportation systems and to supplement, replace and rehabilitate
facilities and equipment. The MTA, the Triborough Bridge and Tunnel
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Authority, and the TA are collectively authorized to issue an aggregate of $3.1
billion of bonds (net of certain statutory exclusions) to finance a portion of
the 1992-96 Capital Program. The 1992-96 Capital Program is expected to be
financed in significant part through dedication of State petroleum business
taxes referred to above.
There can be no assurance that all the necessary governmental actions
for the Capital Program will be taken, that funding sources currently identified
will not be decreased or eliminated, or that the 1992-96 Capital Program, or
parts thereof, will not be delayed or reduced. Furthermore, the power of the MTA
to issue certain bonds expected to be supported by the appropriation of State
petroleum business taxes is currently the subject of a court challenge. If the
Capital Program is delayed or reduced, ridership and fare revenues may decline,
which could, among other things, impair the MTA's ability to meet its operating
expenses without additional State assistance.
JPM454A
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APPENDIX C
INVESTING IN JAPAN AND ASIAN GROWTH MARKETS
JAPAN AND ITS SECURITIES MARKETS
The Japan Equity Portfolio will be subject to general economic and
political conditions in Japan. These include future political and economic
developments, the possible imposition of, or changes in, exchange controls or
other Japanese governmental laws or restrictions applicable to such investments,
diplomatic developments, political or social unrest and natural disasters.
The information set forth in this section has been extracted from
various governmental publications and private news services.
The Japan Equity Portfolio makes no representation as to the accuracy of the
information, nor has the Portfolio attempted to verify it. Furthermore, no
representation is made that any correlation exists between Japan or its economy
in general and the performance of the Japan Equity Portfolio.
DOMESTIC POLITICS
Japan has a parliamentary form of government. The legislative power is
vested in the Japanese Diet, which consists of a House of Representatives and a
House of Councillors. Members of the House of Representatives are elected for
terms of four years unless the House of Representatives is dissolved prior to
the expiration of their full elected terms. Members of the House of Councillors
are elected for terms of six years with one-half of the membership being elected
every three years. Various political parties are represented in the Diet,
including the conservative Liberal Democratic Party ("LDP"), which until August
1993 had been in power nationally since its formation in 1955. The LDP ceased to
have a majority of the House of Representatives in June 1993, when certain
members of the House of Representatives left the LDP and formed two new
political parties. After an election for the House of Representatives was held
on July 18, 1993 and the LDP failed to secure a majority, seven parties formed a
coalition to control the House of Representatives and chose Morihiro Hosokawa,
the Representative of the Japan New Party, to head their coalition. In April
1994, amid accusations of financial improprieties, Prime Minister Hosokawa
announced that he would resign. Tusutomu Hata succeeded Mr. Hosokawa as prime
minister and formed a new cabinet as a minority coalition government. In June
1994 Mr. Hata yielded to political pressure from opposition parties and
resigned. He was succeeded by Social Democratic Party leader Tomi-ichi Murayama,
Japan's first Socialist prime minister since 1948, who was chosen by a new and
unstable alliance between left-wing and conservative parties, including the LDP.
This political instability may hamper Japan's ability to establish and maintain
effective economic and fiscal policies, and recent and future political
developments may lead to changes in policy that might adversely affect the Japan
Equity Portfolio.
C-1
<PAGE>
ECONOMIC BACKGROUND
Over the past 30 years, Japan has experienced significant economic
development. During the era of high economic growth in the 1960s and early
1970s, the expansion was based on the development of heavy industries such as
steel and shipbuilding. In the 1970s, Japan moved into assembly industries which
employ high levels of technology and consume relatively low quantities of
resources, and since then has become a major producer of electrical and
electronic products and automobiles. Moreover, since the mid-1980s, Japan has
become a major creditor nation. With the exception of the periods associated
with the oil crises of the 1970s, Japan has generally experienced very low
levels of inflation.
Japan is largely dependent upon foreign economies for raw materials.
For instance, almost all of its oil is imported, the majority from the Middle
East. Oil prices therefore have a major impact on the domestic economy, as is
evidenced by the current account deficits triggered by the two oil crises of the
1970s. Oil prices have declined mainly due to a worldwide easing of demand for
crude oil. The stabilized price of oil contributed to Japan's sizeable current
account surplus and stability of wholesale and consumer prices during the period
1981 through 1992. While Japan is working to reduce its dependence on foreign
materials, its lack of natural resources poses a significant obstacle to this
effort.
International trade is important to Japan's economy, as exports provide
the means to pay for many of the raw materials it must import. Japan's trade
surplus has increased dramatically in recent years, exceeding $100 billion since
1991. Because of the concentration of Japanese exports in highly visible
products such as automobiles, machine tools and semiconductors, and the large
trade surpluses resulting therefrom, Japan has entered a tense phase in its
relations with its trading partners, particularly with respect to the United
States, with whom the trade imbalance is the greatest. The United States and
Japan have engaged in "economic framework" negotiations to help increase the
United States' share in Japanese markets and reduce Japan's current account
surplus, but progress in the negotiations has been hampered by the recent
political upheaval in Japan. Any trade sanctions imposed upon Japan by the
United States as a result of the current friction or otherwise could adversely
affect Japan and the performance of the Japan Equity Portfolio.
C-2
<PAGE>
The following table sets forth the composition of Japan's trade
balance, as well as other components of its current account, for the years 1980
to 1993.
<TABLE>
<CAPTION>
CURRENT ACCOUNT
Trade
-----------------------------------------------------------------------------------
Change from Change from
PRECEDING PRECEDING TRADE Current
YEAR EXPORTS YEAR IMPORTS YEAR BALANCE SERVICE TRANSFERS BALANCE
(U.S. DOLLARS IN
MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1980 $ 126,736 25.2% $ 124,611 25.4% $ 2,125 $ (11,343) $ (1,528) $ (10,746)
1981 149,522 18.0 129,555 4.0 19,967 (1,624) 4,770
(13,573)
1982 137,663 (7.9) 119,584 (7.7) 18,079 (9,848) 6,850
(1,381)
1983 145,468 5.7 114,014 (4.7) 31,454 (9,106) (1,549) 20,799
1984 168,290 15.7 124,003 8.8 44,257 (7,747) (1,507) 35,003
1985 174,015 3.4 118,029 (4.8) 55,986 (5,165) (1,652) 49,169
1986 205,591 18.1 112,764 (4.5) (4,932) (2,050) 85,845 92,827
1987 224,605 9.2 128,219 13.7 96,386 (5,702) 87,015 (3,669)
1988 259,765 15.7 164,753 28.5 95,012 (11,263) (4,118) 79,631
1989 269,570 3.8 192,653 16.9 76,917 (15,526) (4,234) 57,157
1990 280,374 4.0 216,846 12.6 65,528 (22,292) (5,475) 35,761
1991 306,557 9.3 203,513 (6.1) 103,044 (17,660) (12,483) 72,901
1992 330,850 7.9 198,502 (2.5) 132,348 (10,112) (4,685) 117,551
1993 351,292 6.2 209,778 5.7 141,514 (6,117) 131,448 (3,949)
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
C-3
<PAGE>
The following table sets forth the composition of Japan's imports on a
customs clearance basis, both in terms of import item and in terms of regional
source, for the years 1980 to 1993.
<TABLE>
<CAPTION>
IMPORTS ON A CUSTOMS CLEARANCE BASIS
Crude
Materials Machinery and From From
YEAR TOTAL AND FUELS FOODSTUFF EQUIPMENT U.S. EUROPE FROM ASIA
---- ----- --------- --------- --------- ---- ------ ---------
(U.S. DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
1980 $140,528 $93,752 $14,666 $ 9,843 $24,408 $7,842 $31,751
1981 143,290 92,597 15,913 10,240 25,927 8,552 31,930
1982 131,931 84,529 14,575 9,112 24,179 7,560 29,985
1983 126,393 77,136 14,896 10,409 24,647 8,120 27,988
1984 136,503 79,862 16,027 12,066 26,862 9,334 31,883
1985 129,539 73,834 15,547 12,372 25,793 8,893 30,264
1986 126,408 54,423 19,186 14,699 29,054 13,989 29,849
1987 149,515 61,122 22,395 19,123 31,490 17,670 38,627
1988 187,354 66,330 29,120 26,661 42,037 24,071 47,802
1989 210,847 73,649 31,012 32,376 48,246 28,146 61,476
1990 234,799 85,102 31,572 40,863 52,369 35,028 66,646
1991 236,737 81,807 34,473 42,851 53,317 31,792 73,016
1992 233,021 78,734 37,289 42,853 52,230 31,280 74,448
1993 240,670 76,072 39,365 46,612 55,197 30,142 81,060
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
C-4
<PAGE>
ECONOMIC TRENDS. The following table sets forth Japan's gross domestic
product for the years 1987 to 1993.
<TABLE>
<CAPTION>
GROSS DOMESTIC PRODUCT (GDP)
1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ----
(YEN IN BILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Consumption
Expenditures
Private (Y)270,505.4 (Y)264,779.9 (Y)255,084.2 (Y)243,628.1 (Y)228,483.2 (Y)215,122.0 (Y)204,585.3
Government 44,970.3 43,254.0 41,232.0 38,806.6 36,274.8 34,184.3 32,974.5
Capital Formation
(incl.inventories)
Private 102,047.7 109,579.2 116,638.0 110,871.9 100,130.8 89,043.7 76,176.5
Government 40,328.3 35,013.4 30,062.3 28,182.6 25,724.5 24,660.89 23,673.8
Exports of Goods
and Services 44,234.5 47,409.4 46,809.7 45,919.9 42,351.8 37,483.2 36,209.6
Imports of Goods
and Services 33,317.2 36,183.8 38,529.3 42,871.8 36,768.1 29,065.1 25,194.9
GDP
(Expenditures) 468,769.0 463,850.0 451,296.9 24,537.2 396,197.0 371,429.0 348,425.0
Change in GDP from Preceding Year
Nominal
terms 1.1% 2.8% 6.3% 7.2% 6.7% 6.6% 4.1%
Real Terms 0.1% 1.1% 4.3% 4.8% 4.7% 6.2% 4.1%
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
The following tables set forth certain economic indicators in Japan for
the years indicated.
<TABLE>
<CAPTION>
ORDERS RECEIVED FOR MACHINERY
(280 COMPANIES)
1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ----
(YEN IN BILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Manufacturing................. (Y)4,657.7 (Y)5,526.1 (Y)6,785.9 (Y)7,289.3 (Y)6,663.1 (Y)5,621.3
Nonmanufacturing.............. 8,858.8 9,233.9 10,160.4 9,139.4 8,425.9 7,066.5
-------- ------- -------- ------- ------- -------
Total Demand by Private
Sector...................... (Y)13,516.5 (Y)14,759.9 (Y)16,946.3 (Y)16,429.3 (Y)15,088.9 (Y)12,687.8
Government Demand............. 11,226.7 11,010.7 11,291.3 11,601.2 10,316.4 9,131.4
-------- -------- -------- -------- -------- --------
Total......................... (Y)24,743.2 (Y)25,770.6 (Y)28,237.6 (Y)28,030.5 (Y)25,405.3 (Y)21,819.2
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
C-5
<PAGE>
<TABLE>
<CAPTION>
NEW DWELLING CONSTRUCTION STARTED
YEAR NUMBER FLOOR AREA
(UNITS IN THOUSANDS) (SQUARE METERS IN THOUSANDS)
<S> <C> <C>
1980 1,269 119,102
1981 1,152 107,853
1982 1,146 107,638
1983 1,137 99,442
1984 1,187 100,226
1985 1,236 103,129
1986 1,365 111,003
1987 1,674 132,527
1988 1,685 134,530
1989 1,663 135,029
1990 1,707 137,490
1991 1,370 117,219
1992 1,403 120,318
1993 1,486 131,683
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
<TABLE>
<CAPTION>
UNEMPLOYMENT
Labor Productivity Index
YEAR NUMBER UNEMPLOYED PERCENT UNEMPLOYED (MANUFACTURING)
(IN MILLIONS) (BASE YEAR 1990)
<S> <C> <C> <C>
1983 1.56 2.6% 66.7
1984 1.61 2.7 72.4
1985 1.56 2.6 75.6
1986 1.67 2.8 77.0
1987 1.73 2.8 81.4
1988 1.55 2.5 90.8
1989 1.42 2.3 96.2
1990 1.34 2.1 100.0
1991 1.36 2.1 102.5
1992 1.42 2.2 97.0
1993 1.66 2.5 95.4
</TABLE>
Source: Financial Statistics of Japan 1993 (1993 ed. and June 1994 supp.),
Institute of Fiscal and Monetary Policy, Ministry of Finance of Japan.
