As filed with the Securities and Exchange Commission on July 31, 1996
Registration Nos. 33-54642 and 811-7342
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 23
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 24
The JPM Institutional Funds
(Exact Name of Registrant as Specified in Charter)
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(617) 557-0700
John E. Pelletier
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to:
Stephen K. West, Esq.
Sullivan & Cromwell
125 Broad Street, New York, New York 10004
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[X] on August 1, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 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 Market and Tax
Exempt Bond Funds (for their fiscal years ended August 31, 1995) on October 30,
1995; International Bond Fund (for its fiscal year ended September 30, 1995) on
November 17, 1995; Treasury Money Market, Short Term Bond, Bond, Emerging
Markets Equity and International Equity Funds (for their fiscal years ended
October 31, 1995) on November 17, 1995; Money Market Fund (for its fiscal year
ended November 30, 1995) on January 29, 1996; New York Total Return Bond Fund
(for its fiscal year ended March 31, 1996) on May 30, 1996; Selected U.S. Equity
and U.S. Small Company Funds (for their fiscal years ended May 31, 1995) on July
30, 1996; and Diversified Fund (for its fiscal year ended June 30, 1995) on
August 25, 1995. The Registrant has not filed Rule 24f-2 notices with respect to
its Japan Equity, European Equity and Asia Growth Funds (for their fiscal years
ended December 31, 1995) because the Registrant has not sold any securities to
the public with respect to those series during the fiscal years indicated. The
Registrant expects to file Rule 24f-2 notices with respect to the Japan Equity,
European Equity and Asia Growth Funds (for their fiscal years ending December
31, 1996) on or before February 28, 1997.
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.
JPM601.EDG
<PAGE>
THE 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,
where applicable.
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 Investment Structure; 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
Investment Structure; 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.
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; Appendices A, B and C.
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;
Co-Administrator and Distributor; Administrative 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: Co-Administrator and Distributor.
22. CALCULATION OF PERFORMANCE DATA: Performance Data.
23. FINANCIAL STATEMENTS: Financial Statements.
PART C. Information required to be included in Part C is set forth under the
appropriate items, so numbered, in Part C of this Registration Statement.
<PAGE>
EXPLANATORY NOTE
This post-effective amendment no. 23 (the "Amendment") to the Registrant's
registration statement on Form N-1A (File no. 33-54642) (the "Registration
Statement")is being filed to update Registrant's disclosure in the Prospectus
which describes The JPM Institutional New York Total Return Bond Fund, a series
of shares of the Registrant, and in the Statement of Additional Information. As
a result, the Amendment does not affect any of the Registrant's other currently
effective prospectuses, each of which is incorporated herein by reference as
most recently filed pursuant to Rule 497 under the Securities Act of 1933.
Current information about the Registrant's officers and principal office,
principal underwriter and administrator prior to the effective date of the
Amendment is incorporated herein by reference from post-effective amendment
no. 22 to the Registration Statement.
<PAGE>
PROSPECTUS
The JPM Institutional New York Total Return Bond Fund
60 State Street
Boston, Massachusetts 02109
For information call (800) 766-7722
The JPM Institutional New York Total Return Bond Fund (the "Fund") seeks to
provide a high after tax total return for New York residents consistent with
moderate risk of capital. It is designed for investors subject to federal and
New York State income taxes who seek a high after tax total return and who are
willing to receive some taxable income and capital gains to achieve that re-
turn.
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 NEW YORK TOTAL RETURN BOND 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 A TWO-TIER MASTER-FEEDER INVESTMENT FUND STRUCTURE. SEE
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE ON PAGE 3.
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 August 1, 1996 (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, Funds Distributor, Inc. ("FDI"), 60 State
Street, Suite 1300, Boston, Massachusetts 02109, Attention: The JPM
Institutional Funds, or by calling (800) 221-7930.
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 IN-
VESTMENT 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 AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS AUGUST 1, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
Investors for Whom the Fund Is Designed.................................... 1
Financial Highlights....................................................... 3
Special Information Concerning Investment
Structure ................................................................ 3
Investment Objective and Policies.......................................... 4
Additional Investment Information and Risk Factors......................... 7
Investment Restrictions.................................................... 8
Management of the Trust and the Portfolio.................................. 9
Shareholder Servicing...................................................... 11
Purchase of Shares......................................................... 12
PAGE
Redemption of Shares....................................................... 13
Exchange of Shares......................................................... 13
Dividends and Distributions................................................ 14
Net Asset Value............................................................ 14
Organization............................................................... 14
Federal Taxes.............................................................. 15
New York State and New York City Taxes..................................... 16
Additional Information..................................................... 17
Appendix................................................................... A-1
<PAGE>
The JPM Institutional New York Total Return Bond Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed for investors subject to federal and New York State income
taxes who seek a high after tax total return and who are willing to receive
some taxable income and capital gains to achieve that return. The Fund seeks to
achieve its investment objective by investing all of its investable assets in
The New York Total Return Bond 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 Fund requires a minimum initial investment of $5 million. Certain omnibus
accounts require a minimum initial investment of $10 million. The minimum sub-
sequent investment is $25,000. See Purchase of Shares. If a shareholder reduces
his or her total investment in shares of the Fund to less than the applicable
minimum investment amount 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 in a two-tier master-feeder investment fund structure.
The Trustees believe that the Fund may achieve economies of scale over time by
utilizing this investment structure.
The following table illustrates that investors in the Fund incur no shareholder
transaction expenses; their investment in the Fund is subject only to the oper-
ating 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 approxi-
mately 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 di-
rectly 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>
<CAPTION>
Advisory Fees............................................................. 0.30%
<S> <C>
Rule 12b-1 Fees........................................................... None
Other Expenses............................................................ 0.20%
----
Total Operating Expenses.................................................. 0.50%
</TABLE>
* The expense information in the above table has been restated to reflect cur-
rent fees under contractual arrangements and other expenses described below.
Fees and expenses in the expense table are expressed as a percentage of the
Fund's estimated average daily net assets for its current fiscal year, after
applicable expense reimbursements. See Management of the Trust and the Port-
folio. If the above expense table reflected these expenses without current
reimbursements, Other Expenses and Total Operating Expenses for the Fund
would be equal on an annual basis to 0.27% and 0.57%, respectively, of such
assets. Historical expenses without reimbursement expressed as a ratio to
historical average daily net assets were 0.67% for the fiscal year ended
March 31, 1996.
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>
<CAPTION>
1 Year..................................................................... $ 5
<S> <C>
3 Years.................................................................... $16
5 Years.................................................................... $28
10 Years................................................................... $63
</TABLE>
The above expense table is designed to assist investors in understanding the
various direct and indirect costs and expenses that investors in the Fund
bear. The fees and expenses included in Other Expenses are the fees paid to
Morgan under the Administrative Services Agreements and the Shareholder Ser-
vicing Agreement, organizational expenses, the fees paid to Pierpont Group,
Inc. under the Fund Services Agreements, the fees paid to FDI under the Co-Ad-
ministration Agreements, the fees paid to State Street Bank and Trust Company
as custodian and transfer agent, and other usual and customary expenses of the
Fund and the Portfolio. For a more detailed description of contractual fee ar-
rangements, see Management of the Trust and the Portfolio and Shareholder Ser-
vicing. 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 redemp-
tion 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.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following selected data for a share outstanding for the indicated period
have been audited by independent accountants. The Fund's annual report
includes 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.
FOR THE PERIOD
APRIL 11, 1994
FOR THE FISCAL (COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
MARCH 31, 1996 MARCH 31, 1995
-------------- -----------------
Net Asset Value, Beginning of Period.......... $ 10.11 $ 10.00
------- -------
Income from Investment Operations:
Net Investment Income........................ 0.49 0.42
Net Realized and Unrealized Gain on
Investment.................................. 0.25 0.11
------- -------
Total from Investment Operations.............. 0.74 0.53
------- -------
Less Distributions to Shareholders from:
Net Investment Income........................ (0.49) (0.42)
-------
Net Realized Gains........................... (0.02) --
------- -------
Total Distributions.......................... (0.51) (0.42)
------- -------
Net Asset Value, End of Period................ $ 10.34 $ 10.11
======= =======
Total Return.................................. 7.40% 5.49%(a)
======= =======
Ratios and Supplemental Data:
Net Assets at End of Period (in thousands)... $47,926 $20,621
Ratio to Average Net Assets:
Expenses.................................... 0.50% 0.50%(b)
Net Investment Income....................... 4.67% 4.65%(b)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement...................... 0.17% 0.55%(b)
- -------
(a) Not annualized.
(b) Annualized.
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own portfo-
lio 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
Portfolio may be changed only with the approval of the holders of the out-
standing shares of the Fund and the Portfolio. The master-feeder investment
fund structure has been developed relatively recently, so shareholders should
carefully consider this investment approach.
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 bear a proportionate share of the Portfolio's expenses. However, the
other investors investing in the Portfolio may sell shares of their
3
<PAGE>
own fund using a different pricing structure than the Fund. Such different
pricing structures may result in differences in returns experienced by invest-
ors in other funds that invest in the Portfolio. Such differences in returns
are not uncommon and are present in other mutual fund structures. Information
concerning other holders of interests in the Portfolio is available from Morgan
at (800) 766-7722.
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, to-
gether with the policies they employ in their efforts to achieve this objec-
tive. 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 objec-
tive of the Fund or the Portfolio will be achieved.
The 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, a non-diversified open-end management investment company
having the same investment objective as the Fund.
4
<PAGE>
The Fund is designed for investors subject to federal and New York State in-
come taxes who seek a high after tax total return and who are willing to re-
ceive some taxable income and capital gains to achieve that return.
The Portfolio's primary investments are municipal securities issued by New
York State and its political subdivisions and by agencies, authorities and in-
strumentalities 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 addi-
tion, the Portfolio may invest in municipal securities issued by states other
than New York, by territories and possessions of the United States and their
political subdivisions, agencies and instrumentalities. These securities earn
income exempt from federal income taxes but subject to New York State and lo-
cal income taxes; in certain circumstances, they may also be subject to alter-
native minimum tax. In order to seek to enhance the Portfolio's after tax re-
turn, the Advisor 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. For more information regarding tax matters, including the applicability
of the alternative minimum tax, see Taxes. Since the Portfolio limits its pur-
chases to investment grade securities, it may not obtain the higher current
income available from lower rated securities, see Quality Information.
The Advisor actively manages the Portfolio's duration, the allocation of secu-
rities across market sectors and the selection of securities to seek to
achieve a high after tax total return. Based on fundamental economic and capi-
tal markets research, the Advisor adjusts the duration of the Portfolio in
light of the Advisor's interest rate outlook. For example, if interest rates
are expected to rise, the duration may be shortened to lessen the Portfolio's
exposure to the expected decrease in bond prices. If interest rates are ex-
pected to remain stable, the Advisor may lengthen the duration in order to en-
hance the Portfolio's yield.
Duration is a measure of the weighted average maturity of the bonds held in
the Portfolio and can be used as a measure of the sensitivity of the Portfo-
lio's market value to changes in interest rates. Generally, the longer the du-
ration of the Portfolio, the more sensitive its market value will be to
changes in interest rates. Under normal market conditions, the Advisor be-
lieves the Portfolio will have a duration of three to seven years. The matu-
rity of individual securities in the Portfolio may vary widely, however.
The Advisor also attempts to enhance after tax total return by allocating the
Portfolio's assets among market sectors. Specific securities which the Advisor
believes are undervalued are selected for purchase within sectors using ad-
vanced quantitative tools, analysis of credit risk, the expertise of a dedi-
cated trading desk and the judgment of fixed income portfolio managers and
analysts.
In seeking to achieve the Portfolio's investment objective, the Advisor at-
tempts to consider the tax consequences to investors of all portfolio transac-
tions. The Advisor will sell and purchase securities to change the Portfolio's
duration, sector allocation or securities holdings only if it believes that
the expected benefit to the Portfolio will be greater than the capital gains
or income taxes shareholders would incur as a result of these sales and pur-
chases. The success of this strategy depends on the Advisor's ability to fore-
cast accurately changes in interest rates and assess the value of fixed income
securities.
The Advisor intends to manage the Portfolio actively in pursuit of its invest-
ment objective. Portfolio transactions are undertaken principally to accom-
plish the Portfolio's objective in relation to expected movements in the gen-
eral level of interest rates, but the Portfolio may engage in short-term trad-
ing consistent with its objective. Portfolio transactions may incur taxable
long term or short term capital gains which will be distributed and taxable to
investors. In addition, to the extent the Portfolio engages in short-term
trading, it may incur increased transactions costs. See Taxes below.
MUNICIPAL SECURITIES. Under normal circumstances, the Portfolio will invest at
least 65% of its total assets in municipal securities issued by New York State
and its political subdivisions and their agencies, authorities and instrumen-
talities. The
5
<PAGE>
Portfolio may also invest in debt obligations of municipal issuers other than
New York. The municipal securities in which the Portfolio invests are primarily
municipal bonds and municipal notes.
MUNICIPAL BONDS. The Portfolio may invest in bonds issued by or on behalf of
New York State, other states, territories and possessions of the United States
and their political subdivisions, agencies, authorities and instrumentalities.
These obligations may be general obligation bonds secured by the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest, or they may be revenue bonds payable from specific revenue sourc-
es, but not generally backed by the issuer's taxing power.
MUNICIPAL NOTES. The Portfolio may also invest in municipal notes of various
types, including notes issued in anticipation of receipt of taxes, the proceeds
of the sale of bonds, other revenues or grant proceeds, as well as municipal
commercial paper and municipal demand obligations such as variable rate demand
notes and master demand obligations. The interest rate on variable rate demand
notes is adjustable at periodic intervals as specified in the notes. Master de-
mand obligations permit the investment of fluctuating amounts at periodically
adjusted interest rates. They are governed by agreements between the municipal
issuer and Morgan acting as agent, for no additional fee, in its capacity as
Advisor to the Portfolio and as fiduciary for other clients. Although master
demand obligations are not marketable to third parties, the Portfolio considers
them to be liquid because they are payable on demand. There is no specific per-
centage limitation on these investments. For more information about municipal
notes, see Investment Objectives and Policies in the Statement of Additional
Information.
NEW YORK MUNICIPAL SECURITIES. Because of the Portfolio's significant invest-
ment in New York municipal securities, its performance will be affected by the
condition of New York's economy, as well as the fiscal condition of the State,
its agencies and municipalities. The New York State economy generally remains
weak, despite some signs of growth. Compounding this effect is the presence of
a persistent budget deficit and the significant claims placed on the State's
budget by education, social service, and infrastructure needs. In addition, the
New York City economy and fiscal condition have profound influences upon the
market for most New York debt obligations. The Advisor currently views the New
York economy and financial condition as fundamentally stable. However, the pos-
sibility of a disruption to economic and financial conditions which would ad-
versely affect the creditworthiness and marketability of New York municipal se-
curities continues to exist. A more detailed discussion of the risks associated
with investing in New York municipal securities is contained in the Statement
of Additional Information.
NON-MUNICIPAL SECURITIES. The Portfolio may invest in non-municipal securities
including obligations of the U.S. government and its agencies and instrumental-
ities, bank obligations, debt securities of corporate issuers, asset backed and
mortgage related securities and repurchase agreements. The Portfolio will in-
vest in non-municipal securities when, in the opinion of the Advisor, these se-
curities will enhance the after tax total return to an individual subject to
federal and New York State income taxes in the highest tax bracket. Under nor-
mal circumstances, the Portfolio's holdings of non-municipal securities and mu-
nicipal securities of tax exempt issuers outside New York State will not exceed
35% of its total assets.
QUALITY INFORMATION. The Portfolio will not purchase a security unless it is
rated at least Baa or better by Moody's Investors Service, Inc. ("Moody's") or
BBB or better by Standard & Poor's Ratings Group ("Standard & Poor's") or it is
unrated and in the Advisor's opinion it is of comparable quality. Securities
rated Baa by Moody's or BBB by Standard & Poor's are considered investment
grade, but have some speculative characteristics. These standards must be sat-
isfied at the time an investment is made. If the quality of the investment
later declines, the Portfolio may continue to hold the investment. See Appendix
A in the Statement of Additional Information for more detailed information on
these ratings.
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
6
<PAGE>
invested in the obligations of a single issuer. Thus, the Portfolio may invest
a greater proportion of its assets in the securities of a smaller number of
issuers and, as a result, will be subject to greater risk with respect to its
portfolio securities. The Portfolio, however, will comply with the diversifi-
cation requirements imposed by the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company. See Invest-
ment Restrictions below and Taxes in the Statement of Additional Information.
The Portfolio may also purchase municipal securities together with puts, pur-
chase securities on a when-issued or delayed delivery basis, enter into repur-
chase and reverse repurchase agreements, purchase synthetic variable rate in-
struments, loan its securities, purchase certain privately placed securities
and enter into certain futures and options transactions. For a discussion of
these transactions, see Additional Investment Information and Risk Factors.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
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 no interest or income accrues to the Portfolio
until settlement. At the time of settlement, a when-issued security may be
valued at less than its purchase price. The Portfolio maintains with the Cus-
todian 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 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 obliga-
tions 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.
7
<PAGE>
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, is 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.
PUTS. The Portfolio may purchase without limit municipal bonds or notes to-
gether with the right to resell them at an agreed price or yield within a
specified period prior to maturity. This right to resell is known as a put.
The aggregate price paid for securities with puts may be higher than the price
which otherwise would be paid. The principal risk of puts is that the put
writer may default on its obligation to repurchase. The Advisor will monitor
each writer's ability to meet its obligations under puts. The amortized cost
method is used by the Portfolio to value all municipal securities with maturi-
ties of less than 60 days; when these securities are subject to puts separate
from the underlying securities, no value is assigned to the puts. The cost of
any such put is carried as an unrealized loss from the time of purchase until
it is exercised or expires. See the Statement of Additional Information for
the valuation procedure if the Portfolio were to invest in municipal securi-
ties with maturities of 60 days or more that are subject to separate puts.
SYNTHETIC VARIABLE RATE INSTRUMENTS. The Portfolio may invest in certain syn-
thetic variable rate instruments. Such instruments generally involve the de-
posit of a long-term tax exempt bond in a custody or trust arrangement and the
creation of a mechanism to adjust the long-term interest rate on the bond to a
variable short-term rate and a right (subject to certain conditions) on the
part of the purchaser to tender it periodically to a third party at par. The
Advisor will review the structure of synthetic variable rate instruments to
identify credit and liquidity risks (including the conditions under which the
right to tender the instrument would no longer be available) and will monitor
those risks. In the event that the right to tender the instrument is no longer
available, the risk to the Portfolio will be that of holding the long-term
bond.
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, as amended (the "1933 Act") and cannot be offered for
public sale in the United States without first being registered under the 1933
Act. An illiquid investment is any investment that cannot be disposed of
within seven days in the normal course of business at approximately the amount
at which it is valued by the Portfolio. The price the Portfolio pays for il-
liquid 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 de-
termined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's imple-
mentation of these guidelines on a periodic basis.
FUTURES AND OPTIONS TRANSACTIONS. The Portfolio is permitted to enter into the
futures and options transactions described in the Appendix to this Prospectus
for both hedging and risk management purposes although not for speculation.
For more detailed information about these transactions, see the Appendix to
this Prospectus and Risk Management in the Statement of Additional Informa-
tion.
INVESTMENT RESTRICTIONS
For the Fund to qualify as a regulated investment company under Subchapter M
of the Code, 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 in-
vested in the securities of any one issuer, except government securities, and
(b) with regard to 50% of its total assets, no more than 5% of its total as-
sets are invested in the securities of a single issuer, except government se-
curities.
8
<PAGE>
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 (i) borrow money, except that the Portfolio may (a) bor-
row 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 33 1/3% of the value of the
Portfolio's total assets (including the amount borrowed) less liabilities
(other than borrowings) (if at any time borrowings come to exceed 33 1/3% of
the value of the Portfolio's total assets, the Portfolio will reduce its
borrowings within three business days to the extent necessary to comply with
the 33 1/3% limitation); or (ii) 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 Securities and Re-
verse Repurchase Agreements.
For a more detailed discussion of the above investment restrictions, as well as
a description of certain other investment restrictions, see Investment Restric-
tions 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 Port-
folio, the Trustees decide upon matters of general policy and review the ac-
tions of the Advisor and other service providers. The Trustees of the Trust and
of the Portfolio are identified below.
<TABLE>
<CAPTION>
Frederick S. Addy...................................... Former Executive Vice President and Chief
Financial Officer, Amoco Corporation
<S> <C>
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;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi.................................... Former Senior Vice President, Capital
Cities/ABC, Inc. and 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 and of the Portfo-
lio, 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 Portfolio.
The Trust and the Portfolio 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
9
<PAGE>
paid under the agreements approximate the reasonable cost of Pierpont Group,
Inc. in providing these services. Pierpont Group, Inc. was organized 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 Trustees and Officers
in the Statement of Additional Information. The principal offices 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 $179 billion (of which the
Advisor advises over $28 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 fixed income portfolios, this process focuses on the
systematic analysis of real interest rates, sector diversification and quanti-
tative and credit analysis. Morgan has managed portfolios of domestic fixed
income securities on behalf of its clients for over 50 years. The Portfolio
managers making investments in domestic fixed income securities work in con-
junction with fixed income, credit, capital market and economic research ana-
lysts, as well as traders and administrative officers.
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 or her business ex-
perience for the past five years is indicated parenthetically): Elizabeth A.
Augustin, Vice President (since April, 1994, employed by Morgan since prior to
1991) and Gregory J. Harris, Vice President (since January, 1996, employed by
Morgan since 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 0.30% of the Portfolio's average daily net assets.
Under separate agreements, Morgan also provides administrative and related
services to the Fund and the Portfolio and shareholder services to sharehold-
ers of the Fund. See Administrative Services Agent and Shareholder Servicing
below. INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER
BANK.
CO-ADMINISTRATOR AND DISTRIBUTOR. Under Co-Administration Agreements with the
Trust and the Portfolio, FDI serves as the Co-Administrator for the Trust and
the Portfolio, and in that capacity. FDI (i) provides office space, equipment
and clerical personnel for maintaining the organization and books and records
of the Trust and the Portfolio; (ii) provides officers for the Trust and the
Portfolio; (iii) prepares and files documents required in connection with the
Trust's state securities law registrations; (iv) reviews and files Trust mar-
keting and sales literature; (v) files Portfolio regulatory documents and
mails Portfolio communications to Trustees and investors; and (vi) maintains
related books and records. See Administrative Services Agent below.
10
<PAGE>
FDI, a registered broker-dealer, also serves as the Distributor of shares of
the Fund and exclusive placement agent for the Portfolio. FDI is a wholly owned
indirect subsidiary of Boston Institutional Group, Inc. FDI currently provides
administration and distribution services for a number of other registered in-
vestment companies.
ADMINISTRATIVE SERVICES AGENT. Under Administrative Services Agreements with
the Trust and the Portfolio, Morgan is responsible for certain administrative
and related services provided to the Fund and the Portfolio, including services
related to taxes, financial statements, calculation of performance data, over-
sight of service providers and certain regulatory and Board of Trustees mat-
ters. Under the Administrative Services Agreements and the Co-Administration
Agreements, each of the Fund and the Portfolio has agreed to pay Morgan and FDI
fees equal to its allocable share of an annual complex-wide charge. This charge
is calculated daily based on the aggregate net assets of the Portfolio and the
other portfolios (collectively the "Master Portfolios") in which series of the
Trust, The Pierpont Funds or The JPM Advisor Funds invest in accordance with
the following annual schedule: 0.09% on the first $7 billion of the Master
Portfolios' aggregate average daily net assets and 0.04% of the Master Portfo-
lios' average daily net assets in excess of $7 billion.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02101, serves as the Fund's and the Portfolio's
Custodian and the Fund's Transfer and Dividend Disbursing Agent. State Street
also keeps the books of account for the Fund and the Portfolio.