C-6
<PAGE>
<TABLE>
<CAPTION>
WHOLESALE PRICE INDEX
Change
All from Manu- Farm and
Commodi- Preced- factured Marine Mineral Domestic
YEAR TIES ING YEAR PRODUCTS PRODUCTS PRODUCTS UTILITIES PRODUCTS EXPORTS IMPORTS
---- ------ -------- -------- -------- -------- --------- -------- ------- -------
(BASE YEAR: 1990)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1980 110.9 17.7% 108.2 116.0 170.4 109.7 104.8 121.5 159.8
1981 112.5 1.4 109.0 114.1 185.5 121.1 106.2 122.9 162.4
1982 114.5 1.8 110.2 114.4 204.1 122.7 106.7 127.7 175.2
1983 111.9 (2.3) 108.6 113.6 180.9 106.0 120.0 161.3
122.9
1984 111.6 (2.7) 108.5 114.1 172.7 124.0 106.1 120.8 156.0
1985 110.4 (1.1) 107.4 109.4 173.6 124.4 105.3 119.1 152.2
1986 100.3 99.7 99.5 97.9 118.5 100.3 101.1 97.7 (9.1)
1987 96.5 (3.8) 96.4 94.9 110.8 97.2 96.0 89.7 88.2
1988 95.6 (0.9) 95.8 95.4 79.2 104.4 96.7 93.8 85.6
1989 98.0 2.5 98.2 98.3 87.1 100.8 98.5 97.9 92.0
1990 100.0 2.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
1991 99.4 (0.6) 99.8 97.5 93.6 100.1 94.6 91.8 101.0
1992 97.8 (1.6) 98.3 96.2 88.2 100.1 100.1 91.2 86.3
1993 (2.9) 95.5 95.1 76.8 100.2 98.6 83.9 77.3 95.0
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
C-7
<PAGE>
<TABLE>
<CAPTION>
CONSUMER PRICE INDEX
General
Change from Including
YEAR GENERAL PRECEDING YEAR FRESH FOOD
(Base Year: 1990)
<S> <C> <C> <C>
1980 81.7 7.7% 81.8
1981 85.6 4.9 85.7
1982 88.0 2.8 88.3
1983 89.6 1.9 89.9
1984 91.7 2.3 91.9
1985 93.5 2.0 93.7
1986 94.1 0.6 94.5
1987 94.2 0.1 94.8
1988 94.9 0.7 95.1
1989 97.0 2.3 97.4
1990 100.0 3.1 100.0
1991 103.3 3.3 102.9
1992 105.0 1.6 105.2
1993 106.4 1.3 106.6
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
C-8
<PAGE>
CURRENCY FLUCTUATION. The Japan Equity Portfolio's investments in
Japanese securities will be denominated in yen and most income received by the
Portfolio from such investments will be in yen. However, the Portfolio's net
asset value will be reported, and distributions will be made, in U.S. dollars.
Therefore, a decline in the value of the yen relative to the U.S. dollar could
have an adverse effect on the value of the Portfolio's Japanese investments.
The following table sets forth the average exchange rates of Japanese
yen for U.S. dollars for the years 1980 to 1993:
<TABLE>
<CAPTION>
CURRENCY EXCHANGE RATES
YEAR YEN PER U.S. DOLLAR
<S> <C>
1980 (Y)226.63
1981 220.63
1982 249.06
1983 237.55
1984 237.45
1985 238.47
1986 168.35
1987 144.60
1988 128.17
1989 138.07
1990 145.00
1991 134.59
1992 126.79
1993 111.08
</TABLE>
Source: Board of Governors of the Federal Reserve System, Federal Reserve
Bulletin
On March 25, 1995, the noon buying rate in London for cable transfers
payable in Japanese yen was 89.00 yen per U.S. dollar. The recent relative
strength of the yen to the U.S. dollar may adversely affect the economy of
Japan, and, in particular, the export sector thereof.
GEOLOGICAL FACTORS. The islands of Japan lie in the western Pacific
Ocean, off the eastern coast of the continent of Asia. Japan has in the past
experienced earthquakes and tidal waves of varying degrees of severity, and the
risks of such phenomena, and damage resulting therefrom, continue to exist.
C-9
<PAGE>
SECURITIES MARKETS
There are eight stock exchanges in Japan. Of these, the Tokyo Stock
Exchange is by far the largest, followed by the Osaka Stock Exchange and the
Nagoya Stock Exchange. These exchanges divide the market for domestic stocks
into two sections, with newly listed companies and smaller companies assigned to
the Second Section and largest companies assigned to the First Section.
The following table sets forth the number of Japanese companies listed
on each of the eight Japanese stock exchanges as of the end of 1993.
<TABLE>
<CAPTION>
NUMBER OF DOMESTIC COMPANIES LISTED ON ALL STOCK EXCHANGES
TOKYO OSAKA NAGOYA
1st 2nd 1st 2nd 1st 2nd
SEC. SEC. SEC. SEC. SEC. SEC. KYOTO HIROSHIMA FUKUOKA NIGATA SAPPORO
--- --- --- --- --- --- ----- --------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,234 433 857 321 432 127 237 198 252 197 191
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1994
The following table sets forth the trading volume and value of Japanese
stocks on each of the eight Japanese stock exchanges for the years 1989 to 1993.
<TABLE>
<CAPTION>
STOCK TRADING VOLUME & VALUE ON ALL STOCK EXCHANGES
(shares in millions; yen in billions)
ALL EXCHANGES TOKYO OSAKA
NAGOYA
YEAR VOLUME VALUE VOLUME VALUE VOLUME VALUE VOLUME VALUE
---- -------- --------- ---------- --------- ---------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
1989 ........ 256,296 (Y)386,395 222,599 (Y)332,617 25,096 (Y)41,679 7,263 (Y)10,395
1990 ........ 145,837 231,837 123,099 186,667 17,187 35,813 4,323 7,301
1991 ........ 107,844 134,160 93,606 110,897 10,998 18,723 2,479 3,586
1992 ........ 82,563 80,456 66,408 60,110 12,069 15,575 3,300 3,876
1993 ........ 101,172 106,123 86,934 86,889 10,439 14,635 2,779 3,459
</TABLE>
<TABLE>
<CAPTION>
KYOTO HIROSHIMA FUKUOKA NIIGATA SAPPORO
VOLUME VALUE VOLUME VALUE VOLUME VALUE VOLUME VALUE VOLUME VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 ................. 331 (Y)443 190 (Y)235 268 (Y)330 398 (Y)475 151 (Y)221
1990 ................. 416 770 169 261 203 245 334 195 286 405
1991 ................. 220 300 125 149 122 174 181 208 113 123
1992 ................. 225 110 136 139 129 163 178 149 129 322
1993 ................. 222 340 185 178 229 225 206 226 173 170
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1994
C-10
<PAGE>
The following table sets forth the stock trading volume of Japanese
stocks on the Tokyo Stock Exchange for the years 1971 to 1993.
<TABLE>
<CAPTION>
TOKYO STOCK EXCHANGE
STOCK TRADING VOLUME
No. of
Trading Daily Turnover
YEAR DAYS TOTAL AVERAGE HIGH LOW RATIO
---- ------ ----- ------- ---- --- -----
(shares in millions)
<S> <C> <C> <C> <C> <C> <C>
1971............. 299 60,819 203 559 60 51.4%
1972............. 297 100,358 338 1,077 92 79.0
1973............. 287 59,248 206 1,066 48 43.0
1974............. 285 51,001 179 572 48 34.4
1975............. 284 51,906 183 401 62 32.6
1976............. 286 69,941 245 646 91 40.9
1977............. 286 71,195 249 921 102 39.4
1978............. 285 98,555 345 865 149 52.1
1979............. 286 98,246 344 914 138 50.2
1980............. 285 102,245 359 940 141 50.2
1981............. 285 107,549 377 1,390 114 50.0
1982............. 285 78,474 275 823 108 34.6
1983............. 286 104,309 365 997 122 44.3
1984............. 287 103,737 361 965 124 42.5
1985............. 285 121,863 428 1,367 163 48.0
1986............. 279 197,699 709 2,336 141 75.1
1987............. 274 263,611 962 2,839 211 96.1
1988............. 273 282,637 1,035 2,868 187 98.1
1989............. 249 222,599 894 2,212 276 73.1
1990............. 246 123,099 500 1,101 196 38.4
1991............. 246 93,606 381 1,462 138 28.4
1992............. 247 66,408 269 841 116 19.9
1993............. 246 86,935 353 1,553 82 25.9
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1994
C-11
<PAGE>
The following table sets forth the stock trading value of Japanese
stocks on the Tokyo Stock Exchange for the years 1971 to 1993.
<TABLE>
<CAPTION>
TOKYO STOCK EXCHANGE
STOCK TRADING VALUE
Turnover
YEAR TOTAL DAILY AVERAGE HIGH LOW RATIO
(yen in millions)
<S> <C> <C> <C> <C> <C>
1971................................... (Y)13,980,301 (Y)46,757 (Y)131,339 (Y)10,734 71.8%
1972................................... 21,435,235 72,173 202,347 18,951 60.6
1973................................... 14,904,472 51,932 253,353 11,834 34.4
1974................................... 12,390,319 43,475 137,534 11,455 33.2
1975................................... 15,566,058 54,810 154,217 14,261 39.3
1976................................... 23,662,168 82,735 216,984 28,945 49.2
1977................................... 21,500,060 75,175 193,945 30,497 41.1
1978................................... 32,534,301 144,155 265,158 45,010 55.2
1979................................... 34,911,285 122,067 305,407 44,292 51.5
1980................................... 36,489,558 128,034 247,596 53,714 49.9
1981................................... 49,364,571 173,209 472,362 50,288 53.4
1982................................... 36,571,457 128,320 579,505 48,401 38.5
1983................................... 54,844,791 191,765 496,110 67,825 48.8
1984................................... 67,974,003 236,843 575,562 83,682 47.1
1985................................... 78,711,048 276,179 727,316 110,512 44.7
1986................................... 159,836,218 572,890 1,682,060 115,244 67.2
1987................................... 250,736,971 915,098 2,382,114 221,230 80.6
1988................................... 285,521,260 1,045,865 2,768,810 192,704 70.2
1989................................... 332,616,597 1,335,810 2,796,946 392,347 61.1
1990................................... 186,666,820 758,808 1,464,920 218,205 57.7
1991................................... 110,897,491 450,803 1,531,064 151,565 19.3
1992................................... 60,110,391 243,362 686,737 97,616 18.0
1993................................... 86,889,072 353,208 1,422,760 61,747 18.3
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1994
C-12
<PAGE>
SECURITIES INDEX. The TOPIX is a composite index of all common stocks
listed on the First Section of the Tokyo Stock Exchange. The TOPIX reflects the
change in the aggregate market value of the common stocks as compared to the
aggregate market value of those stocks as of the close of January 4, 1968.
The following table sets forth the high, low and year-end TOPIX for
each year from 1971 to 1993.
<TABLE>
<CAPTION>
TOPIX (TOKYO STOCK PRICE INDEX)
(Jan. 4, 1968 = 100)
YEAR YEAR-END HIGH LOW
<S> <C> <C> <C>
1971 199.45 209.00 148.05
1972 401.70 401.70 199.93
1973 306.44 422.48 284.69
1974 278.34 342.47 251.96
1975 323.43 333.11 268.24
1976 383.88 383.88 326.28
1977 364.08 390.93 350.49
1978 449.55 452.60 364.04
1979 459.61 465.24 435.13
1980 494.10 497.96 449.01
1981 570.31 603.92 495.79
1982 593.72 593.72 511.52
1983 731.82 731.82 574.51
1984 913.37 913.37 735.45
1985 1,049.40 1,058.35 916.93
1986 1,556.37 1,583.35 1,025.85
1987 1,725.83 2,258.56 1,557.46
1988 2,357.03 2,357.03 1,690.44
1989 2,881.37 2,884.80 2,364.33
1990 1,733.83 2,867.70 1,523.43
1991 1,714.68 2,028.85 1,638.06
1992 1,307.66 1,763.43 1,102.50
1993 1,439.31 1,698.67 1,250.06
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1994
C-13
<PAGE>
As this index reflects, share prices of companies traded on Japanese
stock exchanges reached historical peaks (which were later referred to as the
"bubble") in 1989 and 1990. Afterwards stock prices decreased significantly,
reaching their lowest levels in the second half of 1992. There can be no
assurance that additional market corrections will not occur.
ASIAN GROWTH MARKETS
The Asia Growth Portfolio will be subject to certain risks and special
considerations, including those set forth below, which are not typically
associated with investing in securities of U.S. companies. In particular,
securities markets in Asian growth markets have been subject to substantial
price volatility, often without warning. This potential for sudden market
declines should be weighed and balanced against the potential for rapid growth
in Asian growth markets. Further, certain securities that the Portfolio may
purchase, and investment techniques in which the Portfolio may engage, involve
risks, including those set forth below.
INVESTMENT AND REPATRIATION RESTRICTIONS
Foreign investment in the securities markets of several Asian growth
markets is restricted or controlled to varying degrees. These restrictions may
limit investment in certain of the Asian growth markets and may increase
expenses of the Portfolio. For example, certain countries may require
governmental approval prior to investments by foreign persons in a particular
company or industry sector or limit investment by foreign persons to only a
specific class of securities of a company which may have less advantageous terms
(including price) than securities of the company available for purchase by
nationals. Certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. In addition,
the repatriation of both investment income and capital from several of the Asian
growth markets is subject to restrictions such as the need for certain
government consents. Even where there is no outright restriction on repatriation
of capital, the mechanics of repatriation may affect certain aspects of the
operation of the Portfolio. For example, Taiwan imposes a waiting period on the
repatriation of investment capital for certain foreign investors. Although these
restrictions may in the future make it undesirable to invest in the countries to
which they apply, the Advisor does not believe that any current repatriation
restrictions would preclude the Portfolio from effectively managing its assets.
If, because of restrictions on repatriation or conversion, the
Portfolio were unable to distribute substantially all of its net investment
income and long-term capital gains within applicable time periods, the Portfolio
could be subject to U.S. Federal income and excise taxes which would not
otherwise be incurred and may cease to qualify for the favorable tax treatment
afforded to regulated investment companies under the Code, in which case it
would become subject to U.S. federal income tax on all of its income and gains.
Generally, there are restrictions on foreign investment in certain
Asian growth markets, although these restrictions vary in form and content. In
India, Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand, the
Portfolio may be limited by government regulation or a company's charter to a
maximum percentage of equity ownership in any one company. The Advisor intends
to apply
C-14
<PAGE>
for approval from Indian governmental authorities to invest in India on
behalf of the Portfolio as a foreign institutional investor (an "FII"). The
Advisor expects to receive the necessary approvals from these authorities within
three months from the date of this Prospectus. Under the guidelines that apply
currently for FIIs, no FII (or members of an affiliated group investing through
one or more FIIs) may hold more than 5% of the total issued capital of any
Indian company. In addition, all non-resident portfolio investments, including
those of all FIIs and their clients, may not exceed 24% of the issued share
capital of any Indian company; however, the 24% limit does not apply to
investments by FIIs through authorized offshore funds and offshore equity
issues. Further, at least 70% of the total investments made by an FII pursuant
to its FII authorization must be in equity and equity related instruments such
as convertible debentures and tradeable warrants. Under a recently adopted
policy, FIIs may purchase new issues of equity securities directly from an
Indian company, subject to certain conditions. The procedures for such direct
subscription by FIIs of such equity securities are unclear and it is likely that
a further limit, in addition to the 24% limit referred to above, may be imposed.
The guidelines that apply for FIIs are relatively recent and thus experience as
to their application has been limited. At present, FII authorizations are
granted for five years and may be renewed with the approval of India
governmental authorities. Korea generally prohibits foreign investment in
Won-denominated debt securities and Sri Lanka prohibits foreign investment in
government debt securities. In the Philippines, the Portfolio may generally
invest in "B" shares of Philippine issuers engaged in partly nationalized
business activities, which shares are made available to foreigners, and the
market prices, liquidity and rights of which may vary from shares owned by
nationals. Similarly, in the People's Republic of China (the "PRC"), the
Portfolio may only invest in "B" shares of securities traded on The Shanghai
Securities Exchange and The Shenzhen Stock Exchange, currently the two
officially recognized securities exchanges in the PRC. "B" shares traded on The
Shanghai Securities Exchange are settled in U.S. dollars and those traded on The
Shenzhen Stock Exchange are generally settled in Hong Kong dollars.
In Hong Kong, Korea, the Philippines, Taiwan and Thailand, there are
restrictions on the percentage of permitted foreign investment in shares of
certain companies, mainly those in highly regulated industries, although in
Taiwan there are limitations on foreign ownership of shares of any listed
company. In addition, Korea also prohibits foreign investment in specified
telecommunications companies and the Philippines prohibits foreign investment in
mass media companies and companies providing certain professional services.
From time to time, pooled investment funds may be the most effective
available means by which the Portfolio may invest in equity securities of
certain Asian growth markets. For example, prior to January 3, 1992, foreign
investment in Korea was generally limited to a few investment funds that had
been granted a license from the government of Korea, although since that date
direct foreign investment in individual stocks in Korea has been officially
permitted within specific limits. Investment in such investment funds may
involve the payment of management expenses and, in connection with some
purchases, sales loads, and payment of substantial premiums above the value of
such companies' portfolio securities. The Portfolio does not intend to invest in
such investment funds unless, in the judgment of the Advisor, the potential
benefits of such investment outweigh the payment of any applicable premium,
sales load and expenses.
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MARKET CHARACTERISTICS
DIFFERENCES BETWEEN THE U.S. AND ASIAN SECURITIES MARKETS. The
securities markets of Asian growth markets have substantially less volume than
the New York Stock Exchange, and equity and debt securities of most companies in
Asian growth markets are less liquid and more volatile than equity and debt
securities of U.S. companies of comparable size. Some of the stock exchanges in
Asian growth markets, such as those in the PRC, are in the earliest stages of
their development. Many companies traded on securities markets in Asian growth
markets are smaller, newer and less seasoned than companies whose securities are
traded on securities markets in the United States. Investments in smaller
companies involve greater risk than is customarily associated with investing in
larger companies. Smaller companies may have limited product lines, markets or
financial or managerial resources and may be more susceptible to losses and
risks of bankruptcy. Additionally, market making and arbitrage activities are
generally less extensive in such markets, which may contribute to increased
volatility and reduced liquidity of such markets. Accordingly, each of these
markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. To the extent that any Asian
growth market experiences rapid increases in its money supply and investment in
equity securities for speculative purposes, the equity securities traded in any
such country may trade at price-earnings multiples higher than those of
comparable companies trading on securities markets in the United States, which
may not be sustainable. Securities markets in Asian growth markets may also be
subject to substantial governmental control, which may cause sudden or prolonged
disruptions in market prices unrelated to supply and demand considerations. This
may also be true of currency markets.
Brokerage commissions and other transaction costs on securities
exchanges in Asian growth markets are generally higher than in the United
States. In addition, security settlements may in some instance be subject to
delays and related administrative uncertainties, including risk of loss
associated with the credit of local brokers.
GOVERNMENT SUPERVISION OF ASIAN SECURITIES MARKETS; LEGAL SYSTEMS.
There is less government supervision and regulation of foreign securities
exchanges, listed companies and brokers in Asian growth markets than exists in
the United States. Less information, therefore, may be available to the Fund
than in respect of investments in the United States. Further, in certain Asian
growth markets, less information may be available to the Fund than to local
market participants. Brokers in Asian growth markets may not be as well
capitalized as those in the United States, so that they are more susceptible to
financial failure in times of market, political, or economic stress. In
addition, existing laws and regulations are often inconsistently applied. As
legal systems in some of the Asian growth markets develop, foreign investors may
be adversely affected by new laws and regulations, changes to existing laws and
regulations and preemption of local laws and regulations by national laws. In
circumstances where adequate laws exist, it may not be possible to obtain swift
and equitable enforcement of the law. Currently a mixture of legal and
structural restrictions affect the securities markets of certain Asian growth
markets. India in particular is experiencing
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difficulty in processing and settling securities transactions to such a degree
that investments are currently impeded.
Korea, in an attempt to avoid market manipulation, requires
institutional investors to deposit in their broker's account a percentage of the
amount to be invested (currently 20%) prior to execution of a purchase order.
That deposit requirement will expose the Fund to the broker's credit risk. These
examples demonstrate that legal and structural developments can be expected to
affect the Portfolio, potentially affecting liquidity of positions held by the
Portfolio, in unexpected and significant ways from time to time.
FINANCIAL INFORMATION AND STANDARDS. Issuers in Asian growth markets
generally are subject to accounting, auditing and financial standards and
requirements that differ, in some cases significantly, from those applicable to
U.S. issuers. In particular, the assets and profits appearing on the financial
statements of an Asian growth market issuer may not reflect its financial
position or results of operations in accordance with U.S. generally accepted
accounting principles. In addition, for an issuer that keeps accounting records
in local currency, inflation accounting rules may require, for both tax and
accounting purposes, that certain assets and liabilities be restated on the
issuer's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits. Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the real condition of
those issuers and securities markets. Moreover, substantially less information
may be publicly available about issuers in Asian growth markets than is
available about U.S. issuers.
SOCIAL, POLITICAL AND ECONOMIC FACTORS
Asian growth markets may be subject to a greater degree of social,
political and economic instability than is the case in the United States and
Western European countries. Such instability may result from, among other
things, the following: (i) authoritarian governments or military involvement in
political and economic decision-making, and changes in government through
extra-constitutional means; (ii) popular unrest associated with demand for
improved political, economic and social conditions; (iii) internal insurgencies,
(iv) war or hostile relations with neighboring countries; and (v) ethnic,
religious and racial disaffection. Such social, political and economic
instability could significantly disrupt the principal financial markets in which
the Portfolio invests and adversely affect the value of the Portfolio's assets.
In addition, there may be the possibility of asset expropriations or future
confiscatory levels of taxation affecting the Portfolio.
Few Asian growth markets have western-style or fully democratic
governments. Some governments in the region are authoritarian and influenced by
security forces. During the course of the last 25 years, governments in the
region have been installed or removed as a result of military coups, while
others have periodically demonstrated repressive police state characteristics.
Disparities of wealth, among other factors, have also led to social unrest in
some Asian growth markets, accompanied, in certain cases, by violence and labor
unrest. Ethnic, religious and
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<PAGE>
racial disaffection, as evidenced in India, Pakistan and Sri Lanka, have created
social, economic and political problems.
Several Asian growth markets have or in the past have had hostile
relationships with neighboring nations or have experienced internal insurgency.
Thailand has experienced border conflicts with Laos and Cambodia, and India is
engaged in border disputes with several of its neighbors, including the PRC and
Pakistan. Tension between the Tamil and Sinhalese communities in Sri Lanka has
resulted in periodic outbreaks of violence. An uneasy truce exists between North
Korea and South Korea, and the recurrence of hostilities remains possible.
Reunification of North Korea and South Korea could have a detrimental effect on
the economy of South Korea. Also, the PRC continues to claim sovereignty over
Taiwan. The PRC is acknowledged to possess nuclear weapons capability; North
Korea is alleged to possess or be in the process of developing such a
capability.
The economies of most Asian growth markets are heavily dependent upon
international trade and are accordingly affected by protective barriers and the
economic conditions of their trading partners, principally, the United States,
Japan, the PRC and the European Community. The enactment by the United States or
other principal trading partners of protectionist trade legislation, reduction
of foreign investment in the local economies and general declines in the
international securities markets could have a significant adverse effect upon
the securities markets of the Asian growth markets. In addition, the economies
of some Asian growth markets, Indonesia and Malaysia, for example, are
vulnerable to weakness in world prices for their commodity exports, including
crude oil.
Governments in certain Asian growth markets participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could have a significant
adverse effect on market prices of securities and payment of dividends.
With respect to investments in the PRC, it should be noted that the PRC
has only recently permitted private economic activities and the PRC government
has exercised and continues to exercise substantial control over virtually every
sector of the PRC economy through regulation and state ownership. The PRC is a
socialist state which since 1949 has been, and is expected to continue to be,
controlled by the Communist party of the PRC. Continued economic growth and
development in the PRC, as well as opportunities for foreign investment, and
prospects of private sector enterprises, in the PRC, will depend in many
respects on the implementation of the PRC's current program of economic reform,
which cannot be assured.
In Hong Kong, British proposals to extend limited democracy have caused
a political rift with the PRC, which is scheduled to assume sovereignty over the
colony in 1997. Although the PRC has committed by treaty to preserve the
economic and social freedoms enjoyed in Hong Kong for 50 years after regaining
control of Hong Kong, the continuation of the current form of the economic
system in Hong Kong after the reversion will depend on the actions of the
government of the PRC. In addition, such reversion has increased sensitivity in
Hong Kong to political developments and statements by public figures in the PRC.
Business confidence in Hong Kong, therefore, can be significantly affected by
such developments and statements, which in turn can affect markets and business
performance.
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With respect to investments in Taiwan, it should be noted that Taiwan
lacks formal diplomatic relations with many nations, although it conducts trade
and financial relations with most major economic powers. Both the government of
the PRC and the government of the Republic of China in Taiwan claim sovereignty
over all of China. Although relations between Taiwan and the PRC are currently
peaceful, renewed frictions or hostility could interrupt operations of Taiwanese
companies in which the Portfolio invests and create uncertainty that could
adversely affect the value and marketability of its Taiwan investments.
With regard to India, agriculture occupies a more prominent position in
the Indian economy than in the United States, and the Indian economy therefore
is more susceptible to adverse changes in weather. The government of India has
exercised and continues to exercise significant influence over many aspects of
the economy, and the number of public sector enterprises in India is
substantial. Accordingly government actions in the future could have a
significant effect on the Indian economy which could affect private sector
companies, market conditions and prices and yields of securities held by the
Portfolio. Religious and ethnic unrest persists in India. The long standing
grievances between the Hindu and Muslim populations resulted in communal
violence during 1993 in the aftermath of the destruction of a mosque in Ayodhya
by radical elements of the Hindu population. The Indian government is also
confronted by separatist movements in several states and the long standing
border dispute with Pakistan over the State of Jammu and Kashmir, a majority of
whose population is Muslim, remains unsolved. In addition, Indian stock
exchanges have in the past been subject to repeated closure including for ten
days in December 1993 due to a broker's strike, and there can be no assurance
that this will not recur.
THINLY TRADED MARKETS
Compared to securities traded in the United States, generally all
securities of Asian growth market issuers may be considered to be thinly traded.