EXPENSES. In addition to the fees payable to Morgan, FDI and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor, Co-Admin-
istrator and Distributor, and Administrative Services Agent above and Share-
holder Servicing below, the Fund and the Portfolio are responsible for usual
and customary expenses associated with their respective operations. Such ex-
penses include organization expenses, legal fees, accounting expenses, insur-
ance 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, reg-
istrar and dividend disbursement 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
custodian fees and brokerage expenses.
Morgan has agreed that it will reimburse the Fund through at least July 31,
1997 to the extent necessary to maintain the Fund's total operating expenses
(which includes expenses of the Fund and the Portfolio) at the annual rate of
0.50% of the Fund's average daily net assets. This limit does not cover ex-
traordinary expenses during the period. There is no assurance that Morgan will
continue this waiver beyond the specified period, except as required by 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
Pursuant to a Shareholder Servicing Agreement with the Trust, 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 "Eligi-
ble Institution"). The Fund pays Morgan for these services at an annual rate
(expressed as a percentage of the average daily net asset value of Fund shares
owned by or for shareholders for whom Morgan is acting as shareholder servicing
agent) of 0.075% of the Fund's average daily net assets. Under the terms of the
Shareholder Servicing Agreement 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.
11
<PAGE>
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 shareholder servicing
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 employer-sponsored retirement plans that have designated
the Fund as an investment 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 de-
termine 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 $5 million and a minimum
subsequent investment of $25,000. These minimum investment requirements may be
waived for investors for whom the Advisor is a fiduciary or who maintain re-
lated accounts with The JPM Institutional Funds or the Advisor, when such ac-
counts, together with investments in the Funds, total $5 million or more.
For investors such as investment advisors, trust companies and financial advi-
sors who make investments for a group of clients, the minimum investment in
the Fund is (i) $5 million if the account is opened for one client or (ii) $10
million for an aggregated purchase order for more than one client. The Fund
may permit an investor who is investing for a group of clients to attain the
$10 million minimum investment within a reasonable period of time that will be
no longer than thirteen months after opening its account. An employer-spon-
sored retirement plan opening an account in the Fund will be required to at-
tain the $10 million minimum balance within thirteen months of opening the ac-
count.
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 an Eligible Institution that may establish its own terms, condi-
tions 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. Any shareholder may
also call J.P. Morgan Funds Services at (800) 766-7722 for assistance in plac-
ing an order for Fund shares. If the Fund or its agent receives a purchase or-
der 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. If
the Fund receives a purchase order after 4:00 P.M. New York time, the purchase
is effective and is made at net asset value determined on the next business
day. All purchase orders for Fund shares must be accompanied by instructions
to Morgan (or an Eligible Institution) to transfer immediately available funds
to the Fund's Distributor on settlement date. The settlement date is generally
the business day after the purchase is effective. The purchaser will begin to
receive the daily dividends on the settlement date. See Dividends and Distri-
butions.
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.
12
<PAGE>
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
Morgan or his or her Eligible Institution, as appropriate, to submit a redemp-
tion request to the Fund or may telephone J.P. Morgan Funds Services directly
at (800) 766-7722 and give the Shareholder Service Representative a preas-
signed shareholder Personal Identification Num- ber and the amount of the re-
demption. The Fund executes effective redemption requests at the next deter-
mined net asset value per share. See Net Asset Value. See Additional Informa-
tion below for an explanation of the telephone redemption policy of The JPM
Institutional Funds.
A redemption request received by the Fund or its agent 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 re-
demption are deposited on settlement date 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 transferred by wire
in accordance with the customer's instructions. The redeemer will continue to
receive dividends on these shares through the day before the settlement date.
Settlement date is generally the next business day after a redemption is ef-
fective and, subject to Further Redemption Information below, in any event is
within seven days. See Dividends and Distributions.
MANDATORY REDEMPTION BY THE FUND. If the value of a shareholder's holdings in
the Fund falls below the applicable minimum investment amount for more than 30
days because of a redemption of shares, or a shareholder's account balance
does not achieve the required minimum investment within the prescribed time
period, the Fund may redeem the remaining shares in the account 60 days after
written notice to the shareholder unless the account is increased to the mini-
mum 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 funds' 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.
13
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute substantially all of its net investment income.
The net investment income of each Fund is declared as a dividend daily immedi-
ately prior to the determination of the net asset value of the Fund on that
day and paid monthly. If an investor's shares are redeemed during a month, ac-
crued but unpaid dividends are paid with the redemption proceeds. The net in-
vestment income of the Fund for dividend purposes consists of its pro rata
share of the net income of the Portfolio less the Fund's expenses. Expenses of
the Fund and the Portfolio, including the fees payable to Morgan, are accrued
daily. Shares will accrue dividends as long as they are issued and outstand-
ing. Shares are issued and outstanding as of the settlement date of a purchase
order to the settlement date of a redemption order.
Substantially all the realized net capital gains, if any, of the Fund are 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.
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 that the net asset value is not computed for the
Fund on the holidays listed under Net Asset Value in the Statement of Addi-
tional 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.
14
<PAGE>
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 information,
including certain shareholder rights, see Description of Shares in the State-
ment of Additional Information.
The Portfolio is organized as a trust under the laws of the State of New York.
The Portfolio's Declaration of Trust provides that the Fund and other entities
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled 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 liability 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 nei-
ther the Fund nor its shareholders will be adversely affected by reason of the
Fund's investing in the Portfolio.
FEDERAL 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 feder-
al, state or local taxes. See Taxes in the Statement of Additional Information.
Annual statements as to the current federal tax status of distributions, if ap-
plicable, 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 in-
vestment company, the Portfolio, in addition to other requirements, 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 is-
suer, except U.S. Government securities, and (b) with regard to 50% of its to-
tal 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 invest-
ment company, the Fund should not be subject to federal income taxes or federal
excise taxes if substantially all of its net investment income and capital
gains less any available capital loss carryforwards are distributed to share-
holders 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 contin-
ued 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.
The Fund intends to qualify to pay exempt-interest dividends to its sharehold-
ers by having, at the close of each quarter of its taxable year, at least 50%
of the value of its total assets consist of tax exempt securities. An exempt-
interest dividend is that part of dividend distributions made by the Fund which
consists of interest received by the Fund on tax exempt securities. Exempt-in-
terest dividends received from the Fund will be treated for federal income tax
purposes as tax exempt interest income. Since, under normal circumstances, at
least 65% of the Portfolio's total assets will be invested in New York tax ex-
empt obligations, it is expected that a substantial portion of the Fund's divi-
dends will be exempt-interest dividends. However, in pursuit of its investment
objective of a high after tax total return, the Portfolio is permitted to in-
vest in securities whose income is subject to federal income tax (including,
for example, securities that are preference items for purposes of the alterna-
tive minimum tax) and to seek to realize capital gains. Therefore it is ex-
pected that a portion of the Fund's dividends will be taxable and that the Fund
may distribute net long and short term capital gains. See Investment Objective
and Policies.
Interest on certain tax exempt municipal obligations issued after August 7,
1986 is a preference item for purposes of the alternative minimum tax applica-
ble to individuals and corporations. Under tax regulations to be issued, the
portion of an
15
<PAGE>
exempt-interest dividend of a regulated investment company that is allocable to
these obligations will be treated as a preference item for purposes of the al-
ternative minimum tax.
Corporations should, however, be aware that interest on all municipal securi-
ties will be included in calculating (i) adjusted current earnings for purposes
of the alternative minimum tax applicable to them, (ii) the additional tax im-
posed on certain corporations by the Superfund Revenue Act of 1986, and (iii)
the foreign branch profits tax imposed on effectively connected earnings and
profits of United States branches of foreign corporations. Furthermore, special
tax provisions may apply to certain financial institutions and property and ca-
sualty insurance companies, and they should consult their tax advisors before
purchasing shares of the Fund.
Interest on indebtedness incurred or continued by a shareholder (whether a cor-
poration or an individual) to purchase or carry shares of the Fund is generally
not deductible. The Treasury has been given authority to issue regulations
which would disallow the interest deduction if incurred to purchase or carry
shares of the Fund owned by the taxpayer's spouse, minor child or entity con-
trolled by the taxpayer. Entities or persons who are "substantial users" (or
related persons) of facilities financed by tax exempt bonds should consult
their tax advisors before purchasing shares of the Fund.
Distributions of taxable net investment income and realized net short-term cap-
ital 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 are not eligible for the dividends-received deduction.
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 capital gains will have the effect of reducing the net as-
set value of Fund shares held by a shareholder by the same amount as the dis-
tribution. If the net asset value of the shares is reduced below a sharehold-
er's cost as a result of such a distribution, the distribution, although con-
stituting 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. In addition, any loss realized by a shareholder upon the re-
demption or exchange of shares in the Fund held six months or less will be dis-
allowed to the extent of any exempt-interest dividends received by the share-
holder with respect to these shares.
NEW YORK STATE AND NEW YORK CITY TAXES
Shareholders are not subject to New York State or New York City personal income
taxes on Fund dividends to the extent that such dividends qualify as "exempt
interest dividends" and represent interest income attributable to New York tax
exempt obligations (as well as certain other obligations the interest on which
is exempt from New York State and New York City personal income taxes, such as,
for example, certain obligations of the Commonwealth of Puerto Rico). Dividends
and distributions derived from taxable income and capital gains are not exempt
from New York State and New York City taxes.
Corporations should note that the Fund's income dividends and other distribu-
tions are not exempt from the New York State Franchise Tax on Business Corpora-
tions or the New York City General Corporation Tax.
16
<PAGE>
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of the Fund is generally not deductible for New York State or New
York City personal income tax purposes.
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, the Fund, the Share-
holder 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 500 Composite Stock Price Index, the Dow Jones
Industrial Average, the Frank Russell Indexes, the Lehman Brothers Bond In-
dexes and other industry publications. The Fund may advertise "yield" and "tax
equivalent yield". Yield refers to the net income generated by an investment
in the Fund over a stated 30-day period. This income is then annualized--i.e.,
the amount of income generated by the investment during the 30-day period is
assumed to be generated each 30-day period for twelve periods and is shown as
a percentage of the investment. The income earned on the investment is also
assumed to be reinvested at the end of the sixth 30-day period. The tax equiv-
alent yield is calculated similarly to the yield for the Fund, except that the
yield is increased using a stated income tax rate to demonstrate the taxable
yield necessary to produce an after-tax equivalent to the Fund.
The Fund may also 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 operations, 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. These methods of calculating yield and total return are re-
quired by regulations of the Securities and Exchange Commission. Yield and to-
tal return data similarly calculated, unless otherwise indicated, over other
specified periods of time may also be used. See Performance Data in the State-
ment of Additional Information. All performance figures are based on histori-
cal earnings and are not intended to indicate future performance. Shareholders
may obtain performance information by calling Morgan at (800) 766-7722.
17
<PAGE>
APPENDIX
The Portfolio may (a) purchase and sell exchange traded and over-the-counter
(OTC) put and call options on fixed income securities and indexes of fixed in-
come securities, (b) purchase and sell futures contracts on fixed income secu-
rities and indexes of fixed income securities and (c) purchase and sell put and
call options on futures contracts on fixed income securities and indexes of
fixed income securities.
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.
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, in-
cluding 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 re-
turn characteristics of the Portfolio's overall strategy in a manner deemed ap-
propriate to the Advisor and consistent with the Portfolio's objective and pol-
icies. 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
because 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.
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
A-1
<PAGE>
the option is allowed to expire, the Portfolio will lose the entire premium it
paid. If the Portfolio exercises a put option on a security, it will sell the
instrument underlying the option at the strike price. If the Portfolio exer-
cises an option on an index, settlement is in cash and does not involve the ac-
tual 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, 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 ability 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 put and call options
and sell (write) covered 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, except 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 securities or segment of the securities market
rather than price fluctuations in a single security. The Portfolio, in purchas-
ing or selling index options, is subject 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.
A-2
<PAGE>
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
payments 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 assets in connection with its use of op-
tions and futures contracts to the extent required by the staff of the Securi-
ties and Exchange Commission. Securities held in a segregated account cannot be
sold while the futures contract or option is outstanding, unless they are re-
placed with other suitable assets. As a result, there is a possibility that
segregation of a large percentage of the Portfolio's assets could impede port-
folio 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>
=============================
THE
JPM
INSTITUTIONAL
NEW YORK
TOTAL RETURN
BOND FUND
No dealer, salesman or any other person has
been authorized to give any information or
to make any representations, other than those
contained in this Prospectus, in connection
with the offer contained in this Prospectus
and, if given or made, such other information
or representations must not be relied upon as
having been authorized by the Trust or the
Distributor. This Prospectus does not
constitute an offer by the Trust or by
the Distributor to sell or a solicitation of
any offer to buy any of the securities offered
hereby in any jurisdiction to any person to
whom it is unlawful for the Trust or the
Distributor to make such offer in such
jurisdiction.
PROS392-968
PROSPECTUS
August 1, 1996
<PAGE>
JPM600
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
^ AUGUST 1, 1996
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
FOR THE FUND OR FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO TIME, WHICH MAY
BE OBTAINED UPON REQUEST FROM ^ FUNDS DISTRIBUTOR, INC., ATTENTION: THE JPM
INSTITUTIONAL FUNDS; (800) ^ 221-7930.
<PAGE>
Table of Contents
PAGE
General . . . . . . . . . . . . . . . . . . . 1
Investment Objectives and Policies . . . . . . 1
Investment Restrictions . . . . . . . . . . . ^ 28
Trustees and Officers . . . . . . . . . . . . ^ 46
Investment Advisor . . . . . . . . . . . . . . ^ 50
Co-Administrator and Distributor . . . . . . . ^ 54
Services Agent . . . . . . . . . . . . . . . . ^ 57
Custodian . . . . . . . . . . . . . . . . . . ^ 59
Shareholder Servicing . . . . . . . . . . . . ^ 60
Independent Accountants . . . . . . . . . . . ^ 61
Expenses . . . . . . . . . . . . . . . . . . . ^ 62
Purchase of Shares . . . . . . . . . . . . . . ^ 62
Redemption of Shares . . . . . . . . . . . . . ^ 63
Exchange of Shares . . . . . . . . . . . . . . ^ 63
Dividends and Distributions . . . . . . . . . ^ 63
Net Asset Value . . . . . . . . . . . . . . . ^ 64
Performance Data . . . . . . . . . . . . . . . ^ 66
Portfolio Transactions . . . . . . . . . . . . ^ 69
Massachusetts Trust . . . . . . . . . . . . . ^ 72
Description of Shares . . . . . . . . . . . . ^ 73
Taxes . . . . . . . . . . . . . . . . . . . . ^ 76
Additional Information . . . . . . . . . . . ^ 80
Financial Statements . . . . . . . . . . . . . ^ 80
Appendix A - Description of Securities
Ratings . . . . . . . . . . . . . . . . . . . A-1
Appendix B - Additional Information
Concerning New York Municipal Obligations. . . B-1
Appendix C - Investing in Japan
and Asian Growth Markets. . . . . . . . . . . C-1
<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 is a series of
shares of beneficial interest of The JPM Institutional Funds, an open-end
management investment company formed as a Massachusetts business trust (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 ^ a two-tier master-feeder investment fund structure.
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 herein have the meanings
accorded to them in the Funds' Prospectus. The Funds' executive offices are
located at ^ 60 State Street, Suite 1300, Boston, Massachusetts ^ 02109.
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.
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,
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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 primarily in short term direct obligations of the U.S.
Government. 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 primarily in U.S. Treasury securities and by investing in
certain 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.
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.
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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.
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.
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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 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 Salomon
Brothers World Government Bond Index.
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 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
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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.
INVESTMENT PROCESS
The mix of equities and fixed income is based on the risk premium model
and the anticipation of changing economic trends. The risk premium is the
difference between Morgan's forecast of the long-term return on stocks
(determined using Morgan's proprietary dividend discount model) and the current
nominal yield on 30-year U.S. Treasury bonds. When the risk premium is high,
more assets are allocated to stocks. When the risk premium is low, more assets
are allocated to bonds. Within U.S. equities, the allocation between large cap
and small cap stocks is based on the relative dividend discount rate spread
between large and small cap. Within fixed income, the allocation among sectors
is based on Morgan's analysis of their relative valuation. Morgan's asset
allocation decisions for the Portfolio are implemented using the investment
processes described herein for the Bond, Selected U.S. Equity, U.S. Small
Company and International Equity Funds.
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.
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
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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. A 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
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.
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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 ^ investment strategy.
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 Capital
International ("MSCI") 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 ranks 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 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,
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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 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 MSCI Emerging Markets Free
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 INSTITUTIONAL 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
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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.
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 European 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 INSTITUTIONAL 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 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
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(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
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 JPM INSTITUTIONAL ASIA GROWTH FUND (the "Asia Growth Fund") is
designed for long-term investors who want access to the rapidly growing Asian
markets. 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. 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 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.
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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 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 may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities, except that the Treasury Money Market Fund may only invest in
certain of these obligations as noted below. 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
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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. Securities in which each Fund, including the Treasury Money
Market Fund, may invest that are not backed by the full faith and credit of the
United States include, and only for the Treasury Money Market Fund are limited
to, 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 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 International Bond, Selected U.S. Equity, U.S. Small
Company, International Equity, Emerging Markets Equity, Diversified, European
Equity, Japan Equity or Asia Growth 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, Japan Equity or 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. 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
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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 or permitted agency 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 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
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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.
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.
s
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
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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.
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."
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
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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 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.
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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, Emerging Markets Equity,
European Equity, Japan Equity and Asia Growth Funds and the equity portion of
the Diversified Fund (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.
COMMON STOCK WARRANTS
The Portfolios for The JPM Institutional Selected U.S. Equity, U.S.
Small Company, International Equity, Emerging Markets Equity, Diversified,
European Equity, Japan Equity ^ and Asia Growth Funds may invest in common stock
warrants that entitle the holder to buy common stock from the issuer of the
warrant at a specific price (the strike price) for a specific period of time.
The market price of warrants may be substantially lower than the current market
price of the underlying common stock, yet warrants are subject to similar price
fluctuations. As a result, warrants may be more volatile investments than the
underlying common stock.
Warrants generally do not entitle the holder to dividends or voting
rights with respect to the underlying common stock and do not represent any
rights in the assets of the issuer company. A warrant will expire worthless if
it is not exercised on or prior to the expiration date.
FOREIGN INVESTMENTS
The International Bond, International Equity, Emerging Markets Equity,
European Equity, Japan Equity and Asia Growth Funds make substantial investments
in foreign countries. The Money Market, Bond, Short Term Bond, Selected U.S.
Equity, U.S. Small Company and Diversified Funds may invest in certain foreign
securities. The Short Term Bond Fund and the Bond Fund may invest in
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dollar-denominated fixed income securities of foreign issuers. The Selected U.S.
Equity Fund may invest in equity securities of foreign corporations included in
the S&P 500 Index or listed on a national securities exchange. The U.S. Small
Company Fund may invest in equity securities of foreign issuers that are listed
on a national securities exchange or denominated or principally traded in the
U.S. dollar. 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%, 5%, 5% 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. 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, Selected U.S.
Equity, U.S. Small Company, International Equity, Emerging Markets Equity,
Diversified, European Equity, Japan Equity and Asia Growth 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 as described in the relevant
Prospectus. 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 the Japan Equity Portfolio and the International Equity Portfolio invest
in Japan, they will be subject to the general economic and political conditions
in Japan. It is not expected that the Asia Growth Portfolio will invest in Japan
(see "Investment Objective and Policies" in the Prospectus).
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 high trading volumes in 1989 and 1990.
Since then, stock prices in both markets decreased significantly. 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 Japan Equity and the International 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 their respective assets. Although
the Japanese economy has grown substantially over the past four decades,
recently the rate of growth had slowed substantially. See Foreign Currency
Exchange Transactions.
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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 the Japan Equity and
International Equity Portfolios.
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
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 these
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.
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
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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 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
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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 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
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assets in the securities of any one issuer (except this limitation does not
apply to U.S. Government Securities).
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 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
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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.
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, and certain U.S. Government securities 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. 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
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(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 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 Selected U.S. Equity, U.S. Small Company, International Equity,
Emerging Markets Equity, Diversified, European Equity, Japan Equity and Asia
Growth Funds may invest in convertible debt securities, for which there are no
specific quality requirements. In addition, at the time a Fund 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 a
Fund 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.
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
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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.
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.
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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
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 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
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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 ^
the past, 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 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. ^ Moody's
currently rates New York City general obligation bonds Baa-1. Factors
contributing to ^ these ratings 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.
27
<PAGE>
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%. For the fiscal year ended October 31, 1995: 177%.
THE TAX EXEMPT BOND PORTFOLIO (Tax Exempt Bond Fund) -- For the fiscal year
ended August 31, 1994: 33%. For the fiscal year ended August 31, 1995: 47%.
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%. For the fiscal year ended March 31, 1996: 41%.
THE NON-U.S. FIXED INCOME PORTFOLIO (International Bond Fund) -- For the period
October 11, 1994 (commencement of operations) through September 30, 1995: 288%.
THE U.S. FIXED INCOME PORTFOLIO (Bond Fund) -- For the fiscal year ended October
31, 1994: 234%. For the fiscal year ended October 31, 1995: 293%.
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%.
THE NON-U.S. EQUITY PORTFOLIO (International Equity Fund) -- For the fiscal year
ended October 31, 1994: 56%. For the fiscal year ended October 31, 1995: 59%.
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: 136%
THE EMERGING MARKETS EQUITY PORTFOLIO (Emerging Markets Equity Fund) -- For the
fiscal year ended October 31, 1994: 27.48%. For the fiscal year ended October
31, 1995: 41.31%.
THE EUROPEAN EQUITY PORTFOLIO (European Equity Fund) -- For the period March 28,
1995 (commencement of operations) through December 31, 1995: 36%.
THE JAPAN EQUITY PORTFOLIO (Japan Equity Fund) -- For the period March 28, 1995
(commencement of operations) through December 31, 1995: 60%.
THE ASIA GROWTH PORTFOLIO (Asia Growth Fund) -- For the period April 5, 1995
(commencement of operations) through December 31, 1995: 70%.
The estimated annual 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.
28
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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;
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");
29
<PAGE>
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 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
- --------
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.
30
<PAGE>
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 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
- --------
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.
31
<PAGE>
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;
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;
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;
32
<PAGE>
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 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
33
<PAGE>
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 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 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,
34
<PAGE>
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 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
- -------------------
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.
35
<PAGE>
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 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 futures
36
<PAGE>
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;
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
37
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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;
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 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
their 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
38
<PAGE>
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 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;
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;
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
39
<PAGE>
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 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
40
<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 their corresponding
PORTFOLIOS 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 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 their corresponding PORTFOLIOS may not:
41
<PAGE>
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. In addition, and while 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;
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 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 - MONEY MARKET FUND. The
investment restriction described below is not a fundamental policy of the Money
Market Fund or its corresponding Portfolio and may be changed by their
respective Trustees. This non-fundamental investment policy requires that the
Money Market Fund and its corresponding Portfolio may not:
(i) enter into reverse repurchase agreements or borrow money, except from banks
for extraordinary or emergency purposes, if such obligations exceed 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 and
borrowings.