Even relatively widely held securities in such countries may not be able to
absorb trades of a size customarily transacted by institutional investors,
without price disruptions. Accordingly, the Portfolio's ability to reposition
itself will be more constrained than would be the case for a typical equity
mutual fund.
SETTLEMENT PROCEDURES AND DELAYS
Settlement procedures in Asian growth markets are less developed and
reliable than those in the United States and in other developed markets, and the
Portfolio may experience settlement delays or other material difficulties. This
problem is particularly severe in India where settlement is through physical
delivery and, where currently, a severe shortage of vault capacity exists among
custodial banks, although efforts are being undertaken to alleviate the
shortage. In addition, significant delays are common in registering transfers of
securities, and the Portfolio may be unable to sell such securities until the
registration process is completed and may experience delays in receipt of
dividends and other entitlement. The recent and anticipated inflow of funds into
the Indian securities market has placed added strains on the settlement system
and transfer process. In addition, the Portfolio may be subject to significant
limitations in the future on the volume of trading during any particular period,
imposed by its sub-custodian in India or otherwise as a result of such physical
or other operational constraints.
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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:
Financial Highlights: The JPM Institutional Money Market Fund, The JPM
Institutional Tax Exempt Money Market Fund, The JPM Institutional Treasury
Money Market Fund, The JPM Institutional Short Term Bond Fund, The JPM
Institutional Bond Fund, The JPM Institutional Tax Exempt Bond Fund, The JPM
Institutional International Bond Fund, The JPM Institutional Selected U.S.
Equity Fund, The JPM Institutional U.S. Small Company Fund, The JPM
Institutional International Equity Fund, The JPM Institutional Diversified
Fund, The JPM Institutional Emerging Markets Equity Fund and The JPM
Institutional New York Total Return Bond Fund.
The following financial statements are included in Part B:
The JPM Institutional Money Market Fund
Statement of Assets and Liabilities at November 30, 1994
Statement of Operations for the fiscal year ended November 30, 1994
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements November 30, 1994
The Money Market Portfolio
Schedule of Investments at November 30, 1994
Statement of Assets and Liabilities at November 30, 1994
Statement of Operations for the fiscal year ended November 30, 1994
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements November 30, 1994
The JPM Institutional Tax Exempt Money Market Fund
Statement of Assets and Liabilities at August 31, 1994
Statement of Operations for the fiscal year ended August 31, 1994
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements August 31, 1994
Statement of Assets and Liabilities at February 28, 1995 (unaudited)
Statement of Operations for the six months ended February 28, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements February 28, 1995 (unaudited)
The Tax Exempt Money Market Portfolio
Schedule of Investments at August 31, 1994
Statement of Assets and Liabilities at August 31, 1994
Statement of Operations For the fiscal year ended August 31, 1994
Statement of Changes in Net Assets
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<PAGE>
Supplementary Data
Notes to Financial Statements August 31, 1994
Schedule of Investments at February 28, 1995 (unaudited)
Statement of Assets and Liabilities at February 28, 1995 (unaudited)
Statement of Operations For the six months ended February 28, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements February 28, 1995 (unaudited)
The JPM Institutional Treasury Money Market Fund
Statement of Assets and Liabilities at April 30, 1995 (unaudited)
Statement of Operations for the fiscal year ended April 30, 1995 (unaudited)
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements April 30, 1995 (unaudited)
Statement of Assets and Liabilities at October 31, 1994
Statement of Operations for the fiscal year ended October 31, 1994
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1994
The Treasury Money Market Portfolio
Schedule of Investments at April 30, 1995 (unaudited)
Statement of Assets and Liabilities at April 30, 1995 (unaudited)
Statement of Operations for the fiscal year ended April 30, 1995 (unaudited)
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements April 30, 1995 (unaudited)
Schedule of Investments at October 31, 1994
Statement of Assets and Liabilities at October 31, 1994
Statement of Operations for the fiscal year ended October 31, 1994
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements October 31, 1994
The JPM Institutional Short Term Bond Fund
Statement of Assets and Liabilities at April 30, 1995 (unaudited)
Statement of Operations for the fiscal year ended April 30, 1995 (unaudited)
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements April 30, 1995 (unaudited)
Statement of Assets and Liabilities at October 31, 1994
Statement of Operations for the fiscal year ended October 31, 1994
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1994
The Short Term Bond Portfolio
Schedule of Investments at April 30, 1995 (unaudited)
Statement of Assets and Liabilities at April 30, 1995 (unaudited)
Statement of Operations for the fiscal year ended April 30, 1995 (unaudited)
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements April 30, 1995 (unaudited)
Schedule of Investments at October 31, 1994
Statement of Assets and Liabilities at October 31, 1994
Statement of Operations for the fiscal year ended October 31, 1994
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements October 31, 1994
The JPM Institutional Bond Fund
Statement of Assets and Liabilities at April 30, 1995 (unaudited)
Statement of Operations for the fiscal year ended April 30, 1995 (unaudited)
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements April 30, 1995 (unaudited)
Statement of Assets and Liabilities at October 31, 1994
Statement of Operations for the fiscal year ended October 31, 1994
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1994
The U.S. Fixed Income Portfolio
Schedule of Investments at April 30, 1995 (unaudited)
Statement of Assets and Liabilities at April 30, 1995 (unaudited)
Statement of Operations for the fiscal year ended April 30, 1995 (unaudited)
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements April 30, 1995 (unaudited)
Schedule of Investments at October 31, 1994
Statement of Assets and Liabilities at October 31, 1994
Statement of Operations for the fiscal year ended October 31, 1994
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements October 31, 1994
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<PAGE>
The JPM Institutional Tax Exempt Bond Fund
Statement of Assets and Liabilities at August 31, 1994
Statement of Operations for the fiscal year ended August 31, 1994
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements August 31, 1994
Statement of Assets and Liabilities at February 28, 1995 (unaudited)
Statement of Operations for the six months ended February 28, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements February 28, 1995 (unaudited)
The Tax Exempt Bond Portfolio
Schedule of Investments at August 31, 1994
Statement of Assets and Liabilities at August 31, 1994
Statement of Operations for the fiscal year ended August 31, 1994
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements August 31, 1994
Schedule of Investments at February 28, 1995 (unaudited)
Statement of Assets and Liabilities at February 28, 1995 (unaudited)
Statement of Operations for the six months ended February 28, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements February 28, 1995 (unaudited)
The JPM Institutional Selected U.S. Equity Fund
Statement of Assets and Liabilities at May 31, 1995
Statement of Operations For the Fiscal Year Ended May 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements May 31, 1995
The Selected U.S. Equity Portfolio
Schedule of Investments at May 31, 1995
Statement of Assets and Liabilities at May 31, 1995
Statement of Operations For the Fiscal Year Ended May 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements May 31, 1995
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<PAGE>
The JPM Institutional U.S. Small Company Fund
Statement of Assets and Liabilities at May 31, 1995
Statement of Operations For the Fiscal Year Ended May 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements May 31, 1995
The U.S. Small Company Portfolio
Schedule of Investments at May 31, 1995
Statement of Assets and Liabilities at May 31, 1995
Statement of Operations For the Fiscal Year Ended May 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements May 31, 1995
The JPM Institutional International Equity Fund
Statement of Assets and Liabilities at April 30, 1995 (unaudited)
Statement of Operations for the fiscal year ended April 30, 1995 (unaudited)
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements April 30, 1995 (unaudited)
Statement of Assets and Liabilities at October 31, 1994
Statement of Operations for the fiscal year ended October 31, 1994
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1994
The Non-U.S. Equity Portfolio
Schedule of Investments at April 30, 1995 (unaudited)
Statement of Assets and Liabilities at April 30, 1995 (unaudited)
Statement of Operations for the fiscal year ended April 30, 1995 (unaudited)
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements April 30, 1995 (unaudited)
Schedule of Investments at October 31, 1994
Statement of Assets and Liabilities at October 31, 1994
Statement of Operations for the fiscal year ended October 31, 1994
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements October 31, 1994
The JPM Institutional Diversified Fund
Statement of Assets and Liabilities at June 30, 1995
Statement of Operations For the Fiscal Year Ended June 30, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements June 30, 1995
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<PAGE>
The Diversified Portfolio
Schedule of Investments at June 30, 1995
Statement of Assets and Liabilities at June 30, 1995
Statement of Operations For the Fiscal Year Ended June 30, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements June 30, 1995
The JPM Institutional Emerging Markets Equity Fund
Statement of Assets and Liabilities at April 30, 1995 (unaudited)
Statement of Operations for the fiscal year ended April 30, 1995 (unaudited)
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements April 30, 1995 (unaudited)
Statement of Assets and Liabilities at October 31, 1994
Statement of Operations for the fiscal year ended October 31, 1994
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1994
The Emerging Markets Equity Portfolio
Schedule of Investments at April 30, 1995 (unaudited)
Statement of Assets and Liabilities at April 30, 1995 (unaudited)
Statement of Operations for the fiscal year ended April 30, 1995 (unaudited)
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements April 30, 1995 (unaudited)
Schedule of Investments at October 31, 1994
Statement of Assets and Liabilities at October 31, 1994
Statement of Operations for the fiscal year ended October 31, 1994
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statement October 31, 1994
The JPM Institutional New York Total Return Bond Fund
Statement of Assets and Liabilities at March 31, 1995
Statement of Operations for the fiscal year ended March 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements March 31, 1995
The New York Total Return Bond Portfolio
Schedule of Investments at March 31, 1995
Statement of Assets and Liabilities at March 31, 1995
Statement of Operations for the fiscal year ended March 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statement March 31, 1995
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<PAGE>
The JPM Institutional International Bond Fund
Statement of Assets and Liabilities at March 31, 1995 (unaudited)
Statement of Operations For the six months ended March 31, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements March 31, 1995 (unaudited)
The Non-U.S. Fixed Income Portfolio
Statement of Assets and Liabilities at October 6, 1994
Notes to Financial Statement at October 6, 1994
Schedule of Investments at March 31, 1995 (unaudited)
Statement of Assets and Liabilities at March 31, 1995 (unaudited)
Statement of Operations For the six months ended March 31, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements March 31, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited) Supplementary Data (unaudited)
Notes to Financial Statements March 31, 1995 (unaudited)
The Asia Growth Portfolio
Statement of Assets and Liabilities at March 24, 1995
Notes to Financial Statement at March 24, 1995
The European Equity Portfolio
Statement of Assets and Liabilities at March 24, 1995
Notes to Financial Statement at March 24, 1995
The Japan Equity Portfolio
Statement of Assets and Liabilities at March 24, 1995
Notes to Financial Statement at March 24, 1995
(b) Exhibits
1. Declaration of Trust, as amended.*
2. Restated By-Laws of the Registrant were filed as Exhibit 2 to Post-Effective
Amendment No. 16.
4. Form of Share Certificate was filed as Exhibit 4 to Registrant's
Post-Effective Amendment No. 13 to the Registration Statement (the "Registration
Statement") filed on November 1, 1994 ("Post-Effective Amendment No. 13").
6. Distribution Agreement between Registrant and Signature Broker-Dealer
Services, Inc. ("SBDS") was filed as Exhibit 6 to Post-Effective Amendment No.
13.
8. Custodian Contract between Registrant and State Street Bank and Trust Company
("State Street") was filed as Exhibit 8 to Post-Effective Amendment No. 13.
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<PAGE>
9(a). Revised Administration Agreement between Registrant and SBDS was filed as
Exhibit 8 to Post-Effective Amendment No. 16.
9(b). Restated Shareholder Servicing Agreement between Registrant and Morgan
Guaranty Trust Company of New York ("Morgan Guaranty") was filed as Exhibit 9(b)
to Post-Effective Amendment No. 13.
9(c). Transfer Agency and Service Agreement between Registrant and State Street
was filed as Exhibit 9(c) to Post-Effective Amendment No. 13.
9(d). Restated Financial and Fund Accounting Services Agreement between
Registrant and Morgan Guaranty was filed as Exhibit 9(d) to Post-Effective
Amendment No. 13.
9(e). Fund Services Agreement between Registrant and Pierpont Group, Inc. was
filed as Exhibit 9(e) to Registrant's Post-Effective Amendment No. 10 to the
Registration Statement filed June 10, 1994 ("Post-Effective Amendment No. 10").
10. Opinion and consent of Sullivan & Cromwell was filed as Exhibit No. 10 to
Registrant's Pre-Effective Amendment No. 1 to the Registration Statement filed
on December 30, 1992.
11. Consents of independent accountants.*
13. Purchase Agreement was filed as Exhibit No. 13 to Pre-Effective Amendment
No. 1.
16. Schedule for computation of performance quotations was filed as Exhibit 16
to Post-Effective Amendment No. 10.
17 . Financial Data Schedules.
18. Powers of Attorney.*
-----------------
* Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
Not applicable.
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ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Shares of Beneficial Interest ($0.001 par value).
Title of Class: Number of record holders as of July 31, 1995.
The JPM Institutional Money Market Fund: 98
The JPM Institutional Treasury Money Market Fund: 16
The JPM Institutional Bond Fund: 72
The JPM Institutional Diversified Fund: 22
The JPM Institutional U.S. Small Company Fund: 253
The JPM Institutional International Equity Fund: 281
The JPM Institutional Emerging Markets Equity Fund: 340
The JPM Institutional International Bond Fund: 6
The JPM Institutional Short Term Bond Fund: 5
The JPM Institutional Selected U.S. Equity Fund: 61
The JPM Institutional Tax Exempt Money Market Fund: 45
The JPM Institutional Tax Exempt Bond Fund: 53
The JPM Institutional New York Total Return Bond Fund: 25
The JPM Institutional Asia Growth Fund: 0
The JPM Institutional European Equity Fund: 0
The JPM Institutional Japan Equity Fund: 0
ITEM 27. INDEMNIFICATION.
Reference is made to Section 5.3 of Registrant's Declaration of Trust
and Article 4 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 Securities and Exchange Commission
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.
C-9
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Not Applicable.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) SBDS is the Distributor (the "Distributor") for the shares of the
Registrant. SBDS also serves as the principal underwriter or placement agent for
numerous other registered investment companies.
(b) The following are the directors and officers of the Distributor.
The principal business address of these individuals is 6 St. James Avenue, Suite
900, Boston, Massachusetts 02116 unless otherwise noted. Their respective
position and offices with the Registrant, if any, are also indicated.
PHILIP W. COOLIDGE: President, Chief Executive Officer and Director of SBDS.
President of Registrant.
JAMES B. CRAVER: Secretary of SBDS. Secretary and Treasurer of Registrant.
BARBARA M. O'DETTE: Assistant Treasurer of SBDS.
LINWOOD C. DOWNS: Treasurer of SBDS.
THOMAS M. LENZ: Assistant Secretary of SBDS. Assistant Secretary of Registrant.
MOLLY S. MUGLER: Assistant Secretary of SBDS. Assistant Secretary of Registrant.
LINDA T. GIBSON: Assistant Secretary of SBDS. Assistant Secretary of Registrant.
BETH A. REMY: Assistant Treasurer of SBDS.
ANDRES E. SALDANA: Assistant Secretary of SBDS. Assistant Secretary of
Registrant.
SUSAN JAKUBOSKI: Assistant Treasurer of SBDS.
JULIE J. WYETZNER: Product Management Officer of SBDS.
CHRISTOPHER W. TOMECEK: Director of SBDS.
KATE B.M. BOLSOVER: Director of SBDS; Signature Financial Group (Europe), Ltd.,
49 St. James's Street, London SW1A 1JT.
ROBERT G. DAVIDOFF: Director of SBDS; CMNY Capital, L.P., 135 East 57th Street,
New York, NY 10022.
LEEDS HACKETT: Director of SBDS; Hackett Associates Limited, 1260 Avenue of the
Americas, 12th Floor, New York, NY 10020
LAURENCE B. LEVINE: Director of SBDS; Blair Corporation, 250 Royal Palm Way,
Palm Beach, FL 33480
C-10
<PAGE>
DONALD S. CHADWICK: Director of SBDS; 4609 Bayard Street, Apartment 411,
Pittsburgh, PA 15213.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
PIERPONT GROUP, INC.: 461 Fifth Avenue, New York, New York 10017
(records relating to its assisting the Trustees in carrying out
their duties in supervising the Registrant's affairs).
MORGAN GUARANTY TRUST COMPANY OF NEW YORK: 60 Wall Street, New York, New York
10260-0060, 522 Fifth Avenue, New York, New York 10036 or 9 West 57th Street,
New York, New York 10019 (records relating to its functions as shareholder
servicing agent, and 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).
SIGNATURE BROKER-DEALER SERVICES, INC.: 6 St. James Avenue,
Boston, Massachusetts 02116 (records relating to its functions as
distributor and administrator).
INVESTORS BANK AND TRUST COMPANY: 1 First Canadian Place, Suite
5820, P.O. Box 231, Toronto, Ontario M5X1C8 (accounting records).
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 for The JPM Institutional European Equity Fund, The JPM Institutional
Japan Equity Fund and The JPM Institutional Asia Growth Fund which need not be
certified, within four to six months following the effective date of this
registration statement. 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.
(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.
C-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this amendment to its Registration Statement
on Form N-1A ("Registration Statement") pursuant to Rule 485(a) under the
Securities Act of 1933, and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized in the City of
Boston and Commonwealth of Massachusetts on the 24th day of August, 1995.
THE JPM INSTITUTIONAL FUNDS
By /S/JAMES B. CRAVER
---------------------------
James B. Craver, 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 24, 1995.
MATTHEW HEALEY*
--------------------------
Matthew Healey
Chairman and Chief Executive Officer
PHILIP W. COOLIDGE*
--------------------------
Philip W. Coolidge
President
/S/JAMES B. CRAVER
--------------------------
James B. Craver
Treasurer and Chief Financial and Accounting Officer
F.S. ADDY*
--------------------------
F.S. Addy
Trustee
WILLIAM G. BURNS*
--------------------------
William G. Burns
Trustee
ARTHUR C. ESCHENLAUER*
--------------------------
Arthur C. Eschenlauer
Trustee
MICHAEL P. MALLARDI*
--------------------------
Michael P. Mallardi
Trustee
*By /S/JAMES B. CRAVER
--------------------------
James B. Craver,
as attorney-in-fact pursuant to a power of attorney filed herewith.
<PAGE>
SIGNATURES
Each Portfolio has duly caused this Post-Effective Amendment to the
Registration Statement on Form N-1A ("Registration Statement") of The JPM
Institutional Funds (the "Trust") (File No. 33-54642) to be signed on its behalf
by the undersigned, thereto duly authorized in George Town, Grand Cayman, Cayman
Islands, B.W.I. on the 24th day of August, 1995.
THE MONEY MARKET PORTFOLIO, THE TAX EXEMPT MONEY MARKET
PORTFOLIO, THE TREASURY MONEY MARKET PORTFOLIO, THE SHORT TERM
BOND PORTFOLIO, THE U.S. FIXED INCOME PORTFOLIO, THE TAX EXEMPT
BOND PORTFOLIO, THE SELECTED U.S. EQUITY PORTFOLIO, THE U.S.
SMALL COMPANY PORTFOLIO, THE NON-U.S. EQUITY PORTFOLIO, THE
DIVERSIFIED PORTFOLIO, THE EMERGING MARKETS EQUITY PORTFOLIO, THE
NEW YORK TOTAL RETURN BOND PORTFOLIO, THE NON-U.S. FIXED
INCOME PORTFOLIO AND THE SERIES PORTFOLIO
By /S/SUSAN JAKUBOSKI
--------------------------
Susan Jakuboski, Assistant Treasurer
Pursuant to the requirements of the Securities Act of 1933, the Trust's
Registration Statement has been signed below by the following persons in the
capacities indicated on August 24, 1995.
MATTHEW HEALEY*
--------------------------
Matthew Healey
Chairman and Chief Executive Officer of the Portfolios
PHILIP W. COOLIDGE*
--------------------------
Philip W. Coolidge
President of the Portfolios
JAMES B. CRAVER*
--------------------------
James B. Craver
Treasurer and Chief Financial and Accounting Officer of the
Portfolios
F.S. ADDY*
--------------------------
F.S. Addy
Trustee of the Portfolios
WILLIAM G. BURNS*
--------------------------
William G. Burns
Trustee of the Portfolios
ARTHUR C. ESCHENLAUER*
--------------------------
Arthur C. Eschenlauer
Trustee of the Portfolios
MICHAEL P. MALLARDI*
--------------------------
Michael P. Mallardi
Trustee of the Portfolios
/S/SUSAN JAKUBOSKI
--------------------------
Susan Jakuboski,
as attorney-in-fact pursuant to a power of attorney filed herewith.
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
1. Declaration of Trust, as amended.
11. Consents of independent accountants.
17. Financial Data Schedules.
18. Powers of Attorney.
JPM417
THE JPM INSTITUTIONAL FUNDS
DECLARATION OF TRUST
Dated as of November 4, 1992
<PAGE>
TABLE OF CONTENTS
PAGE
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 5
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
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 9
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. 10
Section 5.3 Mandatory Indemnification; Insurance 11
Section 5.4 No Bond Required of Trustees 12
Section 5.5 No Duty of Investigation; Notice in Trust
Instruments, etc. 12
Section 5.6 Reliance on Experts, etc. 13
i
<PAGE>
ARTICLE VI--SHARES OF BENEFICIAL INTEREST 13
Section 6.1 Beneficial Interest 13
Section 6.2 Rights of Shareholders 13
Section 6.3 Trust Only 13
Section 6.4 Issuance of Shares 14
Section 6.5 Register of Shares 14
Section 6.6 Transfer of Shares 14
Section 6.7 Notices 15
Section 6.8 Voting Powers 15
Section 6.9 Series Designation 15
ARTICLE VII--REDEMPTIONS 18
Section 7.1 Redemptions 18
Section 7.2 Suspension of Right of Redemption 18
Section 7.3 Redemption of Shares; Disclosure of Holding 19
Section 7.4 Redemptions of Accounts of Less than
Minimum Amount 19
ARTICLE VIII--DETERMINATION OF NET ASSET VALUE, NET INCOME AND
DISTRIBUTIONS 19
ARTICLE IX--DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS, ETC. 20
--------------------------------------------------------
Section 9.1 Duration 20
Section 9.2 Termination of Trust 20
Section 9.3 Amendment Procedure 20
Section 9.4 Merger, Consolidation and Sale of Assets 22
Section 9.5 Incorporation, Reorganization 22
Section 9.6 Incorporation or Reorganization of Series 23
ARTICLE X--REPORTS TO SHAREHOLDERS AND SHAREHOLDER COMMUNICATIONS 23
------------------------------------------------------
ARTICLE XI--MISCELLANEOUS 23
Section 11.1 Filing 23
Section 11.2 Governing Law 23
Section 11.3 Counterparts 23
Section 11.4 Reliance by Third Parties 24
Section 11.5 Provisions in Conflict with Law or Regulations 24
Section 11.6 Principal Office 24
APPENDIX I--SERIES DESIGNATION 26
ii
<PAGE>
JPM417
DECLARATION OF TRUST
OF
THE JPM INSTITUTIONAL FUNDS
Dated as of November 4, 1992
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 "The JPM
Institutional Funds".
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 "DECLARATION", "HEREOF",
<PAGE>
2
"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.
(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, 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 of Shares established by the Trustees
pursuant to Section 6.9 hereof, equal proportionate transferable units into
which such series 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.
(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
<PAGE>
3
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 the
Trustees, provided, however, that the number of Trustees shall in no event be
less than three.
SECTION 2.2. TERM OF OFFICE OF TRUSTEES. Subject to the provisions of
Section 16(a) of the 1940 Act, the Trustees shall hold office during the
lifetime of this Trust and until its termination as hereinafter provided; except
that (a) any Trustee may resign his trust (without need for 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 attained a mandatory retirement age established pursuant to any written
policy adopted from time to time by at least two thirds of the Trustees shall,
automatically and without action of such Trustee or the remaining Trustees, be
deemed to have retired in accordance with the terms of such policy, effective as
of the date determined in accordance with such policy; (d) 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 (e) a Trustee may be
removed at any meeting of Shareholders by a vote of two thirds of the
outstanding Shares of each series. 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 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. Within twelve months of such appointment, the
<PAGE>
4
Trustees shall cause notice of such appointment to be mailed to each Shareholder
at his address as recorded on the books of the Trustees. 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
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.
<PAGE>
5
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 option contract,
contracts for the future acquisition or delivery of fixed income or other
securities, 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, 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,
(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" 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.
<PAGE>
6
(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.
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>
7
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
Declaration, 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, the Administrator, Trustees,
officers, employees, agents, the Investment Adviser, the Distributor, 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, or
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 and any 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 and the method by which its accounts shall
be kept; and (i) adopt a seal for the Trust, 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 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
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8
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.
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 of the 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 or of
the Distributor at a price not lower than the net asset value of the Shares at
the moment of such purchase, provided that any such sales are only to be made
pursuant to a uniform offer described in the 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, promotional activities, and such other
facilities and services, if any, with respect to one or more series of Shares,
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,
<PAGE>
9
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 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 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
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10
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 affiliated with Persons who are parties to
any or all of the contracts mentioned in this Section 4.5.
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, wilful 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
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, wilful misfeasance, gross negligence or reckless disregard of his
duties.
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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 wilful 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 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 wilful 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.
<PAGE>
12
(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 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
<PAGE>
13
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 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,
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 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 hereinbefore
described 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.
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, corporation, bailment
or any form of legal relationship other than a trust. Nothing in the Declaration
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14
shall be construed to make the Shareholders, either by themselves or with the
Trustees, partners or members of a joint stock association.