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:
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<PAGE>
(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, SELECTED U.S. EQUITY FUND, U.S. SMALL COMPANY FUND,
INTERNATIONAL EQUITY FUND, DIVERSIFIED 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 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 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;
43
<PAGE>
(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
(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) 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 value of the
Fund's total assets would be in investments that are illiquid;
(iii) 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;
44
<PAGE>
(iv) 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;
(v) 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;
(vi) Purchase securities on margin, but the Fund may obtain such short term
credits as may be necessary for the clearance of transactions;
(vii) 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 than 5% of such securities, all taken
at market; or
(viii) 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 AND JAPAN
EQUITY FUNDS. 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) Acquire any illiquid securities 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) 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;
(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
Securities and Exchange Commission or its staff. Transactions in futures
contracts and options shall not constitute selling securities short;
(v) 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 than 5% of such securities, all taken
at market;
(vi) Purchase securities on margin, but the Fund may obtain such short term
credits as may be necessary for the clearance of transactions; or
45
<PAGE>
(vii) 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. His
address is 5300 Arbutus Cove, Austin, TX 78746.
WILLIAM G. BURNS--Trustee; Retired, Former Vice Chairman, Nynex. His address is
2200 Alaqua Drive, Longwood, FL 32779.
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; Chairman,
Pierpont Group, Inc., since 1989. His address is Pine Tree Club Estates, 10286
Saint Andrews Road, Boynton Beach, FL 33436.
MICHAEL P. MALLARDI--Trustee; Retired; Senior Vice President, Capital
Cities/ABC, Inc., and President, Broadcast Group ^ prior to April 1996. His
address is ^ 10 Charnwood Drive, Suffern, NY 10910.
- ------------------------
(*) 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 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 1995 is set forth below. The Trustees may hold
various other directorships unrelated to these funds.
46
<PAGE>
<TABLE>
<S>
<C> <C> <C> <C>
PENSION OR TOTAL COMPENSATION FROM THE
AGGREGATE RETIREMENT BENEFITS TRUST, THE PIERPONT FUNDS AND
COMPENSATION ACCRUED AS PART OF ESTIMATED ANNUAL CORRESPONDING PORTFOLIOS PAID
FROM THE TRUST FUND EXPENSES BENEFITS UPON TO TRUSTEES DURING 1995
DURING 1995 RETIREMENT
Frederick S. Addy, Trustee $8,727 None None $62,500
William G. Burns, Trustee $8,727 None None $62,500
Arthur C. Eschenlauer, Trustee $8,727 None None $62,500
Matthew Healey, Trustee(*), $8,727 None None $62,500
Chairman and Chief Executive
Officer
Michael P. Mallardi, Trustee $8,727 None None $62,500
</TABLE>
(*) During 1995, Pierpont Group, Inc. paid Mr. Healey, in his role as Chairman
of Pierpont Group, Inc., compensation in the amount of $140,000, contributed
$21,000 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.
Each of the Portfolios and the Trust has 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 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 the indicated fiscal years are set forth below:
MONEY MARKET FUND -- For the fiscal year ended November 30, 1994: $16,147. For
the fiscal year ended November 30, 1995: $54,502.
THE MONEY MARKET PORTFOLIO -- For the fiscal year ended November 30, 1994:
$246,089. For the fiscal year ended November 30, 1995: $261,045.
TAX EXEMPT MONEY MARKET FUND -- For the fiscal year ended August 31, 1994:
$1,745. For the fiscal year ended August 31, 1995: $8,400. THE TAX EXEMPT MONEY
MARKET PORTFOLIO -- For the fiscal year ended August 31, 1994: $79,046. For the
fiscal year ended August 31, 1995: $110,325.
TREASURY MONEY MARKET FUND -- For the fiscal year ended October 31, 1994:
$6,211. For the fiscal year ended October 31, 1995: $8,445. THE TREASURY MONEY
MARKET PORTFOLIO -- For the fiscal year ended October 31, 1994: $17,104. For the
fiscal year ended October 31, 1995: $22,791.
SHORT TERM BOND -- For the fiscal year ended October 31, 1994: $3,935. For the
fiscal year ended October 31, 1995: $4,748. THE SHORT TERM BOND PORTFOLIO -- For
the fiscal year ended October 31, 1994: $4,545. For the fiscal year ended
October 31, 1995: $5,573.
TAX EXEMPT BOND FUND -- For the fiscal year ended August 31, 1994: $686. For the
fiscal year ended August 31, 1995: $3,602.
47
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO -- For the ^ period January 15, 1994 to August 31,
1994: $35,243. For the fiscal year ended August 31, 1995: $38,804.
NEW YORK TOTAL RETURN BOND FUND -- For the period April 11, 1994 (commencement
of operations) through March 31, 1995: $1,297. For the fiscal year ended March
31, 1996: $2,409.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO -- For the period April 11, 1994
(commencement of operations) through March 31, 1995: $4,140. For the fiscal year
ended March 31, 1996: $5,530.
INTERNATIONAL BOND FUND -- For the period December 1, 1994 (commencement of
operations) through September 30, 1995: $232.
THE NON-U.S. FIXED INCOME PORTFOLIO -- For the period October 11, 1994
(commencement of operations) through September 30, 1995: $20,446.
BOND FUND -- For the fiscal year ended October 31, 1994: $12,989. For the fiscal
year ended October 31, 1995: $29,276.
THE U.S. FIXED INCOME PORTFOLIO -- For the fiscal year ended October 31, 1994:
$23,028. For the fiscal year ended October 31, 1995: $40,729.
SELECTED U.S. EQUITY FUND -- For the period July 19, 1993 (commencement of
operations) 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 (commencement
of operations) 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 (commencement of
operations) 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 (commencement
of operations) through May 31, 1994: $33,435. For the fiscal year ended May 31,
1995: $66,256.
INTERNATIONAL EQUITY FUND -- For the fiscal year ended October 31, 1994:
$13,902. For the fiscal year ended October 31, 1995: $30,279.
THE NON-U.S. EQUITY PORTFOLIO -- For the fiscal year ended October 31, 1994:
$32,512. For the fiscal year ended October 31, 1995: $48,442.
DIVERSIFIED FUND -- For the period July 8, 1993 (commencement of operations)
through June 30, 1994: $2,959. For the fiscal year ended June 30, 1995: $10,267.
THE DIVERSIFIED PORTFOLIO -- For the period July 8, 1993 (commencement of
operations) through June 30, 1994: $3,434. For the fiscal year ended June 30,
1995: $11,702.
EMERGING MARKETS EQUITY FUND -- For the fiscal year ended October 31, 1994:
$8,326. For the fiscal year ended October 31, 1995: $14,527.
THE EMERGING MARKETS EQUITY PORTFOLIO -- For the fiscal year ended October 31,
1994: $42,764. For the fiscal year ended October 31, 1995: $53,162.
EUROPEAN EQUITY PORTFOLIO-- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $19,953.
JAPAN EQUITY PORTFOLIO -- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $21,727.
ASIA GROWTH PORTFOLIO -- For the period April 5, 1995 (commencement of
operations) through December 31, 1995: $4,788.
48
<PAGE>
OFFICERS
The Trust's and Portfolios' executive officers (listed below), other
than the Chief Executive Officer, are provided and compensated by ^ Funds
Distributor, Inc. (" ^ FDI"), a wholly owned indirect subsidiary of ^ Boston
Institutional Group, Inc. ^ The officers conduct and supervise the business
operations of the Trust and the Portfolios. The Trust and the Portfolios have no
employees.
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 ^ Funds Distributor, Inc., 60 State Street, Suite 1300, Boston, Massachusetts
^ 02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group, Inc., since
1989. His address is Pine Tree Club Estates, 10286 Saint Andrews Road, Boynton
Beach, FL 33436.
^ ELIZABETH A. BACHMAN; Vice President^ and Assistant Secretary^. Counsel, FDI
and Premier Mutual Fund Services, Inc. ("Premier Mutual") and an officer of RCM
Capital Funds, Inc., RCM Equity Funds, Inc., Waterhouse Investors Cash
Management Fund, Inc. and certain investment companies advised or administered
by the Dreyfus Corporation ("Dreyfus"). Prior to September 1995, Ms. Bachman was
enrolled at Fordham University School of Law ^ and received her JD in May 1995.
Prior to September 1992, Ms. Bachman was an assistant at the National
Association for Public Interest Law. Address: FDI, 200 Park Avenue, New York,
New York 10166.
^ MARIE E. ^ CONNOLLY; Vice President^ and Assistant Treasurer ^. President and
Chief Executive Officer and Director of FDI, Premier Mutual and an officer of
RCM Capital Funds, Inc., RCM Equity Funds, Inc. and certain investment companies
advised or administered by Dreyfus. From December 1991 to July 1994, she was
President and Chief Compliance ^ Officer of FDI. Prior to December 1991, she
served as Vice President and Controller, and later as Senior Vice President of
The Boston Company Advisors, Inc. ("TBCA").
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Supervisor of
Treasury Services and Administration of FDI and an officer of certain investment
companies advised or administered by Dreyfus. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. From
December 1993 to March 1993, Mr. Conroy was employed as a fund accountant at The
Boston Company.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of the
Portfolio. Managing Director, State Street Cayman Trust Company, Ltd. since
October 1994. Prior to October 1994, Mrs. Henning was head of mutual funds at
Morgan Grenfell in Cayman and for five years was Managing director of Bank of
Nova Scotia Trust Company (Cayman) Limited from September 1988 to September
1993. Address: P.O. Box 2508 GT, Elizabethan Square, 2nd Floor, Shedden Road,
George Town, Grand Cayman, Cayman Islands^.
^ RICHARD W. INGRAM; President and Treasurer. Senior Vice President and Director
of Client Services and Treasury Administration of FDI, Senior Vice President of
Premier Mutual and an officer of RCM Capital Funds, Inc., RCM Equity Funds,
Inc., Waterhouse Investors Cash Management Fund, Inc. and certain investment
companies ^ advised or administered by Dreyfus. From March 1994 to November
1995, Mr. Ingram was Vice President and Division Manager of First Data Investor
Services Group, Inc. From 1989 to 1994, Mr. Ingram was Vice President, Assistant
Treasurer and Tax Director - Mutual Funds of The Boston Company.
49
<PAGE>
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Assistant Vice
President of FDI and an officer of RCM Capital Funds, Inc. and RCM Equity Funds,
Inc. From June 1994 to January 1996, Ms. Jacoppo was a Manager, SEC
Registration, Scudder, Stevens & Clark, Inc. From 1988 to May 1994, Ms. Jacoppo
was a senior paralegal at TBCA.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice President
and Assistant General Counsel of FDI. From April 1994 to July 1996, Mr. Kelley
was Assistant Counsel at Forum Financial Group. From 1992 to 1994, Mr. Kelley
was employed by Putnam Investments in the Global Fixed Income Group of the Legal
Department. Prior to 1992, Mr. Kelley served as a law clerk for the firm of
Murphy, DeMarco & O'Neill.
LENORE J. MCCABE; Assistant Secretary and Assistant Treasurer of the Portfolio.
Assistant Vice President, State Street Bank and Trust Company since November
1994. Assigned as Operations Manager, State Street Cayman Trust Company, Ltd.
since February 1995. Prior to November, 1994, employed by Boston Financial Data
Services, Inc. as Control Group Manager. Address: P.O. Box 2508 GT, Elizabethan
Square, 2nd Floor, Shedden Road, George Town, Grand Cayman, Cayman Islands.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI, an officer of RCM
Capital Funds, Inc., RCM Equity Funds, Inc. and certain investment companies
advised or administered by Dreyfus. From 1989 to 1994, Ms. Nelson as an
Assistant Vice President and client manager for The Boston Company.
JOHN E. PELLETIER; Vice President and Secretary. Senior Vice President and
General Counsel of FDI and Premier Mutual and an officer of RCM Capital Funds,
Inc., RCM Equity Funds, Inc., Waterhouse Investors Cash Management Fund, Inc.
and certain investment companies advised or administered by Dreyfus. From
February 1992 to April 1994, Mr. Pelletier served as Counsel for TBCA. From
August 1990 to February 1992, Mr. Pelletier was employed as an Associate at
Ropes & Gray.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Senior Vice
President, Treasurer and Chief Financial Officer of FDI and Premier Mutual and
an officer of Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus. From July 1988 to
November 1993, Mr. Tower was Financial Manager of The Boston Company.
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 $179 billion (of which the Advisor advises over $28 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.
50
<PAGE>
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 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--IBC/Donoghue's Tier-One Money
Fund Average; The Treasury Money Market Portfolio--IBC/Donoghue's ^ U.S.
Government and ^ Agency 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 New York 1-15 Year
Municipal Bond Index; The Non-U.S. Fixed Income Portfolio--Salomon Brothers
Non-U.S. World Government Bond Index (currency hedged); 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- -MSCI Emerging Markets Free Index; The Diversified
Portfolio--diversified benchmark (52% S&P 500, 35% Salomon 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 of the assets
of employee
51
<PAGE>
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%
DIVERSIFIED: 0.55%
EMERGING MARKETS EQUITY: 1.00%
EUROPEAN EQUITY: 0.65%
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. For the fiscal year ended
November 30, 1995: $3,913,479.
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<PAGE>
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. For the fiscal
year ended August 31, 1995: $2,150,291.
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. For the fiscal
year ended October 31, 1995: $492,941.
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. For the fiscal year ended October
31, 1995: $146,335.
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. For the fiscal year ended October 31,
1995: $1,339,147.
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. For the fiscal year ended August
31, 1995: $1,178,720.
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. For the fiscal year ended March 31, 1996: $246,966.
THE NON-U.S. FIXED INCOME PORTFOLIO (International Bond Fund) -- For the period
April 11, 1994 (commencement of operations) through September 30, 1995:
$782,748.
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 October 31, 1993: $78,550.
For the fiscal year ended October 31, 1994: $1,911,202. For the fiscal year
ended October 31, 1995: $3,174,965.
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: $663,000.
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. For the fiscal year ended October 31, 1995: $5,713,506.
EUROPEAN EQUITY PORTFOLIO (European Equity Fund) -- For the period March 28,
1995 (commencement of operations) through December 31, 1995: $1,675,355.
JAPAN EQUITY PORTFOLIO (Japan Equity Fund) -- For the period March 28, 1995
(commencement of operations) through December 31, 1995: $1,777,126.
ASIA GROWTH PORTFOLIO (Asia Growth Fund) -- For the period April 5, 1995
(commencement of operations) through December 31, 1995: $528,956.
53
<PAGE>
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
"Co-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 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.
Under separate agreements, Morgan also provides certain financial, fund
accounting and administrative services to the Trust and the Portfolios and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.
CO-ADMINISTRATOR AND DISTRIBUTOR
^ FDI serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for each Fund's shares. In that capacity, ^
FDI has been granted the right, as agent of the Trust, to solicit and accept
orders for the purchase of each Fund's shares in accordance with the terms of
the Distribution Agreement between the Trust and ^ FDI. The Distribution
Agreement 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 ^ 60 ^ days' written notice to the other
party. The
54
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principal offices of ^ FDI are located at ^ 60 State Street, Suite 1300, Boston,
Massachusetts ^ 02109.
^ Under Co-Administration Agreements with the Trust and the Portfolios
dated August 1, 1996, FDI also serves as the Trust's and the Portfolios'
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-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 Co-Administrator may subcontract for the performance of its obligations,
provided, however, that unless the Trust or the Portfolios, as applicable,
expressly agrees in writing, the Co-Administrator ^ shall be fully responsible
for the acts and omissions of any subcontractor as it would for its own acts or
omissions. See "Services Agent" below ^.
Below are set forth for each Fund listed and its corresponding Portfolio
the administrative fees paid to ^ Signature Broker-Dealer Services, Inc. (which
provided distribution and administrative services to the Trust and placement
agent and administrative services to the Portfolios prior to August 1, 1996) 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. For the fiscal year ended November 30, 1995:
$176,717.
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. For the fiscal year ended November 30, 1995: $161,341.
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. For the fiscal year ended August 31, 1995:
$72,729.
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. For the fiscal year ended August 31, 1995: $22,290.
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. For the fiscal year ended October 31, 1995:
$17,480.
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. For the fiscal year ended October 31, 1995: $23,920.
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. For the fiscal year ended October 31, 1995: $4,485.
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. For the fiscal year ended October 31, 1995: $13,185.
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. For the fiscal year ended October 31, 1995: $27,436.
55
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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.
For the fiscal year ended October 31, 1995: $85,904.
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. For the fiscal year ended August 31, 1995: $28,290.
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. For the fiscal year ended August 31, 1995: $10,309.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO -- For the period April 11, 1994
(commencement of operations) through March 31, 1995: $2,563. For the fiscal year
ended March 31, 1996: $6,648.
NEW YORK TOTAL RETURN BOND FUND -- For the period April 11, 1994 (commencement
of operations) through March 31, 1995: $3,042. For the fiscal year ended March
31, 1996: $5,065.
THE NON-U.S. FIXED INCOME PORTFOLIO -- For the period October 11, 1994
(commencement of operations) through September 30, 1995: $13,862.
INTERNATIONAL BOND FUND -- For the period December 1, 1994 (commencement of
operations) through September 30, 1995: $460.
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.
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. For the fiscal year ended October 31, 1995: $31,500.
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. For the fiscal year ended October 31, 1995: $83,762.
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: $7,770.
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:
$28,135.
THE EMERGING MARKETS EQUITY PORTFOLIO -- For the period November 15, 1993
(commencement of operations) through October 31, 1994: $30,828. For the fiscal
year ended October 31, 1995: $35,189.
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EMERGING MARKETS EQUITY FUND -- For the period November 15, 1993 (commencement
of operations) through October 31, 1994: $22,572. For the fiscal year ended
October 31, 1995: $ 42,329.
EUROPEAN EQUITY PORTFOLIO-- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $15,623.
JAPAN EQUITY PORTFOLIO -- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $17,418.
ASIA GROWTH PORTFOLIO -- For the period April 5, 1995 (commencement of
operations) through December 31, 1995: $4,037.
^
SERVICES AGENT
The Trust, on behalf of each Fund, and the Portfolios have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
effective December 29, 1995, as amended effective August 1, 1996, pursuant to
which Morgan is responsible for certain ^ administrative and related services
provided to each Fund and its corresponding Portfolio.^ The Services 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.
Under the amended Services Agreements and the Co-Administration
Agreements, each of the Funds and the Portfolios has agreed to pay Morgan and
FDI fees equal to its allocable share of an annual complex-wide charge. This
charge is calculated daily based on the aggregate net assets of the Portfolios
(in which series of the Trust, The Pierpont Funds or The JPM Advisor Funds
invest) in accordance with the following annual schedule: 0.09% on the first $7
billion of the Portfolios' aggregate average daily net assets and 0.04% of the
Portfolios' average daily net assets in excess of $7 billion.
Under Administrative Services Agreements in effect from December 29,
1995 through July 31, 1996, with Morgan, each Fund and its corresponding
Portfolio paid Morgan a fee equal to its proportionate share of an annual
complex-wide charge. This charge was calculated daily based on the aggregate net
assets of the Portfolios in accordance with the following schedule: 0.06% of the
first $7 billion of the Portfolios' aggregate average daily net assets, and
0.03% of the Portfolios' average daily net assets in excess of $7 billion. Prior
to December 29, 1995, the Trust and each Portfolio had entered into Financial
and Fund Accounting Services Agreements ^ with Morgan, the provisions of which
included certain of the activities described above and, prior to September 1,
1995, also included reimbursement of usual and customary expenses. Below are set
forth for each Fund listed and its corresponding Portfolio the fees paid to
Morgan, net of fee waivers and reimbursements, as Services Agent. 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. For the fiscal year ended November 30, 1995:
$373,077.
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)*. For the fiscal year ended November 30, 1995: $(967,889)*.
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. For the fiscal year ended August 31, 1995:
$169,754.
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<PAGE>
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)*. For the fiscal year ended August 31, 1995:
$(56,396)*.
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)*. For the fiscal year ended
October 31, 1995: $(146,180)*.
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)*. For the fiscal year ended November 30, 1995:
$(236,058)*.
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)*. For the fiscal year ended October 31, 1995:
$(21,070)*.
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)*. For the fiscal year ended November 30, 1995: $(91,382)*.
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. For the fiscal year ended October 31, 1995: $167,081.
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)*. For the fiscal year ended November 30, 1995: $(146,399)*.
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. For the fiscal year ended August 31, 1995: $189,892.
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)*. For the fiscal year ended August 31, 1995: $(61,012)*.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO -- For the period April 11, 1994
(commencement of operations) through March 31, 1995: $(11,830)*. For the fiscal
year ended March 31, 1996: $7,691.
THE NEW YORK TOTAL RETURN BOND FUND -- For the Period April 11, 1994
(commencement of operations) through March 31, 1995: $(49,096)*. For the fiscal
year ended March 31, 1996: $(10,606)*.
THE NON-U.S. FIXED INCOME PORTFOLIO -- For the period October 11, 1994
(commencement of operations) through September 30, 1995: $156,367.
THE INTERNATIONAL BOND FUND -- For the period December 1, 1994 (commencement of
operations) through September 30, 1995: $(46,217)*.
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)*.
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THE U.S. SMALL COMPANY PORTFOLIO -- For the period July 19, 1993 (commencement
of operations) through May 31, 1994: $203,764. 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. For the fiscal year ended October 31, 1995:
$349,443.
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)*. For the fiscal year ended November 30, 1995:
$(63,230)*.
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: $63,153.
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:
$(96,795)*.
THE EMERGING MARKETS EQUITY PORTFOLIO -- For the period November 15, 1993
(commencement of operations) through October 31, 1994: $347,925. For the fiscal
year ended October 31, 1995: $337,050.
EMERGING MARKETS EQUITY FUND -- For the period November 15, 1993 (commencement
of operations) through October 31, 1994: $(120,061)*. For the fiscal year ended
November 30, 1995: $(26,975)*.
EUROPEAN EQUITY PORTFOLIO-- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $128,335.
JAPAN EQUITY PORTFOLIO -- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $147,974.
ASIA GROWTH PORTFOLIO -- For the period April 5, 1995 (commencement of
operations) through December 31, 1995: $21,823.
- ------------------------------------
(*) Indicates a reimbursement by Morgan for expenses in excess of its fees under
the Prior Services Agreements. No fees were paid for the fiscal period.
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 ^ Contracts, State Street is responsible for maintaining the books
of account and records of portfolio transactions and holding portfolio
securities and cash. 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
59
<PAGE>
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, Treasury Money Market and Tax Exempt Money Market Funds, 0.05%; Short
Term Bond, Bond, Tax Exempt Bond and New York Total Return Bond Funds, 0.075%;
International Bond, Selected U.S. Equity, U.S. Small Company, International
Equity, Emerging Markets Equity, Diversified, European Equity, Japan Equity and
Asia Growth Funds, 0.10%. 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, net of fee waivers and reimbursements, 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. For the fiscal year ended November 30, 1995: $697,914.
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. For the fiscal year ended August 31, 1995: $96,667.
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. For the fiscal year ended October 31, 1995: $101,100.
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. For the fiscal year ended October 31, 1995: $24,729.
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.
For the fiscal year ended October 31, 1995: $161,357.
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<PAGE>
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. For the fiscal year ended August 31, 1995: $19,310.
NEW YORK TOTAL RETURN BOND FUND -- For the period April 11, 1994 (commencement
of operations) through March 31, 1995: $6,116. For the fiscal year ended March
31, 1996: $21,606.
INTERNATIONAL BOND FUND -- For the period December 1, 1994 (commencement of
operations) through September 30, 1995: $1,412.
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. For the fiscal year ended October 31, 1995: $168,565.
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:
$53,030.
EMERGING MARKETS EQUITY FUND -- For the period November 15, 1993 (commencement
of operations) through October 31, 1994: $39,124. For the fiscal year ended
October 31, 1995: $79,381.
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 ^ administrative services to the Funds and the Portfolios under
the ^ 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 ^ Agreement and the 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.
61
<PAGE>
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., Morgan and ^
FDI under various agreements discussed under Trustees and Officers, Investment
Advisor, Co-Administrator and Distributor, Services Agent and Shareholder
Servicing above, the Fund and the Portfolio are responsible for 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, Morgan as Services
Agent was responsible for reimbursements to the Trust and the Portfolio ^ 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.
^ PURCHASE OF SHARES
Investors may open Fund accounts and purchase shares as described in the
relevant 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 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.
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<PAGE>
REDEMPTION OF SHARES
Investors may redeem shares as described in the relevant 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 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.
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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."
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 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."
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
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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. The Portfolio values
municipal securities on the basis of prices from a pricing service which uses
information with respect to transactions in bonds, quotations from bond dealers,
market transactions in comparable securities and various relationships between
securities in determining values.
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
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
(including certain restricted and illiquid securities) 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
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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 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 (11/30/95): 7-day current yield: 5.71%; 7-day effective yield:
5.88%.
TAX EXEMPT MONEY MARKET FUND ^(2/29/96): 7-day current yield: ^ 3.11%; 7-day Tax
equivalent yield at 39% tax rate: ^ 5.18%; 7-day effective yield: ^ 3.16%.
TREASURY MONEY MARKET FUND ^(4/30/96): 7-day current yield: ^ 4.97%; 7-day
effective yield: ^ 5.09%.
SHORT TERM BOND FUND ^(4/30/96): 30-day yield: ^ 5.66%.
BOND FUND ^(4/30/96): 30-day yield: ^ 6.35%.
INTERNATIONAL BOND ^(3/31/96): 30-day yield: ^ 5.10%.
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TAX EXEMPT BOND FUND ^(2/29/96): 30-day yield: ^ 4.42%; 30-day tax equivalent
yield at 39% tax rate: ^ 7.25%.
NEW YORK TOTAL RETURN BOND FUND ^(3/31/96): 30-day yield: ^ 4.60% ; 30-day tax
equivalent yield at 39% tax rate: ^ 7.54%.
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 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 (11/30/95): Average annual total return, 1 year: 5.93%;
average annual total return, 5 years: 4.57%; average annual total return, 10
years: 6.02%; aggregate total return, 1 year: 5.93%; aggregate total return, 5
years: 25.01%; aggregate total return, 10 years: 79.37%.
TAX EXEMPT MONEY MARKET FUND ^(2/29/96): Average annual total return, 1 year: ^
3.68%; Average annual total return, 5 years: ^ 3.02%; average annual total
return, 10 years: ^ 4.02%; aggregate total return, 1 year: ^ 3.63%; aggregate
total return, 5 years: ^ 16.02%; aggregate total return, 10 years: ^ 48.29%.
TREASURY MONEY MARKET FUND ^(4/30/96): Average annual total return, 1 year: ^
5.56%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: ^ 4.30%; aggregate total return, 1
year: ^ 5.56%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: ^ 14.65%.
SHORT TERM BOND FUND ^(4/30/96): Average annual total return, 1 year: ^ 6.83%;
average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: ^ 4.64%; aggregate total return, 1
year: ^ 6.83%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: ^ 13.30%.
BOND FUND ^(4/30/96): Average annual total return, 1 year: ^ 8.63%; average
annual total return, 5 years: ^ 7.64%; average annual total return, commencement
of operations(*) to period end: ^ 7.95%; aggregate total return, 1 year: ^
7.64%; aggregate total return, 5 years: ^ 45.51%; aggregate total return,
commencement of operations(*) to period end: ^ 85.64%.
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TAX EXEMPT BOND FUND ^(2/29/96): Average annual total return, 1 year: ^ 9.59%;
average annual total return, 5 years: ^ 7.30%; average annual total return, 10
years: ^ 7.07%; aggregate total return, 1 year: ^ 9.59%; aggregate total return,
5 years: ^ 92.24%; aggregate total return, 10 years: ^ 98.05%.
NEW YORK TOTAL RETURN BOND FUND ^(3/31/96): Average annual total return, 1 year:
^ 7.40%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: ^ 6.69%; aggregate total return, 1
year: ^ 7.40%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: ^ 13.22%.
INTERNATIONAL BOND FUND ^(3/31/96): Average annual total return, 1 year: ^
12.24%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations (*) to period end: ^ 13.68%; aggregate total return,
1 year: ^ 12.24%; aggregate total return, 5 years: N/A; aggregate total return
commencement of operations (*) to period end: ^ 18.64%.
DIVERSIFIED FUND (12/31/95): Average annual total return, 1 year: 26.84%;
average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 11.90%; aggregate total return, 1
year: 26.84%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 29.62%.
SELECTED U.S. EQUITY FUND (11/30/95): Average annual total return, 1 year:
31.77%; average annual total return, 5 years: 16.73%; average annual total
return, ten years: 14.78%; aggregate total return, 1 year: 31.77%; aggregate
total return, 5 years: 116.69%; aggregate total return, ten years: 296.91%.
U.S. SMALL COMPANY FUND (11/30/95): Average annual total return, 1 year: 32.01%;
average annual total return, 5 years: 21.07%; average annual total return, 10
years, 12.53%; aggregate total return, 1 year: 32.01%; aggregate total return, 5
years: 160.15%; aggregate total return, 10 years; 225.46%.
INTERNATIONAL EQUITY FUND ^(4/30/96): Average annual total return, 1 year: ^
12.20%; average annual total return, 5 years: ^ 7.28%; average annual total
return, commencement of operations(*) to period end: ^ 5.32%; aggregate total
return, 1 year: ^ 12.20%; aggregate total return, 5 years: ^ 42.11%; aggregate
total return, commencement of operations(*) to period end: ^ 35.91%.
EMERGING MARKETS EQUITY FUND ^(4/30/96): Average annual total return, 1 year: ^
12.04%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: ^ 3.21%; aggregate total return, 1
year: ^ 12.04%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: ^ 7.94%.
EUROPEAN EQUITY FUND (6/30/96): 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: 6.96%; aggregate total return, 1
year: N/A; aggregate total return, 5 years: N/A; aggregate total return
commencement of operations(*) to period end: 6.96%.
JAPAN EQUITY FUND (6/30/96): 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: 6.67%; aggregate total return, 1 year: N/A;
aggregate total return, 5 years: N/A; aggregate total return commencement of
operations(*) to period end: 6.67%.
ASIA GROWTH FUND (6/30/96): Average annual total return, 1 year: N/A; average
annual total return, 5 years: N/A; average annual total return commencement of
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operations(*) to period end: 5.09%; aggregate total return, 1 year: N/A;
aggregate total return, 5 years: N/A; aggregate total return commencement of
operations(*) to period end: 5.09%.
- --------------------
(*) The Treasury Money Market, Short Term Bond, Diversified, Emerging Markets
Equity, New York Total Return Bond ^, International Bond, European Equity, Japan
Equity and Asia Growth Funds commenced operations on January 4, 1993, July 8,
1993, July 8, 1993, November 15, 1993, April 11, 1994 ^, December 1, 1994,
February 29, 1996, February 29, 1996, and February 29, 1996, respectively. The
predecessor Pierpont Bond, and International Equity Funds commenced operations
on March 11, 1988, and June 1, 1990, respectively.
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 appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.
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 Brothers 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.
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
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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. See "Investment
Objectives and Policies -- Portfolio Turnover." 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 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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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): 1995: $1,691,642; 1994: $1,413,238; 1993:
$639,000.
DIVERSIFIED FUND (June): 1995: $145,589; 1994: $78,737; 1993: N/A.
EMERGING MARKETS EQUITY FUND (October): 1995: $1,475,147; 1994: $1,262,905;
1993: N/A.
EUROPEAN EQUITY FUND (December): 1995: ^ $143,417.
JAPAN EQUITY FUND (December): 1995: $0.
ASIA GROWTH FUND (December): 1995: ^ $27,322.
The increases in brokerage commissions reflected above were due to
increased portfolio activity and an increase in net investments by ^ investors
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 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
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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 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.
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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." 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 either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements
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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 sixteen 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 ^ July 1, 1996, the following owned of record or, to the knowledge
of management, beneficially owned more than 5% of the outstanding shares of:
Money Market Fund--Citibank-Private Bank, 1 Court Square, Long Island City, NY
11120-0001 (25.40%), Welsh Carson Anderson ^% Stowe VII LP^, 200 Liberty Street,
New York, NY 10281-1003 (5.99%);
Tax Exempt Money Market ^ Fund--Bank ^ of New York ^ as Series ^ 1993-3 Coll.
A/C Patricia M.F. Russo, 101 Barclay Street, New York, NY 10285-0001 (13.90%),
Bank of New York ^ as Series ^ 1992-1 Coll. A/C Patricia M.F. Russo, 101 Barclay
Street, New York, NY 10285-0001 (9.73%), Bank of New York ^ as Series 1993-1 ^
Coll. A/C Patricia M. F. Russo, 101 Barclay Street, New York, NY 10285-0001
(9.27%), Bank of New York as Series 1993-2 Coll. A/C Patricia M.F. Russo, 101
Barclay Street, New York, NY 10285-0001 (9.27%), Reuters America, Inc.
Shareholder Class Action Settlement Fund, 1700 Broadway, New York, NY 10019-5905
(8.98%) ^, Morgan as Agent for Corporate Trust Client the One Penn Plaza Escrow
Pledge Agreement (8.33%), Michael P. Schulhof, 770 Park Avenue, New York, NY
10021-4153 (7.46%) ^, Morgan as Agent for ^ Jane Lauder 1976 Accumulation Trust
Agency Account (7.15%);
Bond Fund--Morgan as Agent for Susan R. Wexner (22.66%), Ellen H. Skove, 122
Delafield Island Road, Darien, CT 06820-6017 (13.24%), Ezra K. Zilkha, 767 Fifth
Avenue, New York, NY 10153-4699 (8.17%), Morgan as Agent for ^ the Estate of J.
Peter Grace (6.82%), William B. Ruger Trust U/A Rev Tr 11/21/88, 411 Sunapee
Street, Newport, NH 03773-0447 (6.78%), 1133 Building Corp., 1155 Avenue of the
Americas, New York, NY 10036-2711 (6.57%), Morgan as Agent for ^ Margaret S.
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Grace (5.31%), Morgan as Agent for Shell Savings Group Trust-Diversified Fund
(16.37%);
Short Term Bond Fund--Morgan as Agent for Geoffrey C. Bible Trust (21.73%),
Morgan as Agent for ^ R. William Murray Trust (20.07%), Morgan as Agent for Hans
G. Storr Trust (15.53%), Morgan as Agent for William Campbell Trust (12.08%),
Morgan as Agent for Murray H. Bring Trust ^(8.32%), Morgan as Agent for ^
William H. Webb Trust ^(5.97%);
Tax Exempt Bond Fund--Morgan as Agent for E. Hanovia ^, Inc. (11.80%), Morgan as
Agent for John F. Ruffle Revocable Trust (5.39%);
New York Total Return Bond Fund--Morgan as Agent for Trust ^ U/W of L.H.P. Klotz
^ fbo Ruth Klotz (18.62%); Morgan as Agent for Shubert Organization ^(17.13),
Morgan as Agent for J. Corry ^ (6.54%), Morgan as Agent for L. ^ Cassel (5.82%),
Morgan as Agent for R. Weintraub ^(5.15%);
International Bond Fund--Morgan as Agent for Shell Savings Group
Trust-Diversified Fund (69.52%), Morgan as Agent for Albany Medical Center
Insurance Trust^-Fleet Trust as Custodian (15.93%), Morgan as Agent for General
Motors Savings Plan ^ (8.77%), Morgan as Agent of Community Funds Inc. Dewitt
Wallace Readers Digest ^ Special Project Fund (5.77%);
Selected U.S. Equity Fund--Morgan as ^ Trustee for Major League Baseball Master
Pension Trust ^(10.10%), Wachovia Bank, NC Trustee for Newmont Gold Co. Master
Pension Trust^, 301 North Main Street, Winston-Salem, NC 27150-0001 (9.11%),
Boston & Co. Mutual Funds Operations^, P.O. Box 3198, Pittsburgh, PA 15230-3198
(7.98%), Lin Television Corp. Retirement Plan^, 1 Richmond Square, Prividence,
RI 02906-5139 (7.34%), Morgan as Trustee for Degussa Defined Benefit Trust^, 111
West Monroe Street, Chicago, IL 60603-4003 (6.21%), Harris Trust and Savings
Bank as Trustee of CTS Corp Employee Benefit Plans Master Trust (5.51%);
U.S. Small Company--Morgan as Agent for S. Lutz Trust ^(6.23%);
Diversified Fund--Vanguard Fiduciary Trust Company^, P.O. Box 2600, Valley
Forge, PA 19482-2600 (13.86%), Boston Foundation Inc^., One Boston Place,
Boston, MA 02108-4400 (11.44%), Morgan as Agent for ^ Unifi Inc. Profit Sharing
Plan ^ Trust (10.68%), Celtic Insurance ^ Company Ltd., Two Procter & Gamble
Plaza, Cincinnati, OH 45202 (9.35%), Westinghouse Personal Investment Plan, 280
Park Avenue, New York, NY 10017-1216 (8.73%), B.G. Sulzle ^ Inc. Employee
Pension^, P.O. Box 1412, Rochester, NY 14503-1412 (5.80%);
Emerging Markets Equity--Batrus & Co., P.O. Box 9005, Church Street Station, New
York, NY 10006 (10.42%), Morgan as Agent for Alfred P. Sloan Foundation
^(9.08%); International Equity Fund--Blue Cross Blue Shield of North Carolina^,
P.O. Box 2291, Durham, NC 27702-2291 (5.16%);
European Equity Fund--Morgan as Agent for ^ Michael D. Palm (48.57%); Morgan as
Agent for Phil Ponzek Irrevocable Trust (36.11%); Morgan as Agent for Bunny
Price (9.32%),^ Morgan as Agent for John M. Watkins ^(6.00%);
Japan Equity Fund--Morgan as Agent for Michael D. Palm (61.84), Morgan as Agent
for Phil Ponzek Irrevocable Trust ^(22.26%), Morgan as Agent for John M. Watkins
(7.78%); and
Asia Growth Fund--Morgan as Agent ^ for Phil Ponzek Irrevocable Trust ^(40.11%),
Morgan as Agent for Michael D. Palm (13.98%); Morgan as Agent for John M.
Watkins (8.60%) Morgan as Agent for James A. Johnson & Maxine Isaacs (8.38%),
Morgan as Agent for William B. Bond Trust (6.85%) Morgan as Agent for Martin C.
Ross Living Trust (5.51%).
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Unless otherwise noted, the address of each owner listed above is c/o
Morgan, 522 Fifth Avenue, New York, New York, 10036. 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.
TAXES
Each Fund intends to qualify 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 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, other than the alternative minimum tax under certain
circumstances. 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.
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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 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 certain 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
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on forward currency contracts, options and futures contracts or on the
underlying securities. Straddles may also result in the loss of the holding
period of underlying securities for purposes of the 30% of gross income test
described above, and therefore, a 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. However, gain or loss recognized on certain foreign currency
contracts will be treated as ordinary income or loss.
The Equity Portfolios may invest in Equity Securities of foreign
issuers. If a Portfolio purchases shares in certain foreign corporations
(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 corporation 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 the
shareholder's trade or business in the United States or, in the case of a
shareholder who is a nonresident alien individual, the shareholder was present
in the United States for more than 182 days during the taxable year and certain
other conditions are met.
In the case of a foreign shareholder who is a nonresident alien
individual and who is not otherwise subject to withholding as described above, a
Fund may be required to withhold U.S. federal income tax at the rate of 31%
unless IRS Form W-8 is provided. Transfers by gift of shares of a Fund by a
foreign shareholder who is a nonresident alien individual will not be subject to
U.S. federal gift tax, but the value of shares of the Fund held by such a
shareholder at his or her death will be includible in his or her gross estate
for U.S. federal estate tax purposes.
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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 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.
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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 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
The current financial statements of ^ the Funds (except for the Japan
Equity, European Equity and Asia Growth Funds) and the European Equity, Japan
Equity and Asia Growth Portfolios are incorporated herein by reference from the
Funds' and Portfolios' annual reports and, if applicable, semi-annual reports ^
as filed with the SEC pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1
thereunder. A copy of each such report will be provided, without charge, to each
person receiving this Statement of Additional Information. ^
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APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
CORPORATE AND MUNICIPAL BONDS
AAA - Debt rated AAA has the highest ratings assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB - Debt rated BB is regarded as having less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
SHORT-TERM TAX-EXEMPT NOTES
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest rating
assigned by Standard & Poor's and has a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory capacity
to pay principal and interest.
MOODY'S
CORPORATE AND MUNICIPAL BONDS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
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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.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection. - Broad margins in earnings coverage of fixed
financial charges and high internal cash generation. - Well established access
to a range of financial markets and assured sources of alternate liquidity.
SHORT-TERM TAX EXEMPT NOTES
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest rating
assigned by Moody's for notes judged to be the best quality. Notes with this
rating enjoy strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of protection not
as large as MIG-1.
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^ APPENDIX B
ADDITIONAL INFORMATION CONCERNING 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 supplement (dated
March 20, 1996) to the Annual Information Statement of the State of New York
dated June 23, 1995 and other sources of information.
GENERAL
New York (the "State") is among the ^ most populous ^ states 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 ^ workforce 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. ^ 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 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; Binghampton -- 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 ^ major radio and television broadcasting networks, ^ many 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 and is traditionally a tourist destination.
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 ^ at
times failed to predict ^ precisely the timing and magnitude of changes in
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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^. All these could have an
adverse effect on the State. There can be no assurance that the ^ State's
economy will not experience financial 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.
The national economy ^ achieved the desired "soft landing" in 1995, as
growth slowed from 6.2 percent in 1994 to a rate sufficiently slow to inhibit
the build-up of inflationary pressures. This was achieved without any material
pause in the economic expansion, although recession worries flared in the late
spring and early summer. Growth in the national economy is expected to moderate
during 1996, with the nation's gross domestic product projected to expand ^ by
4.6 percent in 1996 versus 5.0 percent in 1995. Declining short-term interest
rates, slowing employment growth ^ and continued moderate inflation also
characterize the projected path for the nation's economy ^ in the year ahead.
The annual growth rates of most ^ economic indicators for the State
improved from 1994 to 1995, as the pace of private sector employment expansion
and personal income and wage growth all accelerated. Government employment fell
as workforce reductions were implemented at federal, state and local levels.
Similar to the nation, some moderation of growth is expected ^ in the year
ahead. Private sector employment is expected to continue to rise, although
somewhat more slowly than in 1995, while public employment should continue to
fall, reflecting government budget cutbacks. Anticipated continued restraint in
wage settlements, a lower rate of employment growth ^ and falling interest rates
are expected to slow personal income growth significantly ^.
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 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.
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The executive budget contains comparatively few tax initiatives.
However, the Governor has set aside $50 million to finance a program of
additional tax cuts designed to spur private sector job creation in the State.
The Governor intends to work jointly with the business community and the
legislature to determine the elements of the program. For financial plan
purposes, the $50 million is shown as a charge against the personal income tax,
implemented through a deposit to the refund reserve. Additional tax reductions
were called for by the Governor in his annual message to the legislature of
January 3, 1996, but no specific implementation plans have been announced.
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, ^ 1996, and ends on
March 31, ^ 1997, is referred to herein as the State's ^ 1996-97 fiscal year.
The ^ State revised the cash-basis 1995-96 ^ State Financial Plan ^ on
December 15, 1995, in conjunction with the release of the executive budget ^ for
the 1996-97 fiscal year.
The 1995-96 ^ General Fund Financial Plan continues to be balanced, with
reductions in projected receipts offset by an equivalent reduction in projected
disbursements. Modest changes were made to the mid-year update, reflecting two
more months of actual results, deficiency requests by State agencies (the
largest of which is for school aid resulting from revisions to data submitted by
school districts), and administrative efficiencies achieved by State agencies.
Total General Fund receipts are expected to be approximately $73 million lower
than estimated at the time of the mid-year update. Tax receipts are now
projected to be $29.57 billion, $8 million less than in the earlier plan.
Miscellaneous receipts and transfers from other funds are estimated at $3.15
billion, $65 million lower than in the mid-year update. The largest single
change in these estimates is attributable to the lag in achieving $50 million in
proceeds from sales of State assets, which are unlikely to be completed prior to
the end of the fiscal year.
Projected General Fund disbursements are reduced by a total of $73
million, with changes made in most major categories of the 1995-96 State
Financial Plan. The reduction in overall spending ^ masks the impact of
deficiency requests totaling more than ^ $140 million, primarily for school aid
and tuition assistance to college students. Offsetting reductions in spending
are attributable to the continued maintenance of strict controls on spending
through the fiscal year by State agencies, yielding savings of $50 million.
Reductions of $49 million in support for capital projects reflect a stringent
review of all capital spending. Reductions of $30 million in debt service costs
reflect savings from refundings undertaken in the current fiscal year, as well
as savings from lower interest rates in the financial market. Finally, the
1995-96 Financial Plan reflects reestimates based on actual results through
November, the largest of which is a reduction of $70 million in projected costs
for income maintenance. This reduction is consistent with declining caseload
projections.
^ The balance in the General Fund at the close of the 1995-96 fiscal
year ^ is expected to be $172 million, entirely attributable to monies in the
Tax Stabilization Reserve Fund following the required $15 million payment into
that Fund. A $40 million deposit to the Contingency Reserve Fund included as
part of
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the ^ enacted 1995-96 budget will not be made, and the ^ minor balance of $1
million currently in the Fund will be transferred to the General Fund. These
Contingency Reserve Fund monies are expected to support payments from the ^
General Fund for litigation related to the State's Medicaid program, and for
federal disallowances.
^ Changes in federal aid programs currently pending in Congress are not
expected to have a material impact on the State's 1995-96 Financial Plan,
although prolonged interruptions in the receipt of federal grants could create
adverse developments, the scope of which cannot be estimated at this time. The
major remaining uncertainties in the 1995-96 State Financial Plan ^ continue to
be those related to the economy and tax collections, which could produce either
favorable or unfavorable variances during the balance of the year.
The Governor presented his 1996-97 executive budget to the legislature
on December 15, 1995, one month before the legal deadline. The executive budget
also contains financial projections for the State's 1997-98 and 1998-99 fiscal
years and an updated Capital Plan. As provided by the State Constitution, the
Governor submitted amendments to his 1996-97 executive budget within 30 days
following submission. Those amendments are reflected in the discussion of the
1996-97 executive budget contained herein. There can be no assurance that the
legislature will enact the executive budget as proposed by the Governor into
law, or that the State's adopted budget projections will not differ materially
and adversely from the projections.
The 1996-97 Financial Plan projects balance on a cash basis in the
General Fund. It reflects a continuing strategy of substantially reduced State
spending, including program restructuring, reductions in social welfare
spending, and efficiency and productivity initiatives. Total General Fund
receipts and transfers from other funds are projected to be $31.32 billion, a
decrease of $1.4 billion from total receipts projected in the current fiscal
year. Total General Fund disbursements and transfers to other funds are
projected to be $31.22 billion, a decrease of $l.5 billion from spending totals
projected for the current fiscal year. After adjustments and transfers for
comparability between the 1995-96 and 1996-97 State Financial Plans, the
executive budget proposes an absolute year-to-year decline in General Fund
spending of 5.8 percent. Spending from all funding sources (including federal
aid) is proposed to increase by 0.4 percent from the prior fiscal year after
adjustments and transfers for comparability.