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 into a
greater or lesser number without thereby changing their proportionate beneficial
interests in Trust Property allocated or belonging to such series. 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 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
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15
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 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 the
Shareholders, and (viii) 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. Each whole Share shall be entitled
to one vote as to any matter on which it is entitled to vote and each fractional
Share 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. 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. As set forth in Appendix I hereto, the
Trustees have authorized the division of Shares into series, 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
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16
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 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 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 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. 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
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
<PAGE>
17
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 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, to
the Shareholders of that series only, 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 belonging to
that series. All dividends and distributions on Shares of a particular series
shall be distributed PRO RATA to the Shareholders of that series in proportion
to the number of Shares of that series 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.
(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, except that (i) when required by
the 1940 Act to be voted in the aggregate, Shares shall not be voted by
individual series, and (ii) when the Trustees have determined that the matter
affects only the interests of Shareholders of one or more series, only
Shareholders of such series shall be entitled to vote thereon.
(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, 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
<PAGE>
18
permitted under the 1940 Act or pursuant to any exemptive order issued by the
Commission.
ARTICLE VII
REDEMPTIONS
SECTION 7.L 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 at the office of 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.
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 Trust 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.
<PAGE>
19
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.
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 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.
<PAGE>
20
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 of the Trust may be terminated
(i) by a Majority Shareholder Vote of the Shareholders of that series, or (ii)
by the Trustees by written notice to the Shareholders of that series. 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 in accordance with
Section 9.4 or 9.6 hereof, respectively; 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
<PAGE>
21
writing, without a meeting, signed by a 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 to designate series in accordance with Section 6.9 hereof, to
change the name of the Trust, 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, or to (i) change the state or
other jurisdiction designated herein as the state or other jurisdiction whose
laws shall be the governing law hereof, (ii) 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 (iii) in conjunction with any amendment
contemplated by the foregoing clause (i) or the foregoing clause (ii) 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 (ii) or clause (iii) 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.
(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
<PAGE>
22
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
of two-thirds of the outstanding Shares of all series of the Trust voting as a
single class, or 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 the
vote of the holders of two-thirds of the outstanding Shares of all series of the
Trust voting as a single class, or of the affected series of the Trust, 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 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. With the approval of the
holders of a majority of the Shares outstanding and entitled to vote, the
Trustees may 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.
<PAGE>
23
SECTION 9.6. INCORPORATION OR REORGANIZATION OF SERIES. With the
approval of a Majority Shareholder Vote of any series, the Trustees may 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
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 filing 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.
<PAGE>
24
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
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, (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 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 is
6 St. James Avenue, 9th Floor, Boston, Massachusetts, 02116.
<PAGE>
25
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 4th day of November, 1992.
/s/THOMAS M. LENZ
Thomas M. Lenz
as Trustee
and not individually
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, SS.
November 4, 1992
Then personally appeared the above-named Thomas M. Lenz, who severally
acknowledged the foregoing instrument to be their free act and deed.
Before me,
/s/MARK PIETKIEWICZ
Notary Public
My commission expires: January 24, 1997
<PAGE>
JPM10 Appendix I
THE JPM INSTITUTIONAL FUNDS
Amended and Restated Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.001 per share)
Dated as of January 29, 1993
Pursuant to Section 6.9 of the Declaration of Trust, dated as of
November 4, 1992 (the "Declaration of Trust"), of The JPM Institutional Funds
(the "Trust"), the Trustees of the Trust hereby amend and restate the
Establishment and Designation of Series appended to the Declaration of Trust to
establish and to designate ten additional series of Shares (as defined in the
Declaration of Trust), such additional series of Shares together with the one
existing series of Shares totalling eleven series of Shares (each a "Fund" and
collectively the "Funds").
1. The Funds shall be designated as follows:
The JPM Institutional Treasury Money Market Fund
The JPM Institutional Money Market Fund
The JPM Institutional Tax Exempt Money Market Fund
The JPM Institutional Short Term Bond Fund
The JPM Institutional Bond Fund
The JPM Institutional Tax Exempt Bond Fund
The JPM Institutional Selected U.S. Equity Fund
The JPM Institutional U.S. Stock Fund
The JPM Institutional U.S. Small Company Fund
The JPM Institutional International Equity Fund
The JPM Institutional Diversified Fund
and shall have the following special and relative rights:
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 to the extent pertaining to the offering of
Shares of such Fund. Each Share of a Fund shall be redeemable, shall be entitled
to one vote (or fraction thereof in respect of a fractional share) 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.
<PAGE>
3. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to the Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be
allocated among the Funds as set forth in Section 6.9 of the
Declaration of Trust.
5. 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 now or hereafter created, or otherwise to
change the special and relative rights of any Fund.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 29th day of January, 1993.
/s/FREDERICK S. ADDY
Frederick S. Addy
/s/WILLIAM G. BURNS
William G. Burns
/s/ARTHUR C. ESCHENLAUER
Arthur C. Eschenlauer
/s/MATTHEW HEALEY
Matthew Healey
/s/MICHAEL P. MALLARDI
Michael P. Mallardi
JPM10A
<PAGE>
JPM10A Appendix I
THE JPM INSTITUTIONAL FUNDS
Second Amended and Restated Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.001 per share)
Dated as of June 24, 1993
Pursuant to Section 6.9 of the Declaration of Trust, dated as of
November 4, 1992 (the "Declaration of Trust"), of The JPM Institutional Funds
(the "Trust"), the Trustees of the Trust hereby amend and restate the Amended
and Restated Establishment and Designation of Series appended to the Declaration
of Trust to establish and to designate four additional series of Shares (as
defined in the Declaration of Trust), such additional series of Shares together
with the eleven existing series of Shares totalling fifteen series of Shares
(each a "Fund" and collectively the "Funds").
1. The Funds shall be designated as follows:
The JPM Institutional Treasury Money Market Fund
The JPM Institutional Money Market Fund
The JPM Institutional Tax Exempt Money Market Fund
The JPM Institutional Short Term Bond Fund
The JPM Institutional Bond Fund
The JPM Institutional Tax Exempt Bond Fund
The JPM Institutional Selected U.S. Equity Fund
The JPM Institutional U.S. Stock Fund
The JPM Institutional U.S. Small Company Fund
The JPM Institutional International Equity Fund
The JPM Institutional Diversified Fund
The JPM Institutional International Bond Fund
The JPM Institutional Emerging Markets Equity Fund
The JPM Institutional International Fixed Income Fund
The JPM Institutional US$ Short Duration Tax Exempt Fund
and shall have the following special and relative
rights:
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 to the extent pertaining to the offering of
Shares of such Fund. Each Share of a Fund shall be redeemable, shall be entitled
to one vote (or fraction thereof in respect of a fractional share) 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
<PAGE>
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. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to the Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be
allocated among the Funds as set forth in Section 6.9 of the
Declaration of Trust.
5. 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 now or hereafter created, or otherwise to
change the special and relative rights of any Fund.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 24th day of June, 1993. This instrument may be executed by the Trustees on
separate counterparts but shall be effective only when signed by a majority of
the Trustees.
/s/FREDERICK S. ADDY
Frederick S. Addy
/s/WILLIAM G. BURNS
William G. Burns
/s/ARTHUR C. ESCHENLAUER
Arthur C. Eschenlauer
/s/MATTHEW HEALEY
Matthew Healey
/s/MICHAEL P. MALLARDI
Michael P. Mallardi
JPM10A
<PAGE>
JPM10C Appendix I
THE JPM INSTITUTIONAL FUNDS
Third Amended and Restated Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.001 per share)
Dated as of December 16, 1993
Pursuant to Sections 6.9 and 9.3 of the Declaration of Trust, dated as
of November 4, 1992 (the "Declaration of Trust"), of The JPM Institutional Funds
(the "Trust"), the Trustees of the Trust hereby amend and restate the Second
Amended and Restated Establishment and Designation of Series appended to the
Declaration of Trust to change the names of The JPM Institutional International
Fixed Income Fund and The JPM Institutional US$ Short Duration Tax Exempt Fund
to "The JPM Institutional Emerging Markets Fixed Income Fund" and "The JPM
Institutional New York Municipal Bond Fund", respectively, two series of Shares
(as defined in the Declaration of Trust) of the fifteen series of Shares (each a
"Fund" and collectively the "Funds") of the Trust.
1. The Funds shall be designated as follows:
The JPM Institutional Treasury Money Market Fund
The JPM Institutional Money Market Fund
The JPM Institutional Tax Exempt Money Market Fund
The JPM Institutional Short Term Bond Fund
The JPM Institutional Bond Fund
The JPM Institutional Tax Exempt Bond Fund
The JPM Institutional Selected U.S. Equity Fund
The JPM Institutional U.S. Stock Fund
The JPM Institutional U.S. Small Company Fund
The JPM Institutional International Equity Fund
The JPM Institutional Diversified Fund
The JPM Institutional International Bond Fund
The JPM Institutional Emerging Markets Equity Fund
The JPM Institutional Emerging Markets Fixed Income Fund
The JPM Institutional New York Municipal Bond Fund
and shall have the following special and relative
rights:
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 to the extent pertaining to the offering of
Shares of such Fund. Each Share of a Fund shall be redeemable, shall be entitled
to one vote (or fraction thereof in respect of a fractional share) 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
<PAGE>
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. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to the Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be
allocated among the Funds as set forth in Section 6.9 of the
Declaration of Trust.
5. 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 now or hereafter created, or otherwise to
change the special and relative rights of any Fund.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 16th day of December, 1993. This instrument may be executed by the Trustees
on separate counterparts but shall be effective only when signed by a majority
of the Trustees.
/s/FREDERICK S. ADDY
Frederick S. Addy
/s/WILLIAM G. BURNS
William G. Burns
/s/ARTHUR C. ESCHENLAUER
Arthur C. Eschenlauer
/s/MATTHEW HEALEY
Matthew Healey
/s/MICHAEL P. MALLARDI
Michael P. Mallardi
JPM10C
<PAGE>
JPM10D Appendix I
THE JPM INSTITUTIONAL FUNDS
Fourth Amended and Restated Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.001 per share)
Dated as of March 8, 1994
Pursuant to Sections 6.9 and 9.3 of the Declaration of Trust, dated as
of November 4, 1992 (the "Declaration of Trust"), of The JPM Institutional Funds
(the "Trust"), the Trustees of the Trust hereby amend and restate the Third
Amended and Restated Establishment and Designation of Series appended to the
Declaration of Trust to change the name of The JPM Institutional New York
Municipal Bond Fund to "The JPM Institutional New York Total Return Bond Fund",
one series of Shares (as defined in the Declaration of Trust), and to designate
three additional series of Shares, such additional series of Shares together
with the fifteen existing series of Shares totalling eighteen series of Shares
(each a "Fund" and collectively the "Funds") of the Trust.
1. The Funds shall be designated as follows:
The JPM Institutional Treasury Money Market Fund
The JPM Institutional Money Market Fund
The JPM Institutional Tax Exempt Money Market Fund
The JPM Institutional Short Term Bond Fund
The JPM Institutional Bond Fund
The JPM Institutional Tax Exempt Bond Fund
The JPM Institutional Selected U.S. Equity Fund
The JPM Institutional U.S. Stock Fund
The JPM Institutional U.S. Small Company Fund
The JPM Institutional International Equity Fund
The JPM Institutional Diversified Fund
The JPM Institutional International Bond Fund
The JPM Institutional Emerging Markets Equity Fund
The JPM Institutional Emerging Markets Fixed Income Fund
The JPM Institutional New York Total Return Bond Fund
The JPM Institutional Asia Growth Fund
The JPM Institutional Japan Equity Fund
The JPM Institutional European Equity Fund
and shall have the following special and relative
rights:
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 to the extent pertaining to the offering of
Shares of such Fund. Each Share of a Fund shall be redeemable, shall be entitled
to one vote (or fraction thereof in respect of a fractional share) on matters on
which Shares of the Fund shall be
<PAGE>
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. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to the Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be
allocated among the Funds as set forth in Section 6.9 of the
Declaration of Trust.
5. 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 now or hereafter created, or otherwise to
change the special and relative rights of any Fund.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 8th day of March, 1994. This instrument may be executed by the Trustees on
separate counterparts but shall be effective only when signed by a majority of
the Trustees.
/s/FREDERICK S. ADDY
Frederick S. Addy
/s/WILLIAM G. BURNS
William G. Burns
/s/ARTHUR C. ESCHENLAUER
Arthur C. Eschenlauer
/s/MATTHEW HEALEY
Matthew Healey
/s/MICHAEL P. MALLARDI
Michael P. Mallardi
JPM10D
CONSENTS OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 17 to the registration
statement on Form N- 1A (the "Registration Statement") of our report dated
November 1, 1994, relating to the statement of assets and liabilities of The
Non-U.S. Fixed Income Portfolio, and our reports dated March 24, 1995, relating
to the statements of assets and liabilities of The Asia Growth Portfolio, The
European Equity Portfolio and The Japan Equity Portfolio, which appear in such
Statement of Additional Information, and which constitute part of this
Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated July 22, 1994, relating to the financial
statements and financial highlights of The JPM Institutional Selected U.S.