The executive budget proposes $3.9 billion in actions to balance the
1996-97 Financial Plan. Before reflecting any actions proposed by the Governor
to restrain spending, General Fund disbursements for 1996-97 were projected at
$35 billion, an increase of $2.3 billion or 7 percent from 1995-96. This
increase would have resulted from growth in Medicaid, inflationary increases in
school aid, higher fixed costs such as pensions and debt service, collective
bargaining agreements, inflation, and the loss of non-recurring resources that
offset spending in 1995-96. Receipts would have been expected to fall by $l.6
billion. This reduction would have been attributable to modest growth in the
State's economy and underlying tax base, the loss of non-recurring revenues
available in 1995-96 and implementation of previously enacted tax reduction
programs.
The executive budget proposes to close this gap primarily through a
series of spending reductions and cost containment measures ^. The executive
budget projects (i) ^ over $1.8 billion in savings from cost containment ^ and
other ^ actions in social welfare programs, including Medicaid, ^ welfare and
various ^ health and ^ mental health programs; (ii) ^ $1.3 billion in savings
from ^ a reduced State General Fund share of Medicaid made available from
anticipated changes in the federal Medicaid program, including an increase in
the federal share of Medicaid; (iii) over $450 million in savings from ^ reforms
^ and cost avoidance in educational services (including school aid and ^ higher
education),
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while providing fiscal relief from certain State mandates that increase local
spending; and (iv) ^ $350 million in ^ savings from efficiencies and reductions
in other State programs. The assumption regarding an increased share of federal
Medicaid funding has received bipartisan congressional support and would benefit
the State and 31 other states.
^ The 1996-97 Financial Plan projects receipts of $31.32 billion and
spending of $31.22 billion, allowing for a deposit of $85 million to the
Contingency Reserve Fund and a required repayment of $15 million to the Tax
Stabilization Reserve Fund. Detailed explanations of the 1996-97 Financial Plan
follow a discussion of the economic outlook.
The Governor has submitted several amendments to the executive budget.
These amendments have a nominal impact on the State's ^ Financial Plan for
1996-97 and the subsequent years. The net impact of the amendments leaves
unchanged the total estimated amount of General Fund spending in 1996-97, which
continues to be projected at $31.22 billion. All funds spending ^ in 1996-97 is
increased by $68 million, primarily reflecting adjustments to projections of
federal funds, and now totals $63.87 billion.
The budget amendments advanced by the Governor involving largely
technical revisions, with General Fund spending increases fully offset by
spending decreases. Reductions in estimated 1996-97 disbursements are
recommended primarily for welfare (associated with updated projections showing a
declining caseload) and debt service (reflecting lower interest rates and recent
bond sales). Disbursement increases are projected for snow and ice control, the
AIDS Institute, Health Department utilization review programs and other items.
Estimated disbursements for other funds are increased to accommodate updated
projections of federal funding in certain categorical grant programs and reduced
for welfare as noted for the General Fund.
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 1996-97 Financial Plan projects General Fund ^ receipts (including
transfers from other funds) of $31.32 billion, a decrease of $1.40 billion from
the 1995-96 ^ projected level. Measured against 1995-96 levels that have been
adjusted for purposes of comparability, the decline is $1.83 billion or 5.5
percent. These 1995-96 comparability adjustments include adding back personal
income tax collections that were not recognized in 1995-96 as a result of Local
Government Assistance Corporation ("LGAC")-related transactions in that year,
and the addition of special revenue funds moved in the executive budget to the
General Fund. The estimate of taxes for 1996-97 reflects overall growth in the
yield of the tax structures (when adjusted for tax law and administrative
changes) of slightly less than 3.5 percent, reflecting a slower growing economy
and continued moderate inflation. The effects of this growth are offset by the
impact of previously enacted tax reductions. The value of these tax reductions
is currently estimated to be approximately $500 million in 1994-95, nearly $1.5
billion in 1995-96 and over $3.7 billion in 1996-97.
Personal income tax collections for 1996-97 are now expected to be
$16.05 ^ billion, a ^ decline of nearly $827 million from the ^ projected
1995-96 level. These estimates reflect growth in "constant law" liability of
about 4.5 percent in 1996, down from an estimated 6.5 percent growth in 1995.
This increase is more than offset by personal income tax reductions already in
law, which are estimated to produce taxpayer savings in 1996-97 of almost $2.5
billion, or $1.8 billion more than in the ^ current year.
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^ User tax and fee receipts are projected at ^ $6.7 billion ^ in
1996-97, up $48 million from 1995-96 ^ projected levels. Total collections in
this category are dominated by the State sales and use tax, which accounts for
75 percent of total receipts ^ in the category. The moderate economic expansion
experienced this year and anticipated for next year produces estimated growth in
the yield of the sales and use tax of 3.2 percent in 1995-96 and 3.3 percent in
1996-97.
Total business taxes are now projected at $4.55 billion in 1996-97.
While "constant-law" liability growth is anticipated to continue in 1996-97, the
effect of ^ additional tax reductions taking effect in 1996 will lead to a
year-to-year decline between 1996-96 and 1996-97 of $441 million. These business
tax reductions, which are estimated to depress receipts by over $600 million in
the current year, will grow to nearly $l.0 billion in 1996-97.
Other tax receipts are now projected at $1.01 billion, down $51 million
from the 1995-96 ^ projected level. The decline in receipts in this category ^
reflects ^ the effects of ^ tax reductions enacted in the last two years as well
as the earmarking of a portion of the real estate transfer tax to the
Environmental Protection Fund. Tax cuts in this category, largely in the real
property gains tax and the ^ estate tax, are estimated at $32 million ^ in
1994-95 ^, $67 million in 1995-96 ^ and $115 million in ^ 1996-97.
Miscellaneous receipts, which include license revenues, fee and fine
income, investment income and abandoned property proceeds, as well as the
proceeds of the largest share of ^ the State's ^ medical provider assessment and
various one-time transactions, are now estimated to total ^ $1.41 billion ^ in
1996-97. This represents a decline of $119 million ^ from 1995-96 projected
levels. Transfers from other funds consist primarily of sales tax revenues in
excess of debt service requirements used to support debt service payments to
LGAC. Projected amounts in this category ^ for 1996-97 total $1.61 billion, a
decline of ^ $8 million from 1995-96 levels.
^ DISBURSEMENTS
The 1996-97 Financial Plan projects General Fund ^ disbursements ^ of
$31.22 billion. Projected spending decreases $1.48 billion, or 4.5 percent, from
the estimated current year. After adjustments to 1995-96 levels for purposes of
comparability, the decline is $l.91 billion or 5.8 percent. These comparability
adjustments are composed of two major actions. The first eliminates the impact
of LGAC financings, which depressed General Fund spending in 1995-96 ^ by $271
million. The second adjustment adds $159 million ^ in projected 1995-96 spending
currently budgeted in Special Revenue Funds, but recommended as part of the
General Fund in the 1996-97 budget.
^ Support for local governments ^ is projected to ^ decrease $1.7
billion, primarily reflecting decreased support for social programs. General
Fund support for Medicaid is projected to be $1.65 billion ^ lower than 1995-96
^, as a result of both new cost containment proposals and the anticipated use of
$1.3 billion in federal Medicaid revenues that would become available assuming
enactment of proposed federal changes in this program. This proposed offset to
the State share of Medicaid would require the implementation of a federal block
grant ^ for Medicaid ^ and an increase in the federal share of Medicaid from 50
percent to 60 percent. Welfare costs also decline ($164 million), reflecting
projected ^ caseload declines, time limits on benefits, reductions in benefits,
and continuation of workfare and anti-fraud initiatives begun in 1995-96.
General Fund support for education programs would increase by $188 ^
million. ^ However, this increase results from changes in the ^ school aid
payment schedule, and the payment in 1995-96 of a portion of school aid from
LGAC bond proceeds. School aid is expected to increase $26 million on a school
year basis. Support for both State University (SUNY) and City University (CUNY)
would
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decline, and the State's tuition assistance program would be reduced to achieve
savings.
^ Support for State agency operations would decline to $6.0 billion in ^
1996-97 including transfers to support SUNY operations. Annual decreases for
agencies range widely from as low as 0.3 percent to as high as 25 percent. This
decline reflects the reductions to the State's workforce. The executive budget
recommends reductions of approximately 7,400 positions, undertaken primarily
through attrition and other actions. Assuming these reductions are implemented,
the State's workforce will have declined by more than 20,000 positions between
January 1995 and the end of the 1996-97 fiscal year.
General State charges ^ are projected to total $2.32 billion in 1996-97,
an increase of $252 million from ^ 1995-96 projected levels. Pension costs are
expected to increase by $177 million in 1996-97, primarily as a result of the
return of the New York State and Local Retirement ^ System from the projected
unit credit actuarial method to the aggregate cost actuarial method. Health
insurance costs are projected to increase 6 percent for calendar years 1996 and
1997. Workers' compensation costs are projected to grow by 4.5 percent.
^ General Fund debt service ^ includes short-term obligations of the
State's commercial paper program ^ and debt service on its long-term bonds,
which are reflected as transfers to the General Debt Service Fund. Projected
short-term debt service ^ costs are expected to be $12 million for 1996-97.
Transfers in support of debt service are projected to ^ grow by 5.5 percent to
$1.62 billion ^ in 1996-97, as the State continues to use bonds to support its
capital projects. However, the rate of increase in debt service has slowed
considerably from the pace of the previous decade. In 1996-97, bonds are
expected to support 44 percent of the State's capital ^ project disbursements,
compared to 48 percent in 1995-96. The $172 million transfer to the Capital
Projects Fund in 1996-97 has been reduced by $154^ million ^ from projected
levels for 1995-96, reflecting project eliminations and the deposit of funds
released as a result of a refunding of certain Housing Finance Agency bonds
supported by State appropriations. General Fund support for the operations of
SUNY is proposed for transfer into a single unified fund for all SUNY
operations.
NON-RECURRING RESOURCES
The Division of the Budget estimates that the 1996-97 ^ Financial Plan
includes ^ approximately $123 million in non-recurring resources, comprising 0.4
percent of the General Fund budget--a decrease of almost 86 percent from last
year's level. These ^ include ^ $47 million in various Medicaid actions, $40
million from a refunding of Housing Finance Agency bonds, $19 million in
recoupment of payments to providers in health and mental health, and $17 million
in revenue transfers. These non-recurring ^ savings are almost entirely offset
by non-recurring costs within the 1996-97 budget. In addition, the
recommendations included in the ^ executive budget are expected to provide fully
annualized savings in ^ 1997-98 which more than offset the non-recurring
resources used in 1996-97.
GENERAL FUND CLOSING FUND BALANCE
The 1996-97 closing fund balance in the General Fund is projected to be
$272 million. The required deposit to the Tax Stabilization Reserve Fund adds
$15 million to the 1995-96 balance of $172 million in that fund, bringing the
total to $187 million at the close of 1996-97. The retraining General Fund
balance reflects the deposit of $85 million to the Contingency Reserve Fund, to
provide resources to finance potential costs associated with litigation against
the State. This deposit is expected to be made pursuant to legislation submitted
with the executive budget which will require the State share of certain
non-recurring federal recoveries to be deposited to the Contingency Reserve
Fund.
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SPECIAL REVENUE FUNDS
For 1996-97, the Financial Plan projects disbursements of $28.93 billion
from Special Revenue Funds ^. This includes $7.65 billion from ^ Special Revenue
Funds containing State revenues, and $21.28 billion ^ from ^ funds containing
federal grants, primarily ^ for social ^ welfare programs^.
The 1996-97 executive budget recommends that all of the SUNY's revenues
be consolidated in a single fund, permitting SUNY more flexibility and control
in the use of its revenues. As a result of this proposal, General Fund support
would be transferred to this fund, rather than spent directly from the General
Fund. SUNY's spending from this fund is projected to total ^ $2.55 billion in
1996-97. The Mass Transportation Operating Assistance Fund and the Dedicated
Mass Transportation Trust Fund, which receive taxes earmarked for mass
transportation programs throughout the State, are projected to have total
disbursements of $1.23 billion in ^ 1996-97. Disbursements also include $1.63
billion in lottery proceeds which, after payment of administrative expenses,
permit the distribution of $1.43 billion ^ for education purposes. One hundred
million dollars of lottery proceeds will be reserved in a separate account for a
local school tax reduction program to be agreed upon by the Governor and the
legislature for disbursement in State fiscal year 1997-98. Disbursements of $650
million in 1996-97 from the Disproportionate Share Medicaid Assistance Fund
constitutes most of the remaining estimated State Special Revenue Funds
disbursements.
Federal special revenue fund projections for 1996-97 were developed in
the midst of considerable uncertainty as to the ultimate composition of the
federal budget, including uncertainties regarding major federal entitlement
reforms. Disbursements are estimated at $21.27 billion in 1996-97, an increase
of $2.02 billion, or 10.5 percent from 1995-96. The projections included in the
1996-97 State Financial Plan assume that the federal Medicaid program will be
reformed generally along the lines of the congressional MediGrant program. This
would include an increase from 50 percent to 60 percent in the federal share of
New York's Medicaid expenses. A repeal of the federal Boren amendment regarding
provider rates is also anticipated. As a result of these changes, the executive
budget projects the receipt of $13.1 billion in total federal Medicaid
reimbursements in 1996-97, an increase of approximately $915 million from the
1995-96 level.
The second largest projected increase in federal reimbursement is for
the State's welfare program. The State is projected to receive $2.5 billion, up
$421 million from 1995-96 levels, primarily because of increased funding
anticipated from the proposed federal welfare block grant. All other federal
spending is projected at $5.7 billion for 1996-97, an increase of $626 million.
CAPITAL PROJECTS FUNDS
^
Disbursements from the Capital Projects ^ funds in 1996-97 are estimated
at $3.76 billion. This estimate is $332 million less than the 1995-96
projections. The spending reductions are the result of program restructuring,
achieved in 1995-96 ^ and continued in the 1996-97 Financial Plan. The spending
plan includes:
$2.5 billion ^ in disbursements for the second year of the five-year
$12.6 billion state and local highway and bridge program;
Environmental Protection Fund spending of $106.5 million;
Correctional services spending of $153 million; and
SUNY and CUNY capital spending of $196 million ^ and $87 million,
respectively.
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The share of capital projects ^ to be financed ^ by "pay-as-you-go"
resources is projected to hold steady in 1996-97 at approximately 27 percent.
State-supported bond issuances finance 44 percent of capital projects, with
federal grants financing the remaining 29 percent.
DEBT SERVICE FUNDS
Disbursements from Debt Service Funds are ^ estimated at $2.64 billion
in 1996-97, an increase of $206 million or 9 percent from 1995-96. Of this
increase, $85 million is attributable to transportation bonding for the ^ state
and local highway and bridge programs which are financed by the Dedicated
Highway and Bridge Trust Fund, $35 million is for corrections including new debt
service on prisons recently purchased from New York City, and $27 million ^ is
for the mental hygiene programs financed through the Mental Health Services
Fund. Debt service for LGAC bonds increases only slightly after years of
significant increases, as the new-money bond issuance portion of the LGAC
program was completed in state fiscal year 1995-96. Increased debt service ^
costs ^ primarily ^ reflect prior capital commitments financed by bonds issued
by the ^ state and its public authorities, the reduced use of capitalized
interest, and the ^ use of shorter term bonds, such as the 10 year average
maturity for the Dedicated Highway and Bridge Trust Fund bonds.
CASH FLOW
^ In State fiscal year 1996-97, the General Fund cash flow will not
depend on either short-term spring borrowing ^ or the issuance of ^ LGAC bonds.
The new-money bond issuance portion of the LGAC program was completed in
1995-96, and provisions prohibiting the state from returning to a reliance upon
cash flow manipulation to balance its budget will remain in bond covenants until
the LGAC bonds ^ are retired.
The 1996-97 cash flow projects substantial closing balances in each
quarter of the fiscal year, with excesses in receipts over disbursements for the
first three quarters until the last quarter of the fiscal year when local
assistance payments (primarily for school aid) drive a deficiency. The closing
fund balance is projected at $272 million. The cash flow ^ projections assume
continuation of legislation enacted in 1995-96 that permits the state to use
balances in the Lottery Fund ^ for cash flow purposes. These temporary transfers
^ are returned ^ during the second quarter of the fiscal year so that all ^
lottery monies and advances of additional aid can be paid to school districts in
September.
OUTYEAR PROJECTIONS OF RECEIPTS AND DISBURSEMENTS
The ^ 1996-97 executive budget includes actions that would have an
impact on receipts and disbursements in future fiscal years. The Governor has
proposed closing the 1996-97 budget gap primarily through expenditure reductions
and without increases in taxes or deferrals of scheduled tax reductions. After
accounting for proposed changes to the executive budget submitted during the
30-day amendment period, the net impact of ^ these actions is expected to
produce a potential ^ imbalance ^ in the 1997-98 fiscal year of $l.44 billion
and in the ^ 1998-99 fiscal year of $2.46 billion, assuming implementation of
the ^ 1996-97 executive budget recommendations. For 1997-98, receipts are
estimated at $30.62 billion and disbursements at $32.05 billion. For 1998-99,
receipts are estimated at $31.85 billion and disbursements at $34.32 billion.
The outyear receipts estimates assume implementation of current law tax
reductions and the impact of the recommendations affecting receipts proposed in
the ^ executive budget, including new tax relief. Tax reductions proposed by the
Governor in his annual message to the legislature of January 3, 1996 are not
included in these estimates. Already enacted tax reductions, which are estimated
to total more than $3.7 billion in 1996-97, rise to approximately $5.6 billion
in 1997-98 and approximately $6.0 billion in the following year. Tax reductions
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recommended in the executive budget have a fully annualized cost of $75 million.
The economic scenario assumes steady, moderate growth in the national economy
through the period. Underlying "constant law" growth in receipts approximates 4
percent in 1997-98 and 4.5 percent in 1998-99. No extraordinary one-time
receipts are anticipated at this time. In addition, the projections assume a
continuation of federal tax law in effect as of year end 1995.
Outyear projections of spending, absent the impact of recommendations in
the executive budget and future executive and legislative action, would grow by
3.0 and 3.5 percent in 1997-98 and 1998-99, respectively. Spending growth is
fueled mainly by Medicaid costs. The outyear value of the recommendations
contained in the executive budget grow steadily over the next two years,
moderating the outyear growth. Projected disbursements for 1997-98 grow by only
2.7 percent, with restrained growth in all categories of the State Financial
Plan. However, in 1998-99, the increased diversion of lottery proceeds to fund
school tax relief combines with an extra payroll and Medicaid cycle to drive
growth in disbursements of just over 7 percent.
Reduced bond issuances in 1996-97 will help hold down future debt
service growth. State-supported debt is projected to grow at 3.7 percent average
annual rate over the next five years. Outstanding debt as a percentage of
personal income is projected to decline to under 6 percent over this same
period.
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. ^ Through
fiscal ^ year 1995, the State recorded balanced budgets on a cash basis, with
substantial fund balances in each year as described below.
1994-95 FISCAL YEAR
^
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 and fees, which exceeded projections by $210 million. Of this amount ^
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$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 ^ the CRF 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 ^ was used to pay taxpayer
refunds ^.
Of the $1.140 billion deposited in the tax refund reserve account,
$1.026 billion was available for budgetary planning purposes in the 1994-95
fiscal year. The remaining $114 million was redeposited in the tax refund
reserve account 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. The
balance in the CRF was reserved to meet the cost of litigation facing the State
in its 1994-95 fiscal year.
Before the deposit of $1.140 billion in the tax refund reserve account,
General Fund receipts in 1993-94 exceeded those originally projected when the
State Financial Plan for that year was formulated on April 16, 1993 by $1.002
billion. Greater-than-expected receipts in the personal income tax, the bank
tax, the corporation franchise tax and the estate tax accounted for most of this
variance, and more than offset weaker-than-projected collections from the sales
and use tax and miscellaneous receipts. Collections from individual taxes were
affected by various factors including changes in federal business laws,
sustained profitability of banks, strong performance of securities firms, and
higher-than-expected consumption of tobacco products following price cuts.
The higher receipts resulted, in part, because the New York economy
performed better than forecasted. Employment growth started in the first quarter
of the State's 1993-94 fiscal year, and, although this lagged behind the
national economic recovery, the growth in New York began earlier than
forecasted. The New York economy exhibited signs of strength in the service
sector, in construction, and in trade. Long Island and the Mid-Hudson Valley
continued to lag behind the rest of the State in economic growth. The State
Division of the Budget believes that approximately 100,000 jobs were added
during the 1993-94 fiscal year.
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Disbursements and transfers from the General Fund were $303 million
below the level projected in April 1993, an amount that would have been $423
million had the State not accelerated the payment of Medicaid billings, which in
the April 1993 State Financial Plan were planned to be deferred into the 1994-95
fiscal year. Compared to the estimates included in the State Financial Plan
formulated in April 1993, lower disbursements resulted from lower spending for
Medicaid, capital projects, and debt service (due to refundings) and $114
million used to restructure the State's cash flow as part of the LGAC program.
Disbursements were higher than expected for general support for public schools,
the State share of income maintenance, overtime for prison guards, and highway
snow and ice removal. The State also made the first of six required payments to
the State of Delaware related to the settlement of Delaware's litigation against
the State regarding the disposition of abandoned property receipts.
During the 1993-94 fiscal year, the State also established and funded
the CRF as a way to assist the State in financing the cost of litigation
affecting the State. The CRF was initially funded with a transfer of $100
million attributable to the positive margin recorded in the 1992-93 fiscal year.
In addition, the State augmented this initial deposit with $132 million in debt
service savings attributable to the refinancing of State and public authority
bonds during 1993-94. A year-end transfer of $36 million was also made to the
CRF, which, after a disbursement for authorized fund purposes, brought the CRF
balance at the end of 1993-94 to $265 million. This amount was $165 million
higher than the amount originally targeted for this reserve fund.
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 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 ^ large ^, but mainly offsetting, variances in other
categories of receipts. Significantly higher-than-projected business tax
collections and the receipt of unbudgeted payments from the Medical Malpractice
Insurance Association ("MMIA") and the New York Racing Association approximately
offset the loss of an anticipated $200 million federal reimbursement, the loss
of certain budgeted hospital differential revenue as a result of unfavorable
court decisions, and shortfalls in certain miscellaneous revenues.
Disbursements and transfers to other funds were $45 million above
projections in April 1992, although this includes a $150 million payment to
health insurers (financed with a receipt from the MMIA made pursuant to
legislation passed in January 1993). All other disbursements were $105 million
lower than projected. This reduction primarily reflected lower costs in
virtually all categories of spending, including Medicaid, local health programs,
agency operations, fringe benefits, capital projects and debt service as
partially offset by higher-than-anticipated costs for education programs.
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CERTAIN LITIGATION
^ The legal proceedings noted below involve State finances, State
programs and miscellaneous tort, real property and contract claims in which the
State is a defendant and the monetary damages sought are substantial. These
proceedings could affect adversely the financial condition of the State in the
1995-96 fiscal year or thereafter. The State will describe newly initiated
proceedings.
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) ^ two cases challenge provisions of
Section 2807-c of the Public Health Law, which impose a 13 percent 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 percent 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 percent--in The
Travelers Insurance Company v. Cuomo, et al., commenced June 2, 1992, and The
Health Insurance Association of America, et al. v. Chassin, a al., commenced
July 20, 1992, both in the United States District Court for the Southern
District of New York and ^ consolidated, plaintiffs allege that the ^ surcharges
are preempted by federal law (by decision dated April 26, 1995, the United
States Supreme Court upheld the surcharges as not preempted by federal law); (v)
challenges to the practice of reimbursing certain Office of Mental Health
patient care expenses from the client's Social Security benefits; and (vi)
alleged responsibility of New York officials to assist in remedying racial
segregation in the City of Yonkers^. 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 ^ 1995 fiscal year received an
unqualified opinion from the City's independent auditors, the eleventh
consecutive year the City received such an opinion.