Equity Fund and The JPM Institutional U.S. Small Company Fund and the financial
statements and supplementary data of The Selected U.S. Equity Portfolio and The
U.S. Small Company Portfolio appearing in the May 31, 1994 Annual Reports, which
are also incorporated by reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated August 23, 1994, relating to the financial
statements and financial highlights of The JPM Institutional Diversified Fund
and the financial statements and supplementary data of The Diversified Portfolio
appearing in the June 30, 1994 Annual Report, which is also incorporated by
reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated October 25, 1994, relating to the financial
statements and financial highlights of The JPM Institutional Tax Exempt Money
Market Fund and The JPM institutional Tax Exempt Bond Fund and the financial
statements and supplementary data of The Tax Exempt Money Market Portfolio and
The Tax Exempt Bond Portfolio appearing in the August 31, 1994 Annual Reports,
which are also incorporated by reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated December 27, 1994, relating to the financial
statements and financial highlights
<PAGE>
Consents of Independent Accountants
Page 2
of The JPM Institutional Treasury Money Market Fund, The JPM Institutional Short
Term Bond Fund, The JPM Institutional Bond Fund and The JPM Institutional
International Equity Fund and the financial statements and supplementary data of
The Treasury Money Market Portfolio, The Short Term Bond Portfolio, The U.S.
Fixed Income Portfolio and The Non-U.S. Equity Portfolio appearing in the
October 31, 1994 Annual Reports, which are also incorporated by reference into
the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated December 30, 1994, relating to the financial
statements and financial highlights of The JPM Institutional Emerging Markets
Equity Fund and the financial statements and supplementary data of The Emerging
Markets Equity Portfolio appearing in the October 31, 1994 Annual Report, which
is also incorporated by reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated January 25, 1995, relating to the financial
statements and financial highlights of The JPM Institutional Money Market Fund
and the financial statements and supplementary data of The Money Market
Portfolio appearing in the November 30, 1994 Annual Report, which is also
incorporated by reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated May 23, 1995, relating to the financial
statements and financial highlights of The JPM Institutional New York Total
Return Bond Fund and the financial statements and supplementary data of The New
York Total Return Bond Portfolio appearing in the March 31, 1995 Annual Report,
which is also incorporated by reference into the Registration Statement.
We also consent to the references to us under the heading "Independent
Accountants" and "Financial Statements" in the Statement of Additional
Information.
/S/PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
August 24, 1995
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Philip W. Coolidge,
James B. Craver, Susan Jakuboski, Thomas M. Lenz, Molly S. Mugler, Linda T.
Gibson, Andres E. Saldana, David G. Danielson, James S. Lelko and Daniel E.
Shea, and each of them, with full powers of substitution as his true and lawful
attorneys and agents to execute in his name and on his behalf in any and all
capacities the Registration Statements on Form N-1A, and any and all amendments
thereto, filed by The JPM Advisor Funds, The JPM Institutional Funds, The JPM
Institutional Plus Funds or The Pierpont Funds (each a "Trust"), or the
Registration Statement(s), and any and all amendments thereto, filed by any
other investor in any registered investment company in which any of the Trusts
invest, with the Securities and Exchange Commission under the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended, and any and
all instruments which such attorneys and agents, or any of them, deem necessary
or advisable to enable each Trust to comply with such Acts, the rules,
regulations and requirements of the Securities and Exchange Commission, and the
securities or Blue Sky laws of any state or other jurisdiction, and the
undersigned hereby ratifies and confirms as his own act and deed any and all
acts that such attorneys and agents, or any of them, shall do or cause to be
done by virtue hereof. Any one of such attorneys and agents have, and may
exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 17th
day of July, 1995, in Tuckers Town, Bermuda.
/S/FREDERICK S. ADDY
------------------------------
Frederick S. Addy
JPM451
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Philip W. Coolidge,
James B. Craver, Susan Jakuboski, Thomas M. Lenz, Molly S. Mugler, Linda T.
Gibson, Andres E. Saldana, David G. Danielson, James S. Lelko and Daniel E.
Shea, and each of them, with full powers of substitution as his true and lawful
attorneys and agents to execute in his name and on his behalf in any and all
capacities the Registration Statements on Form N-1A, and any and all amendments
thereto, filed by The JPM Advisor Funds, The JPM Institutional Funds, The JPM
Institutional Plus Funds or The Pierpont Funds (each a "Trust"), or the
Registration Statement(s), and any and all amendments thereto, filed by any
other investor in any registered investment company in which any of the Trusts
invest, with the Securities and Exchange Commission under the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended, and any and
all instruments which such attorneys and agents, or any of them, deem necessary
or advisable to enable each Trust to comply with such Acts, the rules,
regulations and requirements of the Securities and Exchange Commission, and the
securities or Blue Sky laws of any state or other jurisdiction, and the
undersigned hereby ratifies and confirms as his own act and deed any and all
acts that such attorneys and agents, or any of them, shall do or cause to be
done by virtue hereof. Any one of such attorneys and agents have, and may
exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 17th
day of July, 1995, in Tuckers Town, Bermuda.
/S/MICHAEL P. MALLARDI
------------------------------
Michael P. Mallardi
JPM451
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Philip W. Coolidge,
James B. Craver, Susan Jakuboski, Thomas M. Lenz, Molly S. Mugler, Linda T.
Gibson, Andres E. Saldana, David G. Danielson, James S. Lelko and Daniel E.
Shea, and each of them, with full powers of substitution as his true and lawful
attorneys and agents to execute in his name and on his behalf in any and all
capacities the Registration Statements on Form N-1A, and any and all amendments
thereto, filed by The JPM Advisor Funds, The JPM Institutional Funds, The JPM
Institutional Plus Funds or The Pierpont Funds (each a "Trust"), or the
Registration Statement(s), and any and all amendments thereto, filed by any
other investor in any registered investment company in which any of the Trusts
invest, with the Securities and Exchange Commission under the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended, and any and
all instruments which such attorneys and agents, or any of them, deem necessary
or advisable to enable each Trust to comply with such Acts, the rules,
regulations and requirements of the Securities and Exchange Commission, and the
securities or Blue Sky laws of any state or other jurisdiction, and the
undersigned hereby ratifies and confirms as his own act and deed any and all
acts that such attorneys and agents, or any of them, shall do or cause to be
done by virtue hereof. Any one of such attorneys and agents have, and may
exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 17th
day of July, 1995, in Tuckers Town, Bermuda.
/S/WILLIAM G. BURNS
------------------------------
William G. Burns
JPM451
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Philip W. Coolidge,
James B. Craver, Susan Jakuboski, Thomas M. Lenz, Molly S. Mugler, Linda T.
Gibson, Andres E. Saldana, David G. Danielson, James S. Lelko and Daniel E.
Shea, and each of them, with full powers of substitution as his true and lawful
attorneys and agents to execute in his name and on his behalf in any and all
capacities the Registration Statements on Form N-1A, and any and all amendments
thereto, filed by The JPM Advisor Funds, The JPM Institutional Funds, The JPM
Institutional Plus Funds or The Pierpont Funds (each a "Trust"), or the
Registration Statement(s), and any and all amendments thereto, filed by any
other investor in any registered investment company in which any of the Trusts
invest, with the Securities and Exchange Commission under the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended, and any and
all instruments which such attorneys and agents, or any of them, deem necessary
or advisable to enable each Trust to comply with such Acts, the rules,
regulations and requirements of the Securities and Exchange Commission, and the
securities or Blue Sky laws of any state or other jurisdiction, and the
undersigned hereby ratifies and confirms as his own act and deed any and all
acts that such attorneys and agents, or any of them, shall do or cause to be
done by virtue hereof. Any one of such attorneys and agents have, and may
exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 17th
day of July, 1995, in Tuckers Town, Bermuda.
/S/ARTHUR C. ESCHENLAUER
------------------------------
Arthur C. Eschenlauer
JPM451
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Philip W. Coolidge,
James B. Craver, Susan Jakuboski, Thomas M. Lenz, Molly S. Mugler, Linda T.
Gibson, Andres E. Saldana, David G. Danielson, James S. Lelko and Daniel E.
Shea, and each of them, with full powers of substitution as his true and lawful
attorneys and agents to execute in his name and on his behalf in any and all
capacities the Registration Statements on Form N-1A, and any and all amendments
thereto, filed by The JPM Advisor Funds, The JPM Institutional Funds, The JPM
Institutional Plus Funds or The Pierpont Funds (each a "Trust"), or the
Registration Statement(s), and any and all amendments thereto, filed by any
other investor in any registered investment company in which any of the Trusts
invest, with the Securities and Exchange Commission under the Investment Company
Act of 1940, as amended, and the Securities Act of 1933, as amended, and any and
all instruments which such attorneys and agents, or any of them, deem necessary
or advisable to enable each Trust to comply with such Acts, the rules,
regulations and requirements of the Securities and Exchange Commission, and the
securities or Blue Sky laws of any state or other jurisdiction, and the
undersigned hereby ratifies and confirms as his own act and deed any and all
acts that such attorneys and agents, or any of them, shall do or cause to be
done by virtue hereof. Any one of such attorneys and agents have, and may
exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 17th
day of July, 1995, in Tuckers Town, Bermuda.
/S/MATTHEW HEALEY
------------------------------
Matthew Healey
JPM451
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Finanacial Information extracted from the JPM
Institutional Bond Fund Annual Report dated October 31, 1994 and is qualified in
its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 3
<NAME> BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> NOV-01-1993
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 259,405,848
<INVESTMENTS-AT-VALUE> 253,788,398
<RECEIVABLES> 280,548
<ASSETS-OTHER> 44,342
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 254,113,288
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 939,702
<TOTAL-LIABILITIES> 939,702
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 263,191,602
<SHARES-COMMON-STOCK> 27,417,659
<SHARES-COMMON-PRIOR> 4,311,640
<ACCUMULATED-NII-CURRENT> 1,943
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,402,509)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (5,617,450)
<NET-ASSETS> 253,173,586
<DIVIDEND-INCOME> 6,047
<INTEREST-INCOME> 8,229,565
<OTHER-INCOME> 0
<EXPENSES-NET> 633,826
<NET-INVESTMENT-INCOME> 7,601,786
<REALIZED-GAINS-CURRENT> (4,519,466)
<APPREC-INCREASE-CURRENT> (5,930,953)
<NET-CHANGE-FROM-OPS> (2,848,633)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,599,843
<DISTRIBUTIONS-OF-GAINS> 190,150
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 24,639,271
<NUMBER-OF-SHARES-REDEEMED> 2,084,575
<SHARES-REINVESTED> 551,323
<NET-CHANGE-IN-ASSETS> 209,462,339
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 197,942
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 874,518
<AVERAGE-NET-ASSETS> 126,771,994
<PER-SHARE-NAV-BEGIN> 10.14
<PER-SHARE-NII> .55
<PER-SHARE-GAIN-APPREC> (.88)
<PER-SHARE-DIVIDEND> .55
<PER-SHARE-DISTRIBUTIONS> .03
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.23
<EXPENSE-RATIO> .5
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from the JPM
Institutional Diversified Fund Annual Report dated June 30, 1994 and is
qualified in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 9
<NAME> DIVERSIFIED FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-START> JUL-08-1993
<PERIOD-END> JUN-30-1994
<INVESTMENTS-AT-COST> 61,169,618
<INVESTMENTS-AT-VALUE> 59,116,112
<RECEIVABLES> 185,038
<ASSETS-OTHER> 38,797
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 59,339,947
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 117,716
<TOTAL-LIABILITIES> 117,716
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 60,154,148
<SHARES-COMMON-STOCK> 5,984,124
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 765,989
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 355,600
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,053,506)
<NET-ASSETS> 59,222,231
<DIVIDEND-INCOME> 540,972
<INTEREST-INCOME> 657,950
<OTHER-INCOME> 0
<EXPENSES-NET> 218,367
<NET-INVESTMENT-INCOME> 980,555
<REALIZED-GAINS-CURRENT> 294,012
<APPREC-INCREASE-CURRENT> (2,053,506)
<NET-CHANGE-FROM-OPS> (778,939)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 194,728
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,989,005
<NUMBER-OF-SHARES-REDEEMED> 1,034,097
<SHARES-REINVESTED> 19,216
<NET-CHANGE-IN-ASSETS> 59,122,231
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 364,390
<AVERAGE-NET-ASSETS> 4,252,044
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .18
<PER-SHARE-GAIN-APPREC> (.23)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.90
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from the JPM
Institutional Emerging Markets Equity Fund Annual Report dated October 31, 1994
and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 5
<NAME> EMERGING MARKETS EQUITY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> NOV-15-1993
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 136,981,609
<INVESTMENTS-AT-VALUE> 145,734,806
<RECEIVABLES> 1,044,020
<ASSETS-OTHER> 40,101
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 146,818,927
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 152,303
<TOTAL-LIABILITIES> 152,303
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 135,884,152
<SHARES-COMMON-STOCK> 11,761,789
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 444,354
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,584,921
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,753,197
<NET-ASSETS> 146,666,624
<DIVIDEND-INCOME> 1,249,837
<INTEREST-INCOME> 371,307
<OTHER-INCOME> 0
<EXPENSES-NET> 1,142,172
<NET-INVESTMENT-INCOME> 89,239
<REALIZED-GAINS-CURRENT> 1,344,761
<APPREC-INCREASE-CURRENT> 8,753,197
<NET-CHANGE-FROM-OPS> 10,576,930
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12,614,620
<NUMBER-OF-SHARES-REDEEMED> 852,841
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 146,666,524
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,269,016
<AVERAGE-NET-ASSETS> 81,369,363
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 2.43