^ As required by the Office of the State Deputy Comptroller for the City
of New York (the "OSDC"), the 1997-1998 Financial Plan reflects a program of
proposed actions by the City to close the gaps between projected revenues and
expenditures of ^ $1.4 billion, $2.2 billion and ^ 2.9 billion for the ^ 1998 ^,
1999 and 2000 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 ^ OSDC and the State Financial Control Board continue their
respective budgetary oversight activities.
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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 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's capital financing program projects long-term
financing requirements of approximately ^ $16.1 billion for the City's fiscal
years ^ 1997 through ^ 2000. 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.^
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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.
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 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
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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.
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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.
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. While Japan is working to reduce its dependence on foreign materials, its
lack of natural resources poses a significant obstacle to this effort.
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.
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
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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 for approval from Indian governmental
authorities to invest in India on behalf of the Portfolio as a foreign
institutional investor (an "FII"). 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.
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
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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.
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 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
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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 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.
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. Continued economic growth and development in the PRC, as well as
opportunities for foreign investment, and prospects of private sector
enterprises, in the PRC,
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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.
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, all securities of
Asian growth market issuers may generally 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
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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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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 incorporated by reference into Part B:
The JPM Institutional Money Market Fund
Statement of Assets and Liabilities at November 30, 1995
Statement of Operations for the fiscal year ended November 30, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements November 30, 1995
The Money Market Portfolio
Schedule of Investments at November 30, 1995
Statement of Assets and Liabilities at November 30, 1995
Statement of Operations for the fiscal year ended November 30, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements November 30, 1995
The JPM Institutional Tax Exempt Money Market Fund
Statement of Assets and Liabilities at August 31, 1995
Statement of Operations for the fiscal year ended August 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements August 31, 1995
Statement of Assets and Liabilities at February 28, 1996 (unaudited)
Statement of Operations for the six months ended February 28, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements February 28, 1996 (unaudited)
The Tax Exempt Money Market Portfolio
Schedule of Investments at August 31, 1995
Statement of Assets and Liabilities at August 31, 1995
Statement of Operations for the fiscal year ended August 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements August 31, 1995
Schedule of Investments at February 28, 1996 (unaudited)
Statement of Assets and Liabilities at February 28, 1996 (unaudited)
Statement of Operations for the six months ended February 28, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements February 28, 1996 (unaudited)
The JPM Institutional Treasury Money Market Fund
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1995
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1996 (unaudited)
The Treasury Money Market Portfolio
Schedule of Investments at October 31, 1995
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements October 31, 1995
Schedule of Investments at April 30, 1996 (unaudited)
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1996 (unaudited)
The JPM Institutional Short Term Bond Fund
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1995
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1996 (unaudited)
The Short Term Bond Portfolio
Schedule of Investments at October 31, 1995
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements October 31, 1995
Schedule of Investments at April 30, 1996 (unaudited)
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1996 (unaudited)
The JPM Institutional Bond Fund
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1995
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1996 (unaudited)
The U.S. Fixed Income Portfolio
Schedule of Investments at October 31, 1995
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements October 31, 1995
Schedule of Investments at April 30, 1996 (unaudited)
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1996 (unaudited)
The JPM Institutional Tax Exempt Bond Fund
Statement of Assets and Liabilities at August 31, 1995
Statement of Operations for the fiscal year ended August 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements August 31, 1995
Statement of Assets and Liabilities at February 28, 1996 (unaudited)
Statement of Operations for the six months ended February 28, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements February 28, 1996 (unaudited)
The Tax Exempt Bond Portfolio
Schedule of Investments at August 31, 1995
Statement of Assets and Liabilities at August 31, 1995
Statement of Operations for the fiscal year ended August 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements August 31, 1995
Schedule of Investments at February 28, 1996 (unaudited)
Statement of Assets and Liabilities at February 28, 1996 (unaudited)
Statement of Operations for the six months ended February 28, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements February 28, 1996 (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
Statement of Assets and Liabilities at November 30, 1995 (unaudited)
Statement of Operations for the six months ended November 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements November 30, 1995 (unaudited)
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
Schedule of Investments at November 30, 1995 (unaudited)
Statement of Assets and Liabilities at November 30, 1995 (unaudited)
Statement of Operations for the six months ended November 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements November 30, 1995 (unaudited)
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
Statement of Assets and Liabilities at November 30, 1995 (unaudited)
Statement of Operations for the six months ended November 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements November 30, 1995 (unaudited)
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
Schedule of Investments at November 30, 1995 (unaudited)
Statement of Assets and Liabilities at November 30, 1995 (unaudited)
Statement of Operations for the six months ended November 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements November 30, 1995 (unaudited)
The JPM Institutional International Equity Fund
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1995
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1996 (unaudited)
The Non-U.S. Equity Portfolio
Schedule of Investments at October 31, 1995
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Supplemantary Data
Notes to Financial Statements October 31, 1995
Schedule of Investments at April 30, 1996 (unaudited)
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1996 (unaudited)
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
Statement of Assets and Liabilities at December 31, 1995 (unaudited)
Statement of Operations for the six months ended December 31, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements December 31, 1995 (unaudited)
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
Schedule of Investments at December 31, 1995 (unaudited)
Statement of Assets and Liabilities at December 31, 1995 (unaudited)
Statement of Operations for the six months ended December 31, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements December 31, 1995 (unaudited)
The JPM Institutional Emerging Markets Equity Fund
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1995
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1996 (unaudited)
The Emerging Markets Equity Portfolio
Schedule of Investments at October 31, 1995
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statement October 31, 1995
Schedule of Investments at April 30, 1996 (unaudited)
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1996 (unaudited)
The JPM Institutional New York Total Return Bond Fund
Statement of Assets and Liabilities at March 31, 1996
Statement of Operations for the fiscal year ended March 31, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements March 31, 1996
The New York Total Return Bond Portfolio
Schedule of Investments at March 31, 1996
Statement of Assets and Liabilities at March 31, 1996
Statement of Operations for the fiscal year ended March 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements March 31, 1996
The JPM Institutional International Bond Fund
Statement of Assets and Liabilities at September 30, 1995
Statement of Operations For the period ended September 30, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements September 30, 1995
Statement of Assets and Liabilities at March 31, 1996 (unaudited)
Statement of Operations for the six months ended March 31, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements March 31, 1996 (unaudited)
The Non-U.S. Fixed Income Portfolio
Schedule of Investments at September 30, 1995
Statement of Assets and Liabilities at September 30, 1995
Statement of Operations For the six period ended September 30, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements September 30, 1995
Schedule of Investments at March 31, 1996 (unaudited)
Statement of Assets and Liabilities at March 31, 1996 (unaudited)
Statement of Operations for the six months ended March 31, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements March 31, 1996 (unaudited)
The Japan Equity Portfolio
Schedule of Investments at December 31, 1995
Statement of Assets and Liabilities at December 31, 1995
Statement of Operations for the period March 28, 1995 (commencement of
operations) through December 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements December 31, 1995
The European Equity Portfolio
Schedule of Investments at December 31, 1995
Statement of Assets and Liabilities at December 31, 1995
Statement of Operations for the period March 28, 1995 (commencement of
operations) through December 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements December 31, 1995
The Asia Growth Portfolio
Schedule of Investments at December 31, 1995
Statement of Assets and Liabilities at December 31, 1995
Statement of Operations for the period April 4, 1995 (commencement of
operations) through December 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements December 31, 1995
(b) Exhibits
1. Declaration of Trust, as amended, was filed as Exhibit 1 to
Post-Effective Amendment No. 16 to the Registration Statement filed
on June 15, 1995 ("Post-Effective Amendment No. 16").
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 Post-Effective
Amendment No. 13 to the Registration Statement filed on November 1, 1994
("Post-Effective Amendment No. 13").
6. Distribution Agreement between Registrant and Funds Distributor, Inc.
("FDI").*
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.
9(a). Co-Administration Agreement between Registrant and FDI.*
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. 21 to the Registration Statement
filed on February 27, 1996.
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 Administrative Services Agreement between Registrant and
Morgan Guaranty.*
9(e). Fund Services Agreement, as amended, between Registrant and Pierpont
Group, Inc.*
10. Opinion and consent of Sullivan & Cromwell was filed as Exhibit No. 10 to
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 to the Registration Statement filed on December 30, 1992.
16. Schedule for computation of performance quotations was filed as Exhibit
16 to Post-Effective Amendment No. 10 to the Registration Statement filed on
June 10, 1994.
17. Financial Data Schedules.*
18. Powers of Attorney were filed as Exhibit 18 to Post-Effective
Amendment No. 22 to the Registration Statement filed May 1, 1996.
___________________
* Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Shares of Beneficial Interest ($0.001 par value).
Title of Class: Number of record holders as of May 31, 1996.
The JPM Institutional Money Market Fund: 149
The JPM Institutional Treasury Money Market Fund: 19
The JPM Institutional Bond Fund: 118
The JPM Institutional Diversified Fund: 40
The JPM Institutional U.S. Small Company Fund: 361
The JPM Institutional International Equity Fund: 395
The JPM Institutional Emerging Markets Equity Fund: 426
The JPM Institutional International Bond Fund: 8
The JPM Institutional Short Term Bond Fund: 18
The JPM Institutional Selected U.S. Equity Fund: 92
The JPM Institutional Tax Exempt Money Market Fund: 42
The JPM Institutional Tax Exempt Bond Fund: 96
The JPM Institutional New York Total Return Bond Fund: 46
The JPM Institutional European Equity Fund: 7
The JPM Institutional Japan Equity Fund: 8
The JPM Institutional Asia Growth Fund: 15
ITEM 27. INDEMNIFICATION.
Reference is made to Section 5.3 of Registrant's Declaration of Trust
and Section 5 of Registrant's Distribution Agreement.
Registrant, its Trustees and officers are insured against certain
expenses in connection with the defense of claims, demands, actions, suits, or
proceedings, and certain liabilities that might be imposed as a result of such
actions, suits or proceedings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "1933 Act"), may be permitted to directors,
trustees, officers and controlling persons of the Registrant and the principal
underwriter pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the 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.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Not Applicable.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) FDI, located at 60 State Street, Suite 1300, Boston, Massachusetts
02109, is the principal underwriter of the Registrant's shares. FDI is an
indirectly wholly owned subsidiary of Boston Institutional Group, Inc., a
holding company, all of whose outstanding shares are owned by key employees. FDI
is a broker-dealer registered under the Securities Exchange Act of 1934, as
amended.
FDI acts as principal underwriter of the following investment companies
other than the Registrant:
BJB Investment Funds
Foreign Fund, Inc.
Fremont Mutual Funds
H.T. Insight Funds, Inc.
The Harris Insight Funds Trust
LKCM Fund
The Munder Funds, Inc.
The Munder Funds Trust
The PanAgora Institutional Funds
RCM Capital Funds, Inc.
RCM Equity Funds, Inc.
Skyline Funds
St. Clair Funds, Inc.
Waterhouse Investors Cash Management Funds, Inc.
FDI does not act as depositor or investment adviser of any investment companies.
(b) The following is a list of officers, directors and partners of FDI. The
principal address of all officers and directors is 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
Name; Positions and Offices with Underwriter; Position and Offices with
Registrant:
Marie E. Connolly; Director, President and Chief Executive Officer; Vice
President and Assistant Treasurer
Richard W. Ingram; Senior Vice President; President and Treasurer
John E. Pelletier; Senior Vice President and General Counsel; Vice
President and Secretary
Donald R. Roberson; Senior Vice President; None
John F. Tower III; Senior Vice President, Chief Financial Officer and
Treasurer; Vice President and Assistant Treasurer
Rui M. Moura; First Vice President; None
Bernard A. Whalen; First Vice President; None
John W. Gomez; Chairman and Director; None
William J. Nutt; Director; None
The information required by this Item 29 with respsect to each director and
officer of FDI is incorporated herein by reference to Schedule A of Form BD
filed by FDI pursuant to the Securities Exchange Act of 1934 (SEC File No.
20518).
(c) Not applicatle
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 administrative services agent).
STATE STREET BANK AND TRUST COMPANY: 1776 Heritage Drive, North
Quincy, Massachusetts 02171 (records relating to its functions as
custodian, transfer agent and dividend disbursing agent).
FUNDS DISTRIBUTOR, INC.: 60 State Street, Boston, Massachusetts 02109
(records relating to its functions as distributor and co-administrator).
ITEM 31. MANAGEMENT SERVICES.
Not Applicable.
ITEM 32. UNDERTAKINGS.
(a) If the information called for by Item 5A of Form N-1A is contained
in the latest annual report to shareholders, the Registrant shall furnish each
person to whom a prospectus is delivered with a copy of the Registrant's latest
/annual report to shareholders upon request and without charge.
(b) The Registrant undertakes to 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) The Registrant undertakes to file a post-effective amendment,
using financials which need not be certified, within four to six months
following the effective date of this registration statement with respect to the
European Equity, Japan Equity and Asia Growth Funds. The financial
statements included in such amendment will be as of and for the time period
ended on a date reasonably close or as soon as practicable to the date of the
filing of the amendment.
<PAGE>
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 of
the requirements for effectiveness of this registration statement pursuant to
Rule 485(b) 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 31st day of July, 1996.
THE JPM INSTITUTIONAL FUNDS
By /s/THOMAS M. LENZ
---------------------------
Thomas M. Lenz, Secretary
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 July 31, 1996.
MATTHEW HEALEY*
- --------------------------
Matthew Healey
Chairman and Chief Executive Officer
JOHN R. ELDER*
- --------------------------
John R. Elder
Treasurer and Principal Accounting and Financial 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/THOMAS M. LENZ
--------------------------
Thomas M. Lenz,
as attorney-in-fact pursuant to a power of attorney previously filed.
<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 31st day of July, 1996.
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 July 31, 1996.
MATTHEW HEALEY*
- --------------------------
Matthew Healey
Chairman and Chief Executive Officer of the Portfolios
JOHN R. ELDER*
- --------------------------
John R. Elder
Treasurer and Principal Accounting and Financial 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
By /s/SUSAN JAKUBOSKI
--------------------------
Susan Jakuboski,
as attorney-in-fact pursuant to a power of attorney previously filed.
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
EX-99.B6 Distribution Agreement
EX-99.B9(a) Co-Administration Agreement
EX-99.B9(b) Restated Administrative Services Agreement
EX-99.B9(c) Amended Fund Services Agreement
EX-99.B11 Consents of Independent Accountants
EX-27.1 to
EX-27.13 Financial Data Schedules.
THE JPM INSTITUTIONAL FUNDS
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT, made as of this 1st day of August, 1996,
between THE JPM INSTITUTIONAL FUNDS, an unincorporated business trust organized
under the laws of the Commonwealth of Massachusetts (the "Trust"), and FUNDS
DISTRIBUTOR, INC., a Massachusetts corporation (the "Distributor").
WITNESSETH:
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company;
WHEREAS, the Shares of Beneficial Interest (par value $0.001 per share)
of the Trust (the "Shares") are divided into multiple series (such series
together with any other series which may in the future be established, the
"Funds");
WHEREAS, it is in the interest of the Trust to be able to offer Shares
of each Fund for sale continuously and to appoint a broker registered under the
Securities Exchange Act of 1934 and various state broker registration statutes
for the purpose of facilitating such offers and sales;
WHEREAS, the Trust and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of Shares of the Funds;
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Trust hereby appoints
the Distributor its exclusive agent in connection with the offering and sale of
the Shares on the terms set forth in this Agreement and the Distributor hereby
accepts such appointment and agrees to act hereunder.
Section 2. Services and Duties of the Distributor.
(a) The Distributor agrees to offer and sell, as agent for the Trust,
from time to time during the term of this Agreement, Shares upon the terms
described in the Prospectus relating to such Shares. As used in this Agreement,
the term "Prospectus" shall mean the prospectus, including any information
incorporated by reference therein, relating to such Shares included as part of
<PAGE>
the Trust's Registration Statement, as such prospectus may be amended or
supplemented from time to time, and the term "Registration Statement" shall mean
the Registration Statement most recently filed from time to time by the Trust
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as amended (the "1933 Act") and the 1940 Act, as such Registration
Statement may be amended by any amendments thereto at the time in effect.
(b) The Distributor will hold itself available to receive orders,
satisfactory to the Distributor, for the purchase of Shares and will establish
procedures for the acceptance and transmission of orders on behalf of the Trust,
which procedures shall be reasonably acceptable to the Trust. The Distributor
shall promptly forward to the Trust's custodian funds received in respect of
purchases of Shares. Purchase orders shall be deemed effective at the time and
in the manner set forth in the Prospectus relating to such Shares.
(c) The offering price of the Shares shall be the net asset value per
Share (as defined in or pursuant to the Declaration of Trust of the Trust and
determined as set forth in the Prospectus relating to such Shares) next
determined following receipt of an order. The Trust shall furnish the
Distributor, with all possible promptness, an advice of each computation of net
asset value of Shares of each Fund.
(d) The Distributor shall not be obligated to sell any certain number
of Shares and nothing herein contained shall prevent the Distributor from
entering into like distribution arrangements with other investment companies.
Section 3. Duties of the Trust.
(a) The Trust agrees to sell Shares of each Fund so long as it has
Shares available for sale and to cause the Trust's transfer agent to record on
its books the ownership of (or deliver certificates, if any, for) such Shares
registered in such names and amounts as the Distributor has requested in writing
or other means of data transmission, as promptly as practicable after receipt by
the Trust of the net asset value thereof and written request of the Distributor
therefor.
2
<PAGE>
(b) The Trust shall keep the Distributor fully informed with regard to
the Trust's affairs and shall furnish to the Distributor copies of all
information, financial statements and other papers which may be necessary for
use in connection with the sale of Shares of the Funds, and this shall include
one certified copy, upon request by the Distributor, of all financial statements
prepared for the Trust by independent accountants and such number of copies of
its most current Prospectuses as may be necessary to accompany confirmation of
sales and annual and interim reports and Prospectuses for delivery to existing
shareholders.
(c) The Trust shall take, from time to time, such steps, including
payment of the related filing fee, as may be necessary to register its Shares
under the 1933 Act to the end that there will be available for sale such number
of Shares as the Distributor may be expected to sell. The Trust agrees to file
from time to time such amendments, reports and other documents as may be
necessary in order that there may be no untrue statement of a material fact in a
Registration Statement or Prospectuses, or necessary in order that there may be
no omission to state a material fact in the Registration Statement or
Prospectuses which omission would make the statements therein misleading.
(d) The Trust, through Funds Distributor, Inc. as Co-Administrator,
shall use its best efforts to qualify and maintain the qualification of any
appropriate number of the Shares of each Fund for sale under the securities laws
of such states as the Distributor and the Trust may approve, and, if necessary
or appropriate in connection therewith, to qualify and maintain the
qualification of the Trust as a broker or dealer in such states; provided that
the Trust shall not be required to amend its Declaration of Trust or By-laws to
comply with the laws of any state, to maintain an office in any state, to change
the terms of the offering of the Shares in any state from the terms set forth in
its Registration Statement and Prospectuses, to qualify as a foreign corporation
in any state or to consent to service of process in any state other than with
respect to claims arising out of the offering of the Shares. The Distributor
shall furnish such information and other material relating to its affairs and
activities as may be required by such Co-Administrator in connection with such
qualifications.
Section 4. Expenses. The Trust shall bear all costs and expenses
necessary for the continuous sale of the Shares such as: (i) fees and
disbursements of its counsel and independent accountants; (ii) the preparation,
filing and printing of any registration statements and/or prospectuses required
to be filed by and under the Federal and state securities laws and to be
delivered with a confirmation of a sale; (iii) the preparation and mailing of
annual and interim reports, prospectuses and proxy materials to shareholders;
and (iv) the qualifications of Shares for sale and of the Trust as a broker or
dealer under the securities laws of such states or other jurisdictions as shall
be selected by the Trust and the Distributor pursuant to Section 3(d) hereof and
the cost and expenses payable to each such state for continuing qualification
therein in connection with such sale. Since the Trust has not adopted a plan
under Rule 12b-1 of the 1940 Act, the Distributor is directed and agrees that it
will not incur any expenses which would require the Trust to adopt a plan under
Rule 12b-1.
3
<PAGE>
Section 5. Indemnification. The Trust agrees to indemnify, defend and
hold the Distributor, its officers and directors and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its officers, directors or any such controlling person may incur
under the 1933 Act, or under common law or otherwise, arising out of or based
upon any untrue statement of a material fact contained in the Registration
Statement or Prospectus or arising out of or based upon any alleged omission to
state a material fact required to be stated in either thereof or necessary to
make the statements in either thereof not misleading, except insofar as such
claims, demands, liabilities or expenses arise out of or are based upon any such
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information furnished in writing by the
Distributor to the Trust for use in the Registration Statement or Prospectus;
provided, however, that this indemnity agreement, to the extent that it might
require indemnity of any person who is also an officer or Trustee of the Trust
or who controls the Trust within the meaning of Section 15 of the 1933 Act,
shall not inure to the benefit of such officer, Trustee or controlling person
unless a court of competent jurisdiction shall determine, or it shall have been
determined by controlling precedent, that such result would not be against
public policy as expressed in the 1933 Act; and further provided that in no
event shall anything contained herein be so construed as to protect the
Distributor against any liability to the Trust or to its securities holders to
which the Distributor would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
by reason of its reckless disregard of its obligations under this Agreement. The
Trust's agreement to indemnify the Distributor, its officers and directors and
any such controlling person, as aforesaid is expressly conditioned upon the
Trust's being promptly notified of any action brought against the Distributor,
its officers or directors, or any such controlling person, such notification to
be given to the Trust in accordance with Section 9, with a copy to Stephen K.
West, Sullivan & Cromwell, 125 Broad Street, New York, New York 10004. The Trust
agrees promptly to notify the Distributor of the commencement of any litigation
or proceedings against it or any of its officers or Trustees in connection with
the issue and sale of any Shares.
4
<PAGE>
The Distributor agrees to indemnify, defend and hold the Trust, its
Trustees and officers and any person who controls the Trust, if any, within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Trust, its Trustees or
officers of any such controlling person may incur under the 1933 Act or under
common law or otherwise, but only the extent that such liability or expense
incurred by the Trust, its Trustees or officers or such controlling person
resulting from such claims or demands shall arise out of or be based upon any
alleged untrue statement of a material fact contained in information furnished
in writing by the Distributor to the Trust for use in the preparation of the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in such information or a fact
necessary to make such information not misleading, it being understood that the
Trust will rely upon the information provided by the Distributor for use in the
preparation of the Registration Statement and Prospectus. The Distributor's
agreement to indemnify the Trust, its Trustees and officers, and any such
controlling person as aforesaid is expressly conditioned upon the Distributor's
being promptly notified of any action brought against the Trust, its Trustees or
officers or any such controlling person, such notification to be given to the
Distributor in accordance with Section 9.
Section 6. Limitation of Liability. The Distributor shall not be liable
for any error of judgment or for any loss suffered by the Trust in connection
with the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or for reckless disregard by it of its obligations and
duties under this Agreement.
Section 7. Compliance with Securities Laws. The Trust represents that
it is registered as an open-end management investment company under the 1940
Act, and agrees that it will comply with the provisions of the 1940 Act and of
the rules and regulations thereunder. The Trust and the Distributor each agree
to comply with the applicable terms and provisions of the 1940 Act, the 1933 Act
and, subject to the provisions of Section 3(d), applicable state securities
laws. The Distributor agrees to comply with the applicable terms and provisions
of the Securities Exchange Act of 1934.
5
<PAGE>
Section 8. Term of Agreement; Termination. This Agreement shall
commence on the date first set forth above. This Agreement shall continue in
effect for a period more than two years from the date hereof only so long as
such continuance is specifically approved at least annually in conformity with
the requirements of the 1940 Act.
This Agreement shall terminate automatically in the event of its
assignment (as defined the 1940 Act). In addition, this Agreement may be
terminated by either party at any time, without penalty, on not less than sixty
(60) days' written notice to the other party.
Section 9. Notices. Any notice required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid: (1) to the Distributor at Funds Distributor, Inc., 60 State
Street, 13th Floor, Boston, Massachusetts 02109, Attention: President with a
copy to General Counsel; or (2) to the Trust at The JPM Institutional Funds, at
its address as set forth in its Prospectuses, Attention: Treasurer, with a copy
to Morgan Guaranty Trust Company, 522 Fifth Avenue, New York, New York 10036,
Attention: Funds Management or at such other address as either party may from
time to time specify to the other party pursuant to this Section 9.
Section 10. Confidentiality. The Distributor agrees on behalf of itself
and its employees to treat confidentially and as proprietary information of the
Trust all records and other information not otherwise publicly available
relative to the Trust and its prior, present or potential shareholders and not
to use such records and information for any purpose other than performance of
its responsibilities and duties hereunder, except after prior notification to
and approval in writing by the Trust, which approval shall not be unreasonably
withheld and may not be withheld where the Distributor may be exposed to civil
or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Trust.
Section 11. No Liability of Shareholders, Trustees, etc. The Trustees
have authorized the execution of this Agreement in their capacity as Trustees
and not individually and the Distributor agrees that neither the shareholders
nor the Trustees nor any officer, employee, representative or agent of the Trust
shall be personally liable upon, nor shall resort be had to their private
property for the satisfaction of, obligations given, executed or delivered on
behalf of or by the Trust, that the shareholders, Trustees, officers, employees,
representatives and agents of the Trust shall not be personally liable
hereunder, and that it shall look solely to the property of the Trust for the
satisfaction of any claim hereunder.
6
<PAGE>
Section 12. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
FUNDS DISTRIBUTOR, INC.
By: _________________________
Name:
Title:
THE JPM INSTITUTIONAL FUNDS
By: __________________________
Name:
Title:
JPM615
7
THE JPM INSTITUTIONAL FUNDS
CO-ADMINISTRATION AGREEMENT
CO-ADMINISTRATION AGREEMENT, dated as of August 1, 1996, by and between
The JPM Institutional Funds, a Massachusetts business trust having a Declaration
of Trust on file with the office of Secretary of State of the Commonwealth of
Massachusetts (the "Trust"), and Funds Distributor, Inc., a Massachusetts
corporation (the "Co-Administrator").
W I T N E S S E T H:
WHEREAS, the Trust is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940 (collectively with
the rules and regulations promulgated thereunder, the "1940 Act");
WHEREAS, the Shares of Beneficial Interest (par value $0.001 per share)
of the Trust (the "Shares") are divided into multiple series (together with any
series which may in the future be established, the "Series" or the "Fund"); and
WHEREAS, the Trust wishes to engage the Co-Administrator to provide
certain administrative and management services, and the Co-Administrator is
willing to provide such administrative and management services to the Trust and
each Series, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. DUTIES OF THE CO-ADMINISTRATOR. Subject to the general direction and
control of the Board of Trustees of the Trust, the Co-Administrator shall
perform the following administrative and management services: (a) providing or
obtaining office space, equipment and clerical personnel necessary for
maintaining the organization of the Trust, including a principal office in
Massachusetts, and for performing the administrative and management functions
herein set forth; (b) arranging for Directors, officers and employees of the
Co-Administrator or its agents, reasonably acceptable to the Trustees, to serve
as Trustees, officers or agents of the Trust and perform the duties incident to
their office, if duly elected or appointed to such positions and subject to
their individual consent and to any limitations imposed by law; (c) preparing
such reports, applications and documents (including reports regarding the sale
and redemption of Shares as reported by the Trust's transfer agent
1
<PAGE>
as may be required in order to comply with state securities laws) as may be
necessary or desirable to register Shares with state securities authorities,
monitoring the sale of Shares as reported by the Trust's transfer agent for
compliance with state securities laws, and filing with the appropriate state
securities authorities the registration statements and reports for the Trust and
the Shares and all amendments thereto, as may be necessary or convenient to
register and keep effective the Trust and the Shares with state securities
authorities to enable the Trust to make a continuous offering of Shares; (d)
reviewing and filing with the National Association of Securities Dealers all
marketing and sales literature provided to the Co- Administrator on behalf of
the Trust; and (e) maintaining books and records of the Trust related to the
foregoing. In the performance of its duties under this Agreement, the
Co-Administrator will comply with the provisions of the Declaration of Trust and
By-Laws of the Trust and the Trust's stated investment objectives, policies and
restrictions and will use its best efforts to safeguard and promote the welfare
of the Trust and to comply with other policies which the Board of Trustees may
from time to time determine. Notwithstanding the foregoing, the Co-
Administrator shall not be deemed to have assumed any duties with respect to
this Agreement, including, without limitation, any responsibility for the
management of the Trust's assets or the rendering of investment advice and
supervision with respect thereto, nor shall the Co-Administrator be deemed to
have assumed or have any responsibility with respect to functions specifically
assumed by any transfer agent, custodian or other administrative service
provider of the Trust. The Co- Administrator undertakes to comply with all
applicable requirements of the federal securities laws and any other laws, rules
and regulations of governmental authorities having jurisdiction with respect to
the duties to be performed by it hereunder.
2. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Co-Administrator hereby agrees that all records which it
maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any such records upon the Trust's request.
3. ALLOCATION OF CHARGES AND EXPENSES. The Co-Administrator shall pay
the entire salaries and wages of all of the Trust's Trustees, officers and
agents who devote part or all of their time to the affairs of the
Co-Administrator or its affiliates, and the wages and salaries of such persons
shall not be deemed to be expenses incurred by the Trust for purposes of this
Section 3. Except as provided in the foregoing sentence, the Co-Administrator
shall not pay other expenses relating to the Trust including, without
limitation, compensation of Trustees not affiliated with the Co-Administrator;
governmental fees; interest charges; taxes; membership dues in the Investment
Company Institute allocable to the Trust; fees and expenses of the Trust's
independent auditors, of legal counsel and of any transfer agent, distributor,
shareholder servicing agent, registrar or dividend disbursing agent of the
Trust; expenses of distributing and redeeming Shares and servicing shareholder
accounts; expenses of preparing, printing and mailing prospectuses and
statements of additional
2
<PAGE>
information, reports, notices, proxy statements and reports to shareholders and
governmental officers and commissions; expenses of preparing and mailing agendas
and supporting documents for meetings of Trustees and committees of Trustees;
expenses connected with the execution, recording and settlement of portfolio
security transactions; insurance premiums; fees and expenses of the Trust's
custodian for all services to the Trust, including safekeeping of funds and
securities and maintaining required books and accounts; expenses of calculating
the net asset value of the Shares; expenses of shareholder meetings; and
expenses relating to the issuance, registration and qualification of Shares.
4. COMPENSATION OF CO-ADMINISTRATOR. For the services to be rendered
and the facilities to be provided by the Co-Administrator hereunder, the Co-
Administrator shall receive a fee from each such Series of the Trust as agreed
by the Trust and the Co-Administrator from time to time as set forth on Schedule
A attached hereto. This fee will be payable as agreed by the Trust and the Co-
Administrator, but no more frequently than monthly.
5. LIMITATION OF LIABILITY OF THE CO-ADMINISTRATOR. The
Co-Administrator shall not be liable for any error of judgment or mistake of law
or for any act or omission in the administration or management of the Trust or
the performance of its duties hereunder, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of the
reckless disregard of its obligations and duties hereunder. As used in this
Section 5, the term "Co-Administrator" shall include Funds Distributor, Inc.
and/or any of its affiliates and the Directors, officers and employees of Funds
Distributor, Inc. and/or of its affiliates.
6. ACTIVITIES OF THE CO-ADMINISTRATOR. The services of the
Co-Administrator to the Trust are not to be deemed to be exclusive, the
Co-Administrator being free to render administrative and/or other services to
other parties. It is understood that Trustees, officers, and shareholders of the
Trust are or may become interested in the Co-Administrator and/or any of its
affiliates, as Directors, officers, employees, or otherwise, and that Directors,
officers and employees of the Co-Administrator and/or any of its affiliates are
or may become similarly interested in the Trust and that the Co-Administrator
and/or any of its affiliates may be or become interested in the Trust as a
shareholder or otherwise.
7. TERMINATION. This Agreement may be terminated as to any Series at
any time, without the payment of any penalty, by the Board of Trustees of the
Trust or by the Co-Administrator, in each case on not more than 60 days' nor
less than 30 days' written notice to the other party.
8. SUBCONTRACTING BY THE CO-ADMINISTRATOR. The Co-Administrator may
subcontract for the performance of its obligations hereunder with any one or
more persons; PROVIDED, HOWEVER, [THAT THE CO-ADMINISTRATOR SHALL NOT ENTER INTO
ANY SUCH
3
<PAGE>
SUBCONTRACT UNLESS THE TRUSTEES OF THE TRUST SHALL HAVE APPROVED SUCH
SUBCONTRACT AND FOUND THE SUBCONTRACTING PARTY TO BE QUALIFIED TO PERFORM THE
OBLIGATIONS SOUGHT TO BE SUBCONTRACTED AND PROVIDED, FURTHER,] that, unless the
Trust otherwise expressly agrees in writing, the Co-Administrator shall be as
fully responsible to the Trust for the acts and omissions of any subcontractor
as it would be for its own acts or omissions. [ALTERNATIVE: CO-ADMINISTRATOR
SHALL HAVE GIVEN PRIOR NOTICE TO THE TRUSTEES.]
9. FURTHER ACTIONS. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
10. AMENDMENTS. This Agreement may be amended by only mutual written
consent.
11. CONFIDENTIALITY. The Co-Administrator agrees on behalf of itself
and its employees to treat confidentially and as proprietary information of the
Trust all records and other information not otherwise publicly available
relative to the Trust and its prior, present or potential shareholders and not
to use such records and information for any purpose other than performance of
its responsibilities and duties hereunder, except after prior notification to
and approval in writing by the Trust, which approval shall not be unreasonably
withheld and may not be withheld where the Co-Administrator may be exposed to
civil or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Trust.
12. MISCELLANEOUS. This Agreement embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. Should any part of this Agreement be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors, to the extent
permitted by law.
13. NOTICE. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Co-Administrator at 60 State
Street, 13th Floor, Boston, Massachusetts 02109, Attention: President with a
copy to General Counsel; or (2) to the Trust at 60 State Street, 13th Floor,
Boston, Massachusetts 02109, Attention: Treasurer, or at such other address as
either party may from time to time specify to the other party pursuant to this
section, with a copy to Morgan Guaranty Trust Company of New York, 522 Fifth
Avenue, New York, New York 10036, Attention: Funds Management.
4
<PAGE>
14. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written. The
undersigned officer of the Trust has executed this Agreement not individually,
but as an officer of the Trust under the Trust's Declaration of Trust, dated
November 4, 1992 as amended, and the obligations of this Agreement are not
binding upon any of the Trustees or shareholders of the Trust individually, but
bind only the Trust estate.
THE JPM INSTITUTIONAL FUNDS
By
Name:
Title:
FUNDS DISTRIBUTOR, INC.
By
Name:
Title:
JPM614
5
<PAGE>
SCHEDULE A
The Co-Administrator's annual fee charged to and payable by each
Covered Entity as defined below is its share of an annual complex-wide charge.
The annual complex-wide charge is:
(a) $425,000 for all Covered Entities, PROVIDED that such charge shall be
increased by $5,000 for each Covered Entity in excess of 100, plus
(b) out-of-pocket charges for any services subcontracted pursuant to
co-administration agreements with Covered Entities.
The portion of this charge payable by each Covered Entity is (i) in the case of
any charges described in paragraph (b) directly attributable to a particular
Covered Entity, the amount attributable to such Covered Entity, plus (ii) in the
case of all other amounts, the amount determined by the proportionate share that
such Covered Entity's net assets bear to the total net assets of the Covered
Entities.
A Covered Entity is any series of The Pierpont Funds, The JPM Institutional
Funds, The JPM Advisor Funds, the Portfolios in which they invest, and each
other current or future mutual fund (or series thereof) for which both (1) a tax
return is filed with the Internal Revenue Service under United States tax law
and (2) Morgan Guaranty Trust Company of New York provides investment advice
and/or administrative services and the Co- Administrator provides administration
services.
Approved: July 11, 1996
Effective August 1, 1996
JPM614
THE JPM INSTITUTIONAL FUNDS
RESTATED ADMINISTRATIVE SERVICES AGREEMENT
RESTATED ADMINISTRATIVE SERVICES AGREEMENT, dated as of August 1, 1996,
by and between The JPM Institutional Funds, a Massachusetts business trust
having a Declaration of Trust on file with the office of Secretary of State of
the Commonwealth of Massachusetts (the "Trust"), and Morgan Guaranty Trust
Company of New York, a New York trust company ("Morgan").
W I T N E S S E T H:
WHEREAS, the Trust is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940 (collectively with
the rules and regulations promulgated thereunder, the "1940 Act");
WHEREAS, the Shares of Beneficial Interest (par value $0.001 per share)
of the Trust (the "Shares") are divided into multiple series (such series
together with any other series which may in the future be established, the
"Funds"); and
WHEREAS, the Trust wishes to engage Morgan to provide certain
administrative services for the Funds, and Morgan is willing to provide such
services for each Fund, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of Morgan.
1.1. Subject to the general direction and control of the Board of
Trustees of the Trust, Morgan shall perform such administrative and related
services as may from time to time be reasonably requested by the Trust, which
shall include without limitation: a) arranging for the preparation and filing of
the Trust's tax returns and preparing financial statements and other financial
reports for review by the Trust's independent auditors; b) coordinating the
Trust's annual audits; c) developing the budget and establishing the rate of
expense accrual for each Fund; d) overseeing the preparation by the Trust's
transfer agent (the "Transfer Agent") of tax information for shareholders; e)
overseeing the Trust's custodian and the Transfer Agent and other service
providers, including expense disbursement; verifying the calculation of
performance data for the Trust and its reporting to the appropriate tracking
services; and computing the amount and monitoring the frequency of distributing
each Fund's dividends and capital gains distributions and confirming that they
have been properly distributed to the shareholders of record; f) taking
responsibility for compliance with all applicable federal securities and other
regulatory requirements (other than state securities registration and filing
requirements); g) taking responsibility for
1
<PAGE>
monitoring each Fund's status as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"); h) arranging for
preparation of agendas and supporting documents for and minutes of meetings of
Trustees, committees of Trustees, and shareholders; i) maintaining books and
records relating to such services.
1.2. Morgan shall provide such other related services as the Trust may
reasonably request, to the extent permitted by applicable law. Morgan shall
provide all personnel and facilities necessary in order for it to provide the
services contemplated by this paragraph.
Morgan assumes no responsibilities under this Agreement other than to
render the services called for hereunder, on the terms and conditions provided
herein. In the performance of its duties under this Agreement, Morgan will
comply with the provisions of the Declaration of Trust and By-Laws of the Trust
and the stated investment objective, policies and restrictions of each Fund, and
will use its best efforts to safeguard and promote the welfare of the Trust, and
to comply with other policies which the Board of Trustees may from time to time
determine.
2. Books and Records. Morgan shall with respect to each Fund create and
maintain all records relating to its activities and obligations under this
Agreement in such manner as will meet the obligations of the Trust under the
1940 Act, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the Trust and shall
at all times during the regular business hours of Morgan be open for inspection
by duly authorized officers, employees or agents of the Securities and Exchange
Commission. In compliance with the requirements of Rule 31a-3 under the 1940
Act, Morgan hereby agrees that all records which it maintains for the Funds are
the property of the Trust and further agrees to surrender promptly to the Trust
any such records upon the Trust's request.
3. Opinion of the Trust's Independent Public Accountants. Morgan shall
take all reasonable action with respect to each Fund, as the Trust may from time
to time request, to obtain from year to year favorable opinions from the Trust's
independent public accountants with respect to its activities hereunder in
connection with the preparation of the Trust's registration statement on Form
N-1A, reports on Form N-SAR or other periodic reports to the Securities and
Exchange Commission and with respect to any other requirements of such
Commission.
4. Liaison with Independent Public Accountants. Morgan shall act as
liaison with the Trust's independent public accountants and shall provide, upon
request, account analyses, fiscal year summaries and other audit-related
schedules. Morgan shall take all reasonable action in the performance of its
obligations under this Agreement to assure that the necessary information is
made available to such accountants for the expression of their opinion as such
may be required by the Trust from time to time.
2
<PAGE>
5. Allocation of Charges and Expenses. Morgan shall bear all of the
expenses incurred in connection with carrying out its duties hereunder. Each
Fund shall pay the usual, customary or extraordinary expenses incurred by the
Fund or, as appropriate, the Trust and allocable to the Fund, including without
limitation compensation of Trustees; federal and state governmental fees;
interest charges; taxes; membership dues in the Investment Company Institute
allocable to the Trust; fees and expenses of any provider other than Morgan of
services to the Trust under a co-administration agreement (the "Co-
Administrator"), Morgan pursuant to the Shareholder Servicing Agreement and this
Agreement, Pierpont Group Inc. pursuant to the Fund Services Agreement,
independent auditors, legal counsel and of any transfer agent, registrar or
dividend disbursing agent of the Trust; expenses of preparing, printing and
mailing prospectuses and statements of additional information, reports, notices,
proxy statements and reports to shareholders and governmental offices and
commissions; expenses of preparing, printing and mailing agendas and supporting
documents for meetings of Trustees and committees of Trustees; insurance
premiums; fees and expenses of the Trust's custodian for all services to the
Trust, including safekeeping of funds and securities and maintaining required
books and accounts; expenses of calculating the net asset value of Shares;
expenses of shareholder meetings; expenses relating to the issuance,
registration and qualification of Shares of the Trust; and litigation and
indemnification expenses.
6. Compensation of Morgan. For the services to be rendered and the
expenses to be borne by Morgan hereunder, the Trust shall pay Morgan a fee at an
annual rate as set forth on Schedule A attached hereto from each Fund. This fee
will be computed daily and will be payable as agreed by the Trust and Morgan,
but no more frequently than monthly.
7. Limitation of Liability of Morgan. Morgan shall not be liable for
any error of judgment or mistake of law or for any act or omission in the
performance of its duties hereunder, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties, or by reason of the
reckless disregard of its obligations and duties hereunder.
8. Activities of Morgan. The services of Morgan to the Trust are not to
be deemed to be exclusive, Morgan being free to engage in any other business or
to render services of any kind to any other corporation, firm, individual or
association.
9. Termination. This Agreement may be terminated as to any Fund at any
time, without the payment of any penalty, by the Board of Trustees of the Trust
or by Morgan, in each case on not more than 60 days' nor less than 30 days'
written notice to the other party.
10. Subcontracting by Morgan. Morgan may subcontract for the
performance of its obligations hereunder with any one or more persons; provided,
however, that, unless the Trust otherwise expressly agrees in writing, Morgan
shall be as fully responsible to the Trust for the acts and omissions of any
subcontractor as it would be for its own acts or omissions.
3
<PAGE>
11. Further Actions. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
12. Amendments. This Agreement may be amended only by mutual written
consent.
13. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements,
terminations, extensions or other understandings relating to Morgan's provision
of financial, fund accounting or administrative services for the Funds. The
captions in this Agreement are included for convenience of reference only and in
no way define or delimit any of the provisions hereof or otherwise affect their
construction or effect. Should any part of this Agreement be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement shall be binding and
shall inure to the benefit of the parties hereto and their respective
successors, to the extent permitted by law.
14. Notice. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid (1) to Morgan at Morgan Guaranty Trust Company
of New York, 522 Fifth Avenue, New York, New York 10036, Attention: Funds
Management, or (2) to the Trust at The JPM Institutional Funds at its principal
place of business as provided to Morgan, Attention: Treasurer.
15. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written. The
undersigned officer of the Trust has executed this Agreement not individually,
but as an officer of the Trust under the Trust's Declaration of Trust, dated
November 4, 1992 as amended, and the obligations of this Agreement are not
binding upon any of the Trustees or shareholders of the Trust individually, but
bind only the Trust estate.
THE JPM INSTITUTIONAL FUNDS
By ___________________________
Matthew Healey, Chairman and
Chief Executive Officer
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By ___________________________
[Name, Title]
JPM616
4
<PAGE>
Schedule A
Administrative Services Fees
The JPM Institutional Funds (the "Trust")
The annual administrative services fee charged to and payable by each
Fund is equal to its proportionate share of an annual complex-wide charge. This
charge is calculated daily based on the aggregate net assets of the registered
investment companies listed on Exhibit I, as amended from time to time
(collectively the "Master Portfolios"), and in accordance with the following
annual schedule:
0.09% on the first $7 billion of the Master Portfolios'
aggregate average daily net assets; and 0.04% of the Master
Portfolios' aggregate average daily net assets in excess of $7
billion less the complex-wide charge of the Co-Administrator
The portion of this charge payable by each Fund is determined by the
proportionate share that its net assets bear to the total of the net assets of
the Trust, The Pierpont Funds, The JPM Advisor Funds, the Master Portfolios and
other investors in the Master Portfolios for which Morgan provides similar
services.
Approved: July 11, 1996
Effective August 1, 1996
JPM616
<PAGE>
Exhibit I
Date of Effective
Portfolio Declaration of Trust Date
The Treasury Money Market Portfolio 11/4/92 8/1/96
The Money Market Portfolio 1/29/93 8/1/96
The Tax Exempt Money Market Portfolio 1/29/93 8/1/96
The Short Term Bond Portfolio 1/29/93 8/1/96
The U.S. Fixed Income Portfolio 1/29/93 8/1/96
The Tax Exempt Bond Portfolio 1/29/93 8/1/96
The Selected U.S. Equity Portfolio 1/29/93 8/1/96
The U.S. Small Company Portfolio 1/29/93 8/1/96
The Non-U.S. Equity Portfolio 1/29/93 8/1/96
The Diversified Portfolio 1/29/93 8/1/96
The Non-U.S. Fixed Income Portfolio 6/16/93 8/1/96
The Emerging Markets Equity Portfolio 6/16/93 8/1/96
The New York Total Return Bond Portfolio 6/16/93 8/1/96
The Series Portfolio* 6/24/94 8/1/96
The Asia Growth Portfolio
The Japan Equity Portfolio
The European Equity Portfolio
*In the case of The Series Portfolio, references to the "Portfolio" refer to its
individual series as the context requires.
THE JPM INSTITUTIONAL FUNDS
AMENDED AND RESTATED
FUND SERVICES AGREEMENT
FUND SERVICES AGREEMENT made as of the 15th day of January, 1994, as
amended and restated as, of July 11, 1996, between The JPM Institutional Funds,
an unincorporated business trust organized under the laws of the Commonwealth of
Massachusetts (the "Trust"), and PIERPONT GROUP, INC., a New York corporation
(the "Group").
WITNESSETH:
WHEREAS, the Trust is an open-end management investment company,
registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Trust has retained organizations to be its custodian,
transfer agent, distributor and services agent and an administrator to
administer and manage all aspects of the Trust's day-to-day operations (except
for providing a Chief Executive Officer pursuant to this Agreement and for those
services provided pursuant to the Trust's Administrative Services Agreement with
Morgan Guaranty Trust Company of New York ("Morgan")); and
WHEREAS, the Trust and its Trustees wish to engage the Group to assist
the Trustees in carrying out their duties as Trustees in supervising the Trust's
affairs;
NOW, THEREFORE, the Trust and the Group hereby agree as follows:
1. Beginning on the date hereof, the Group shall provide facilities and
personnel to assist the Trustees in carrying out their duties as Trustees in
supervising the affairs of the Trust, including without limitation:
a) Organization of the times and participation in the
preparation of agendas for Trustees' meetings;
b) Providing personnel acceptable to the Trustees to act
in the capacity of Chief Executive Officer when so requested by the Trustees;
and
c) Oversight and review of the performance of services to the
Trust by others, including~review of registration statements, annual and
semi-annual reports to shareholders, proxies, compliance procedures with
applicable legal, regulatory, and financial requirements, current market and
legal developments in the investment management industry, materials presented to
the Trustees for approval, and any other matters as directed by the Trustees.