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.47
<EXPENSE-RATIO> 1.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from the JPM
Institutional International Bond Fund Semiannual report dated March 31, 1995 and
is qualified in its entirety by reference to such Semiannual report.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 14
<NAME> INTERNATIONAL BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 3,655,582
<INVESTMENTS-AT-VALUE> 3,921,189
<RECEIVABLES> 17,782
<ASSETS-OTHER> 65,361
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,004,332
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 834,583
<TOTAL-LIABILITIES> 834,583
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,995,239
<SHARES-COMMON-STOCK> 300,969
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 48,660
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (139,757)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 265,607
<NET-ASSETS> 3,169,749
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 55,473
<OTHER-INCOME> 0
<EXPENSES-NET> 4,900
<NET-INVESTMENT-INCOME> 50,573
<REALIZED-GAINS-CURRENT> (139,757)
<APPREC-INCREASE-CURRENT> 265,607
<NET-CHANGE-FROM-OPS> 176,423
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,913
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 373,220
<NUMBER-OF-SHARES-REDEEMED> 72,452
<SHARES-REINVESTED> 191
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 31,922
<AVERAGE-NET-ASSETS> 2,276,994
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.2
<PER-SHARE-GAIN-APPREC> .37
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .04
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.53
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from the JPM
Institutional International Equity Fund Annual Report dated October 31, 1994 and
is qualified in its entirety by reference to such annual report.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 4
<NAME> INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> NOV-01-1993
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 205,562,922
<INVESTMENTS-AT-VALUE> 212,935,929
<RECEIVABLES> 310,101
<ASSETS-OTHER> 42,905
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 213,288,935
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 170,373
<TOTAL-LIABILITIES> 170,373
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 202,819,292
<SHARES-COMMON-STOCK> 19,681,492
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,313,487
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,612,776
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,373,007
<NET-ASSETS> 213,118,562
<DIVIDEND-INCOME> 2,023,056
<INTEREST-INCOME> 459,889
<OTHER-INCOME> 0
<EXPENSES-NET> 1,275,020
<NET-INVESTMENT-INCOME> 1,207,925
<REALIZED-GAINS-CURRENT> 1,791,151
<APPREC-INCREASE-CURRENT> 7,373,003
<NET-CHANGE-FROM-OPS> 10,372,079
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22,531,044
<NUMBER-OF-SHARES-REDEEMED> 2,849,572
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 213,118,358
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,475,684
<AVERAGE-NET-ASSETS> 127,502,041
<PER-SHARE-NAV-BEGIN> 10.20
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> .57
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.83
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from The JPM
Institutional Money Market Fund Annual Report dated November 30, 1994
and is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000894088
<NAME>THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 13
<NAME> MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1994
<PERIOD-START> DEC-01-1993
<PERIOD-END> NOV-30-1994
<INVESTMENTS-AT-COST> 586,783,376
<INVESTMENTS-AT-VALUE> 586,783,376
<RECEIVABLES> 509,548
<ASSETS-OTHER> 40,133
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 587,333,057
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,465,893
<TOTAL-LIABILITIES> 2,465,893
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 584,867,164
<SHARES-COMMON-STOCK> 584,869,781
<SHARES-COMMON-PRIOR> 27,188,189
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,617)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 584,867,164
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,433,820
<OTHER-INCOME> 0
<EXPENSES-NET> 380,269
<NET-INVESTMENT-INCOME> 8,053,551
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8,050,934
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,053,551
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,235,877,598
<NUMBER-OF-SHARES-REDEEMED> 683,375,165
<SHARES-REINVESTED> 5,179,159
<NET-CHANGE-IN-ASSETS> 557,678,975
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 947,203
<AVERAGE-NET-ASSETS> 182,079,313
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.038
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.038
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from The JPM
Institutional New York Total Return Bond Fund Semiannual Report dated
March 31, 1995 and is qualified in its entirety by reference to such Semiannual
Report.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 8
<NAME> NEW YORK TOTAL RETURN BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> SEP-30-1994
<PERIOD-END> MAR-31-1995
<INVESTMENTS-AT-COST> 20241073
<INVESTMENTS-AT-VALUE> 20623449
<RECEIVABLES> 27923
<ASSETS-OTHER> 9570
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 20660942
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 40002
<TOTAL-LIABILITIES> 40002
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20263821
<SHARES-COMMON-STOCK> 2039700
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (25,257)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 382376
<NET-ASSETS> 20620940
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 630038
<OTHER-INCOME> 0
<EXPENSES-NET> 61170
<NET-INVESTMENT-INCOME> 568868
<REALIZED-GAINS-CURRENT> (24,107)
<APPREC-INCREASE-CURRENT> 382376
<NET-CHANGE-FROM-OPS> 927137
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 568868
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2500781
<NUMBER-OF-SHARES-REDEEMED> 526055
<SHARES-REINVESTED> 54974
<NET-CHANGE-IN-ASSETS> 205220940
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 124338
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .42
<PER-SHARE-GAIN-APPREC> .11
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .42
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.11
<EXPENSE-RATIO> 0.5
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from the JPM
Intstitutional Selected U.S. Equity Fund Semiannual Report dated Nov 30, 1994
and is qualified in its entirety by reference to such Semiannual report.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 11
<NAME> SELECTED US EQUITY
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> NOV-30-1994
<INVESTMENTS-AT-COST> 110,395,743
<INVESTMENTS-AT-VALUE> 104,483,887
<RECEIVABLES> 42,645
<ASSETS-OTHER> 43,005
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 104,569,537
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 138,069
<TOTAL-LIABILITIES> 138,069
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 108,096,754
<SHARES-COMMON-STOCK> 9,940,715
<SHARES-COMMON-PRIOR> 4,346,123
<ACCUMULATED-NII-CURRENT> 854,576
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,391,994
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (5,911,856)
<NET-ASSETS> 104,431,468
<DIVIDEND-INCOME> 1,012,981
<INTEREST-INCOME> 94,897
<OTHER-INCOME> 0
<EXPENSES-NET> 253,302
<NET-INVESTMENT-INCOME> 854,576
<REALIZED-GAINS-CURRENT> 1,519,917
<APPREC-INCREASE-CURRENT> (6,177,918)
<NET-CHANGE-FROM-OPS> (3,803,425)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 186,297
<DISTRIBUTIONS-OF-GAINS> 779,621
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,732,284
<NUMBER-OF-SHARES-REDEEMED> 228,243
<SHARES-REINVESTED> 90,551
<NET-CHANGE-IN-ASSETS> 56,958,508
<ACCUMULATED-NII-PRIOR> 186,297
<ACCUMULATED-GAINS-PRIOR> 651,698
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 314,023
<AVERAGE-NET-ASSETS> 84,207,893
<PER-SHARE-NAV-BEGIN> 10.92
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> (0.33)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .15
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.51
<EXPENSE-RATIO> 0.6
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from JPM
Institutional Short Term Bond Fund Annual Report dated October 31, 1994 and is
qualified in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 2
<NAME> SHORT TERM BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> JUL-08-1993
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 48,132,754
<INVESTMENTS-AT-VALUE> 47,357,789
<RECEIVABLES> 369,549
<ASSETS-OTHER> 40,348
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 47,767,686
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 89,038
<TOTAL-LIABILITIES> 89,038
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 49,227,940
<SHARES-COMMON-STOCK> 4,965,521
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2,978
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (777,305)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (774,965)
<NET-ASSETS> 47,678,648
<DIVIDEND-INCOME> 79,530
<INTEREST-INCOME> 2,033,234
<OTHER-INCOME> 0
<EXPENSES-NET> 175,731
<NET-INVESTMENT-INCOME> 1,937,033
<REALIZED-GAINS-CURRENT> (852,893)
<APPREC-INCREASE-CURRENT> (695,665)
<NET-CHANGE-FROM-OPS> 388,475
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,934,055
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,531,620
<NUMBER-OF-SHARES-REDEEMED> 1,526,550
<SHARES-REINVESTED> 197,897
<NET-CHANGE-IN-ASSETS> 20,073,360
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (793,00)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 284,491
<AVERAGE-NET-ASSETS> 39,062,712
<PER-SHARE-NAV-BEGIN> 9.99
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> (0.39)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .47
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.60
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from the JPM
Institutional U.S. Small Company Fund Semiannual report dated November, 30 1994
and is qualified in its enirety by reference to such Semiannual report.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 10
<NAME> U.S. SMALL COMPANY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> NOV-30-1994
<INVESTMENTS-AT-COST> 83,677,848
<INVESTMENTS-AT-VALUE> 92,817,447
<RECEIVABLES> 944,432
<ASSETS-OTHER> 38,357
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 93,800,236
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46,698
<TOTAL-LIABILITIES> 46,698
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 99,996,542
<SHARES-COMMON-STOCK> 9,540,597
<SHARES-COMMON-PRIOR> 7,094,338
<ACCUMULATED-NII-CURRENT> 472,981
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,423,614
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (9,139,599)
<NET-ASSETS> 93,753,538
<DIVIDEND-INCOME> 732,054
<INTEREST-INCOME> 82,422
<OTHER-INCOME> 0
<EXPENSES-NET> 341,494
<NET-INVESTMENT-INCOME> 472,982
<REALIZED-GAINS-CURRENT> 3,027,096
<APPREC-INCREASE-CURRENT> (5,199,410)
<NET-CHANGE-FROM-OPS> (1,699,332)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 227,895
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,413,022
<NUMBER-OF-SHARES-REDEEMED> 1,987,322
<SHARES-REINVESTED> 20,559
<NET-CHANGE-IN-ASSETS> 22,612,763
<ACCUMULATED-NII-PRIOR> 227,894
<ACCUMULATED-GAINS-PRIOR> (603,482)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 401,451
<AVERAGE-NET-ASSETS> 85,078,140
<PER-SHARE-NAV-BEGIN> 10.03
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> (0.22)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .03
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.83
<EXPENSE-RATIO> 0.8
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from The JPM
Institutional Treasury Money Market Fund Annual Report dated 10/31/94 and is
qualified in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 1
<NAME> TREASURY MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> NOV-01-1993
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 80,292,392
<INVESTMENTS-AT-VALUE> 80,292,392
<RECEIVABLES> 207,862
<ASSETS-OTHER> 67,994
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 80,568,248
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 422,051
<TOTAL-LIABILITIES> 422,051
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 80,146,197
<SHARES-COMMON-STOCK> 80,148,692
<SHARES-COMMON-PRIOR> 25,471,822
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 2,495
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 80,146,197
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,342,544
<OTHER-INCOME> 0
<EXPENSES-NET> 116,728
<NET-INVESTMENT-INCOME> 2,225,816
<REALIZED-GAINS-CURRENT> (2,067)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,223,749
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,225,816
<DISTRIBUTIONS-OF-GAINS> 5,253
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 114,320,626
<NUMBER-OF-SHARES-REDEEMED> 60,572,235
<SHARES-REINVESTED> 928,479
<NET-CHANGE-IN-ASSETS> 54,669,550
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 4,825
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 69,212
<AVERAGE-NET-ASSETS> 58,355,372
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.035
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .035
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from the JPM
Institutional Tax Exempt Bond Fund Semiannual Report dated February 28, 1995 and
is qualified in its entirety by reference to such Semiannual Report.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 6
<NAME> TAX EXEMPT BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> FEB-28-1995
<INVESTMENTS-AT-COST> 41561113
<INVESTMENTS-AT-VALUE> 42066197
<RECEIVABLES> 43963
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<NET-INVESTMENT-INCOME> 710411
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<DISTRIBUTIONS-OF-INCOME> 710411
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<NUMBER-OF-SHARES-SOLD> 3475166
<NUMBER-OF-SHARES-REDEEMED> 904254
<SHARES-REINVESTED> 64913
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<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 119553
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from The JPM
Institutional Tax Exempt Money Market Fund Semiannual Report dated February 28,
1995 and is qualified in its entirety by reference to such Semiannual Report.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 7
<NAME> TAX EXEMPT MONEY MARKET FUND
<S> <C>
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<REALIZED-GAINS-CURRENT> (18714)
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<DISTRIBUTIONS-OF-INCOME> 1506398
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<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .017
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .35
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Fianacial Information extracted from the The JPM
Institutional Diversified Fund Semiannual Report dated December 31, 1994 and is
qualified in its entirety by reference to such Semiannual Report.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 9
<NAME> DIVERSIFIED FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
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<PERIOD-END> DEC-31-1994
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<OTHER-ITEMS-LIABILITIES> 211199
<TOTAL-LIABILITIES> 211199
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<PAID-IN-CAPITAL-COMMON> 97502300
<SHARES-COMMON-STOCK> 9707238
<SHARES-COMMON-PRIOR> 5984124
<ACCUMULATED-NII-CURRENT> 69767
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<ACCUMULATED-NET-GAINS> (650123)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1236784)
<NET-ASSETS> 95685160
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<NET-INVESTMENT-INCOME> 1351376
<REALIZED-GAINS-CURRENT> (621600)
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</TABLE>