2. In return for the services provided hereunder, the Trust will pay
the Group a fee in an amount representing the reasonable costs of the Group in
providing services hereunder, payable in a manner corresponding as closely as
practicable to the Trust's receipt of such services, all as determined from time
to time by the Trustees.
1
<PAGE>
3. The Group shall not be liable for any error of judgment or for any
loss suffered by the Trust in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or for reckless
disregard by it of its obligations and duties under this Agreement.
4. This Agreement shall continue in effect for a period of two years
from December 23, 1994, and may be renewed by the Trustees; provided, however,
that this Agreement may be terminated by the Trust at any time without the
payment of any penalty by the Trustees or by vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of the Trust, upon
not less than six (6) months' written notice to the Group, or by the Group at
any time, without the payment of any penalty, upon not less than six (6) months'
written notice to the Trust. This Agreement shall terminate automatically in the
event of its assignment (as defined in the 1940 Act).
5. The Group's activities will be limited to performing the services
hereunder for the Trust and any other registered investment company which has
the same Trustees as the Trust. No employee of the Group shall engage in any
other business or devote his time and attention in part to the management or
other aspects of any business whether of a similar or dissimilar nature except
with the consent of the Trustees of the Trust.
6. The Trustees have authorized the execution of this Agreement not
individually, but as Trustees under the Trust's Declaration of Trust, and the
Group agrees that the obligation of this Agreement are not binding upon any of
the Trustees or shareholders individually, but bind only the trust estate.
7. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid (1) to the Group at 461 Fifth Avenue, New York, NY 10017,
Attention: President or (2) to the Trust at the address set forth on the cover
of its Registration Statement as then in effect or at such other address as
either party shall designate by notice to the other party.
8. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Fund Services Agreement to be executed by their officers designated
below as of July 11, 1996.
THE JPM INSTITUTIONAL FUNDS
By __________________________________
Matthew Healey, Chief Executive Officer
PIERPONT GROUP, INC.
By __________________________________
Nina O. Shenker, President
JPM617
3
CONSENTS OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 23 to the Registration Statement on Form N-1A (the "Registration
Statement") of our reports dated July 25, 1995, 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, 1995 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 28, 1995, 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, 1995 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 24, 1995, 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, 1995 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 report dated November 20, 1995, relating to the financial
statements and financial highlights of The JPM Institutional International Bond
Fund and the financial statements and supplementary data of the Non-U.S. Fixed
Income Portfolio appearing in the September 30, 1995 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 December 15, 1995, relating to the financial
statements and financial highlights of The JPM Institutional Treasury Money
Market Fund and The JPM Institutional Short Term Bond Fund and the financial
statements and supplementary data of The Treasury Money Market Portfolio and The
Short Term Bond Portfolio, appearing in the October
<PAGE>
Consents of Independent Accountants
Page 2
31, 1995 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 22, 1995, relating to the financial
statements and financial highlights of The JPM Institutional Emerging Markets
Equity Fund, The JPM Institutional Bond Fund and The JPM Institutional
International Equity Fund and the financial statements and supplementary data of
The Emerging Markets Equity Portfolio, The U.S. Fixed Income Portfolio and The
Non-U.S. Equity Portfolio appearing in the October 31, 1995 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 January 23, 1996, 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, 1995 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 February 23, 1996, relating to the financial
statements and supplementary data of The Asia Growth Portfolio, The Japan Equity
Portfolio, and The European Equity Portfolio at December 31, 1995, 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 May 23, 1996, relating to the financial
statements and financial highlights of The JPM 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, 1996 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.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
July 30, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the Nov. 30, 1995
Annual Report for The JPM Institutional Money Market Fund and is qualified
in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 013
<NAME> THE JPM INSTITUTIONAL MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 1,003,756,983
<INVESTMENTS-AT-VALUE> 1,003,756,983
<RECEIVABLES> 93,947
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 32,036
<TOTAL-ASSETS> 1,003,882,966
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,137,194
<TOTAL-LIABILITIES> 4,137,194
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 999,411,576
<SHARES-COMMON-STOCK> 999,411,576
<SHARES-COMMON-PRIOR> 584,869,781
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 334,196
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 999,745,772
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 37,864,364
<OTHER-INCOME> 0
<EXPENSES-NET> 1,269,181
<NET-INVESTMENT-INCOME> 36,595,183
<REALIZED-GAINS-CURRENT> 336,813
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 36,931,996
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 36,595,183
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,338,446,485
<NUMBER-OF-SHARES-REDEEMED> 3,007,260,903
<SHARES-REINVESTED> 33,356,213
<NET-CHANGE-IN-ASSETS> 414,878,608
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2,617)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,243,162
<AVERAGE-NET-ASSETS> 634,467,649
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.06
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<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 DATA EXTRACTED FROM THE 2/29/96
SEMI-ANNUAL REPORT FOR THE JPM INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI-ANNAL REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
<SERIES>
<NUMBER> 070
<NAME> THE JPM INSTITUTIONAL FUNDS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 148,092,639
<INVESTMENTS-AT-VALUE> 148,073,329
<RECEIVABLES> 15,399
<ASSETS-OTHER> 27,073
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 148,461,625
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 407,606
<TOTAL-LIABILITIES> 407,606
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 148,073,329
<SHARES-COMMON-STOCK> 148,073,663
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (19,310)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 148,054,019
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,309,362
<OTHER-INCOME> 0
<EXPENSES-NET> 68,620
<NET-INVESTMENT-INCOME> 2,240,742
<REALIZED-GAINS-CURRENT> 3,150
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,243,892
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,240,742
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 180,186,132
<NUMBER-OF-SHARES-REDEEMED> 134,340,019
<SHARES-REINVESTED> 2,062,834
<NET-CHANGE-IN-ASSETS> 47,912,097
<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> 284,995
<AVERAGE-NET-ASSETS> 131,245,229
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .017
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .017
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEUDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI ANNUAL
REPORT DATED APRIL 30, 1996 FOR THE JPM INSTITUTIONAL TREASURY MONEY MARKET FUND
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI ANNUAL REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 010
<NAME> TREASURY MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 185113129
<INVESTMENTS-AT-VALUE> 185113129
<RECEIVABLES> 19320
<ASSETS-OTHER> 46172
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 185178621
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 727728
<TOTAL-LIABILITIES> 727728
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 184401402
<SHARES-COMMON-STOCK> 184401402
<SHARES-COMMON-PRIOR> 145071925
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 49491
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 184450893
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3677745
<OTHER-INCOME> 0
<EXPENSES-NET> 136972
<NET-INVESTMENT-INCOME> 3540773
<REALIZED-GAINS-CURRENT> 51985
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3592758
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3540773
<DISTRIBUTIONS-OF-GAINS> 38278
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 156184444
<NUMBER-OF-SHARES-REDEEMED> 119028430
<SHARES-REINVESTED> 2173463
<NET-CHANGE-IN-ASSETS> 39343184
<ACCUMULATED-NII-PRIOR> 35784
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 182642
<AVERAGE-NET-ASSETS> 137566140
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI-ANNUAL
REPORT DATED APRIL 30, 1996 FOR THE JPM INSTITUTIONAL SHORT TERM BOND FUND AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI-ANNUAL REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 020
<NAME> THE JPM INSTITUTIONAL SHORT TERM BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-1-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 6224446
<INVESTMENTS-AT-VALUE> 6224446
<RECEIVABLES> 5124
<ASSETS-OTHER> 128
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6253342
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 32336
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6564405
<SHARES-COMMON-STOCK> 637617
<SHARES-COMMON-PRIOR> 1923840
<ACCUMULATED-NII-CURRENT> (10716)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (338543)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5860
<NET-ASSETS> 6221006
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 353698
<OTHER-INCOME> 0
<EXPENSES-NET> 26280
<NET-INVESTMENT-INCOME> 327418
<REALIZED-GAINS-CURRENT> 107886
<APPREC-INCREASE-CURRENT> (136597)
<NET-CHANGE-FROM-OPS> 398707
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 327418
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 710262
<NUMBER-OF-SHARES-REDEEMED> 2029162
<SHARES-REINVESTED> 32677
<NET-CHANGE-IN-ASSETS> (1286223)
<ACCUMULATED-NII-PRIOR> (10716)
<ACCUMULATED-GAINS-PRIOR> (446429)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 73020
<AVERAGE-NET-ASSETS> 11728047
<PER-SHARE-NAV-BEGIN> 9.83
<PER-SHARE-NII> .28
<PER-SHARE-GAIN-APPREC> (.07)
<PER-SHARE-DIVIDEND> (.28)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.76
<EXPENSE-RATIO> .45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI ANNUAL
REPORT DATED APRIL 30, 1996 FOR THE JPM INSTITUTIONAL BOND FUND AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI ANNUAL REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 030
<NAME> THE JPM INSTITUTIONAL BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-1-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 620439792
<RECEIVABLES> 84140
<ASSETS-OTHER> 24340
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 620548272
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 1899383
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 624774561
<SHARES-COMMON-STOCK> 63937956
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 435266
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2120393
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (8681331)
<NET-ASSETS> 618648889
<DIVIDEND-INCOME> 62884
<INTEREST-INCOME> 18083091
<OTHER-INCOME> 0
<EXPENSES-NET> 1329648
<NET-INVESTMENT-INCOME> 16816327
<REALIZED-GAINS-CURRENT> 2072456
<APPREC-INCREASE-CURRENT> (21765796)
<NET-CHANGE-FROM-OPS> (2877013)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (16813891)
<DISTRIBUTIONS-OF-GAINS> (1214257)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23779314
<NUMBER-OF-SHARES-REDEEMED> 4604040
<SHARES-REINVESTED> 799020
<NET-CHANGE-IN-ASSETS> 19974244
<ACCUMULATED-NII-PRIOR> 432830
<ACCUMULATED-GAINS-PRIOR> 1262194
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1379141
<AVERAGE-NET-ASSETS> 547526233
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> .30
<PER-SHARE-GAIN-APPREC> (.27)
<PER-SHARE-DIVIDEND> (.20)
<PER-SHARE-DISTRIBUTIONS> (.03)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.68
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE 2/29/96
SEMI-ANNUAL REPORT FOR THE JPM INSTITUTIONAL TAX EXEMPT BOND FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI-ANUAL REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 060
<NAME> THE JPM INSTITUTIONAL TAX EXEMPT BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 90,461,791
<INVESTMENTS-AT-VALUE> 90,471,245
<RECEIVABLES> 7,303
<ASSETS-OTHER> 23,600
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 90,502,148
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 318,727
<TOTAL-LIABILITIES> 318,727
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 87,520,650
<SHARES-COMMON-STOCK> 8,893,771
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,454
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 90,183,421
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,846,690
<OTHER-INCOME> 0
<EXPENSES-NET> 51,230
<NET-INVESTMENT-INCOME> 1,795,460
<REALIZED-GAINS-CURRENT> 98,673
<APPREC-INCREASE-CURRENT> 927,539
<NET-CHANGE-FROM-OPS> 2,821,672
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,795,460
<DISTRIBUTIONS-OF-GAINS> 117,024
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 30,316,693
<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> 211,283
<AVERAGE-NET-ASSETS> 75,019,845
<PER-SHARE-NAV-BEGIN> 10.01
<PER-SHARE-NII> .24
<PER-SHARE-GAIN-APPREC> .15
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .26
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.14
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE NOV. 30, 1995
SEMIANNUAL REPORT FOR JPM INSTITUTIONAL SELECTED U.S. EQUITY FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMIANNUAL REPORT
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 011
<NAME> THE JPM INSTITUTIONAL SELECTED U.S. EQUITY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 185,593,680
<INVESTMENTS-AT-VALUE> 206,390,889
<RECEIVABLES> 7,050
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 37,504
<TOTAL-ASSETS> 206,435,443
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 47,706
<TOTAL-LIABILITIES> 47,706
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 173,092,306
<SHARES-COMMON-STOCK> 15,684,149
<SHARES-COMMON-PRIOR> 14,250,601
<ACCUMULATED-NII-CURRENT> 1,785,527
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10,712,695
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,797,209
<NET-ASSETS> 206,387,737
<DIVIDEND-INCOME> 2,011,422
<INTEREST-INCOME> 327,983
<OTHER-INCOME> 0
<EXPENSES-NET> 553,883
<NET-INVESTMENT-INCOME> 1,785,522
<REALIZED-GAINS-CURRENT> 10,917,877
<APPREC-INCREASE-CURRENT> 8,090,857
<NET-CHANGE-FROM-OPS> 20,794,256
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,132,500
<DISTRIBUTIONS-OF-GAINS> 3,625,361
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,092,127
<NUMBER-OF-SHARES-REDEEMED> 2,990,740
<SHARES-REINVESTED> 332,161
<NET-CHANGE-IN-ASSETS> 33,890,516
<ACCUMULATED-NII-PRIOR> 1,132,505
<ACCUMULATED-GAINS-PRIOR> 3,420,179
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 561,488
<AVERAGE-NET-ASSETS> 193,552,801
<PER-SHARE-NAV-BEGIN> 12.10
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 1.26
<PER-SHARE-DIVIDEND> 0.07
<PER-SHARE-DISTRIBUTIONS> 0.24
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.16
<EXPENSE-RATIO> 0.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FIANACIAL DATA EXTRACTED FROM THE NOV. 30, 1995
SEMIANNUAL REPORT FOR THE JPM INSTITUTIONAL U.S. SMALL COMPANY FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMIANNUAL REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 010
<NAME> THE JPM INSTITUTIONAL U.S. SMALL COMPANY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 205,048,208
<INVESTMENTS-AT-VALUE> 223,611,353
<RECEIVABLES> 93,000
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 29,112
<TOTAL-ASSETS> 223,733,465
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 66,211
<TOTAL-LIABILITIES> 66,211
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 194,036,573
<SHARES-COMMON-STOCK> 17,826,626
<SHARES-COMMON-PRIOR> 13,375,086
<ACCUMULATED-NII-CURRENT> 1,168,618
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,898,918
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18,563,145
<NET-ASSETS> 223,667,254
<DIVIDEND-INCOME> 1,494,989
<INTEREST-INCOME> 403,158
<OTHER-INCOME> 0
<EXPENSES-NET> 729,584
<NET-INVESTMENT-INCOME> 1,168,563
<REALIZED-GAINS-CURRENT> 9,980,649
<APPREC-INCREASE-CURRENT> 15,171,194
<NET-CHANGE-FROM-OPS> 26,320,406
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 575,331
<DISTRIBUTIONS-OF-GAINS> 4,488,709
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,949,878
<NUMBER-OF-SHARES-REDEEMED> 879,351
<SHARES-REINVESTED> 381,013
<NET-CHANGE-IN-ASSETS> 74,388,259
<ACCUMULATED-NII-PRIOR> 575,386
<ACCUMULATED-GAINS-PRIOR> 4,406,978
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 734,516
<AVERAGE-NET-ASSETS> 190,604,187
<PER-SHARE-NAV-BEGIN> 11.16
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 1.67
<PER-SHARE-DIVIDEND> 0.04
<PER-SHARE-DISTRIBUTIONS> 0.30
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.55
<EXPENSE-RATIO> 0.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI ANNUAL
REPORT DATED APRIL 30, 1996 FOR THE JPM INSTITUTIONAL INTERNATIONAL EQUITY FUND
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI ANNUAL REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 040
<NAME> THE JPM INSTITUTIONAL INTERNATIONAL EQUITY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-1-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 676121
<RECEIVABLES> 1377
<ASSETS-OTHER> 41
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 677539
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 516
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 612372
<SHARES-COMMON-STOCK> 58557
<SHARES-COMMON-PRIOR> 44765
<ACCUMULATED-NII-CURRENT> 1233
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14914
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 48504
<NET-ASSETS> 677023
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 2919
<EXPENSES-NET> 419
<NET-INVESTMENT-INCOME> 2500
<REALIZED-GAINS-CURRENT> 15065
<APPREC-INCREASE-CURRENT> 54979
<NET-CHANGE-FROM-OPS> 72544
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11370
<DISTRIBUTIONS-OF-GAINS> 2641
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17990
<NUMBER-OF-SHARES-REDEEMED> 4707
<SHARES-REINVESTED> 509
<NET-CHANGE-IN-ASSETS> 13792
<ACCUMULATED-NII-PRIOR> 10103
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 419
<AVERAGE-NET-ASSETS> 566372
<PER-SHARE-NAV-BEGIN> 10.44
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 1.38
<PER-SHARE-DIVIDEND> .24
<PER-SHARE-DISTRIBUTIONS> .06
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.56
<EXPENSE-RATIO> .92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA DERIVED FROM THE DECEMBER 31, 1995
SEMIANNUAL REPORT FOR THE JPM INSTITUTIONAL DIVERSIFIED FUND AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH SEMIANNUAL REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 009
<NAME>THE JPM INSTITUTIONAL DIVERSIFIED FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 130,782,372
<INVESTMENTS-AT-VALUE> 147,524,320
<RECEIVABLES> 403,253
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 27,139
<TOTAL-ASSETS> 147,954,712
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 921,496
<TOTAL-LIABILITIES> 921,496
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 127,120,711
<SHARES-COMMON-STOCK> 12,878,397
<SHARES-COMMON-PRIOR> 14,642,108
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 543,263
<ACCUMULATED-NET-GAINS> 3,713,820
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,741,948
<NET-ASSETS> 147,033,216
<DIVIDEND-INCOME> 1,124,542
<INTEREST-INCOME> 2,150,734
<OTHER-INCOME> 0
<EXPENSES-NET> 537,418
<NET-INVESTMENT-INCOME> 2,737,858
<REALIZED-GAINS-CURRENT> 9,052,569
<APPREC-INCREASE-CURRENT> 5,656,913
<NET-CHANGE-FROM-OPS> 17,447,340
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,652,711
<DISTRIBUTIONS-OF-GAINS> 8,398,968
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,304,413
<NUMBER-OF-SHARES-REDEEMED> 5,292,571
<SHARES-REINVESTED> 1,224,447
<NET-CHANGE-IN-ASSETS> (17,821,635)
<ACCUMULATED-NII-PRIOR> 2,371,590
<ACCUMULATED-GAINS-PRIOR> 3,060,219
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 658,303
<AVERAGE-NET-ASSETS> 164,011,169
<PER-SHARE-NAV-BEGIN> 11.26
<PER-SHARE-NII> 0.62
<PER-SHARE-GAIN-APPREC> 0.60
<PER-SHARE-DIVIDEND> 0.42
<PER-SHARE-DISTRIBUTIONS> 0.64
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.42
<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 DATA EXTRACTED FROM THE SEMI ANNUAL
REPORT DATED APRIL 30, 1996 FOR THE JPM INSTITUTIONAL EMERGING MARKETS FUND AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI ANNUAL REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 050
<NAME> THE JPM INSTITUTIONAL EMERGING MARKETS FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-1-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 248481
<RECEIVABLES> 635
<ASSETS-OTHER> 50
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 249166
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 164
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 248367
<SHARES-COMMON-STOCK> 23076263
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 445
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (9418)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9608
<NET-ASSETS> 249002
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 2638
<EXPENSES-NET> 1535
<NET-INVESTMENT-INCOME> 1103
<REALIZED-GAINS-CURRENT> (1204)
<APPREC-INCREASE-CURRENT> 25563
<NET-CHANGE-FROM-OPS> 25462
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1794
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12466178
<NUMBER-OF-SHARES-REDEEMED> 8606881
<SHARES-REINVESTED> 55093
<NET-CHANGE-IN-ASSETS> 3914390
<ACCUMULATED-NII-PRIOR> 1136
<ACCUMULATED-GAINS-PRIOR> (8215)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1535
<AVERAGE-NET-ASSETS> 221741
<PER-SHARE-NAV-BEGIN> 9.71
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 1.12
<PER-SHARE-DIVIDEND> .08
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.79
<EXPENSE-RATIO> 1.39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE ANNUAL REPORT
DATED MARCH 31, 1996 FOR THE JPM INSTITUTIONAL NEW YORK TOTAL RETURN BOND FUND
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 1
<NAME> NEW YORK TOTAL RETURN BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 47,400,420
<INVESTMENTS-AT-VALUE> 48,079,765
<RECEIVABLES> 12,226
<ASSETS-OTHER> 7,240
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 48,099,231
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 173,007
<TOTAL-LIABILITIES> 173,007
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47,153,870
<SHARES-COMMON-STOCK> 4,636,077
<SHARES-COMMON-PRIOR> 2,029,700
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 93,009
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 679,345
<NET-ASSETS> 47,926,224
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,918,346
<OTHER-INCOME> 0
<EXPENSES-NET> 185,642
<NET-INVESTMENT-INCOME> 1,732,704
<REALIZED-GAINS-CURRENT> 213,249
<APPREC-INCREASE-CURRENT> 296,969
<NET-CHANGE-FROM-OPS> 2,242,922
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,732,704
<DISTRIBUTIONS-OF-GAINS> 97,660
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,755,927
<NUMBER-OF-SHARES-REDEEMED> 243,334
<SHARES-REINVESTED> 83,784
<NET-CHANGE-IN-ASSETS> 2,596,377
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (25,257)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 249,803
<AVERAGE-NET-ASSETS> 37,135,532
<PER-SHARE-NAV-BEGIN> 10.11
<PER-SHARE-NII> .49
<PER-SHARE-GAIN-APPREC> .25
<PER-SHARE-DIVIDEND> .49
<PER-SHARE-DISTRIBUTIONS> .02
<RETURNS-OF-CAPITAL> 00
<PER-SHARE-NAV-END> 10.34
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 00
<AVG-DEBT-PER-SHARE> 00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI ANNUAL
REPORT DATED MARCH 31, 1996 FOR THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI ANNUAL REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 250
<NAME> JPM INSTITUTIONAL INTERNATIONAL BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 4,251,405
<INVESTMENTS-AT-VALUE> 4,251,405
<RECEIVABLES> 5,035
<ASSETS-OTHER> 17,289
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,273,729
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,203
<TOTAL-LIABILITIES> 12,203
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,830,920
<SHARES-COMMON-STOCK> 401,961
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 84,119
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 88,068
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 258,419
<NET-ASSETS> 4,261,526
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 94,654
<OTHER-INCOME> 0
<EXPENSES-NET> 2,331
<NET-INVESTMENT-INCOME> 86,450
<REALIZED-GAINS-CURRENT> 88,068
<APPREC-INCREASE-CURRENT> 258,419
<NET-CHANGE-FROM-OPS> 119,871
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 179,451
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,505,000
<NUMBER-OF-SHARES-REDEEMED> 2,596,339
<SHARES-REINVESTED> 179,445
<NET-CHANGE-IN-ASSETS> 28,526
<ACCUMULATED-NII-PRIOR> 164,345
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 31,951
<AVERAGE-NET-ASSETS> 4,246,178
<PER-SHARE-NAV-BEGIN> 11.12
<PER-SHARE-NII> .21
<PER-SHARE-GAIN-APPREC> .35
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.08
<RETURNS-OF-CAPITAL> 5.14
<PER-SHARE-NAV-END> 10.60
<EXPENSE-RATIO> .65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
