As filed with the Securities and Exchange Commission on February 27, 1996
Registration Nos. 33-54642 and 811-7342
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 21
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 22
The JPM Institutional Funds
(Exact Name of Registrant as Specified in Charter)
6 St. James Avenue, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(617) 423-0800
Philip W. Coolidge
6 St. James Avenue, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Copy to:
Stephen K. West, Esq.
Sullivan & Cromwell, 125 Broad Street, New York, New York 10004
It is proposed that this filing will become effective (check
appropriate box)
[ ] Immediately upon filing pursuant to paragraph (b)
[X] on March 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:
[X] 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; 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, 1995) on May 26, 1995; Selected U.S. Equity
and U.S. Small Company Funds (for their fiscal years ended May 31, 1995) on July
27, 1995; and Diversified Fund (for its fiscal year ended June 30, 1995) on
August 25, 1995.
The Money Market Portfolio, The Tax Exempt Money Market Portfolio, The
Treasury Money Market Portfolio, The Short Term Bond Portfolio, The U.S. Fixed
Income Portfolio, The Tax Exempt Bond Portfolio, The Selected U.S. Equity
Portfolio, The U.S. Small Company Portfolio, The Non-U.S. Equity Portfolio, The
Diversified Portfolio, The Emerging Markets Equity Portfolio, The New York Total
Return Bond Portfolio, The Non-U.S. Fixed Income Portfolio and The Series
Portfolio have also executed this Registration Statement.
JPM533.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.
4. GENERAL DESCRIPTION OF REGISTRANT: Cover Page; Investors for Whom the
Funds are Designed; Investment Objectives and Policies; Additional
Investment Information; Investment Restrictions; Special Information
Concerning Hub and Spoke(R); Organization; Appendix.
5. MANAGEMENT OF THE FUND: Management of the Trust and the Portfolios;
Shareholder Servicing; Additional Information.
5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE: Not Applicable.
6. CAPITAL STOCK AND OTHER SECURITIES: Special Information Concerning Hub
and Spoke(R); Shareholder Servicing; Net Asset Value; Purchase of
Shares; Taxes; Dividends and Distributions; Organization.
7. PURCHASE OF SECURITIES BEING OFFERED: Purchase of Shares; Exchange of
Shares; Investors for Whom the Funds are Designed; Dividends and
Distributions; Net Asset Value.
8. REDEMPTION OR REPURCHASE: Redemption of Shares; Exchange of Shares; Net
Asset Value.
9. PENDING LEGAL PROCEEDINGS: Not Applicable.
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;
Administrator and Distributor; Services Agent; Custodian; Shareholder
Servicing; Independent Accountants; Expenses.
17. BROKERAGE ALLOCATION AND OTHER PRACTICES: Portfolio Transactions.
18. CAPITAL STOCK AND OTHER SECURITIES: Massachusetts Trust; Description of
Shares.
19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED: Net Asset
Value; Purchase of Shares; Redemption of Shares; Exchange of Shares;
Dividends and Distributions.
20. TAX STATUS: Taxes.
21. UNDERWRITERS: Administrator and Distributor.
22. CALCULATION OF PERFORMANCE DATA: Performance Data.
23. FINANCIAL STATEMENTS: Financial Statements.
PART C. Information required to be included in Part C is set forth under the
appropriate items, so numbered, in Part C of this Registration Statement.
<PAGE>
EXPLANATORY NOTE
This post-effective amendment no. 21 (the "Amendment") to the
Registrant's registration statement on Form N-1A (File no. 33-54642) is being
filed with respect to The JPM Institutional 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 International
Equity Fund and The JPM Institutional Emerging Markets Equity Fund (the "Funds")
to include updated financial and other disclosure in (i) the Statement of
Additional Information and (ii) the prospectuses which describe the Fund. As a
result, the Amendment does not affect any of the Registrant's other currently
effective prospectuses, each of which is hereby incorporated herein by reference
as most recently filed pursuant to Rule 497 under the Securities Act of 1933, as
amended.
<PAGE>
<PAGE>
PROSPECTUS
The JPM Institutional Funds
6 St. James Avenue
Boston, Massachusetts 02116
For information call (800) 766-7722
The JPM Institutional Funds are a family of no-load mutual funds for which
there are no sales charges or exchange or redemption fees. Each fund (a "Fund",
collectively the "Funds") is a series of The JPM Institutional Funds, an open-
end management investment company organized as a Massachusetts business trust
(the "Trust"). With a broad range of investment choices, the Trust provides
discerning investors with attractive alternatives for meeting their investment
needs.
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO
OF SECURITIES, EACH FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING
ALL OF ITS INVESTABLE ASSETS IN A CORRESPONDING OPEN-END MANAGEMENT INVESTMENT
COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND (A "PORTFOLIO",
COLLECTIVELY THE "PORTFOLIOS"). THE FUNDS INVEST IN THEIR RESPECTIVE PORTFOLIOS
THROUGH SIGNATURE FINANCIAL GROUP, INC.'S HUB AND SPOKE(R) FINANCIAL SERVICES
METHOD. THE HUB AND SPOKE(R) INVESTMENT FUND STRUCTURE EMPLOYS A TWO-TIER
MASTER-FEEDER STRUCTURE AND IS A REGISTERED SERVICE MARK OF SIGNATURE FINANCIAL
GROUP, INC. SEE SPECIAL INFORMATION CONCERNING HUB AND SPOKE(R) ON PAGE 17.
Each Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
This Prospectus sets forth concisely the information about each Fund that a
prospective investor ought to know before investing and should be retained for
future reference. Additional information about each Fund has been filed with
the Securities and Exchange Commission in a Statement of Additional Information
dated March 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 Funds' Distributor, Signature Broker-Dealer Services, Inc., 6
St. James Avenue, Boston, Massachusetts 02116, Attention: The JPM Institutional
Funds, or by calling (800) 847-9487.
INVESTMENTS IN THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.
SHARES OF THE FUNDS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN ANY OF THE FUNDS IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF
THE INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY
BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
ALTHOUGH THE JPM INSTITUTIONAL MONEY MARKET FUND, THE JPM INSTITUTIONAL TAX
EXEMPT MONEY MARKET FUND AND THE JPM INSTITUTIONAL TREASURY MONEY MARKET FUND
SEEK TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, THERE CAN BE NO
ASSURANCE THAT THEY WILL BE ABLE TO CONTINUE TO DO SO.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MARCH 1, 1996
<PAGE>
THE JPM INSTITUTIONAL MONEY MARKET FUND seeks to maximize current income and
maintain a high level of liquidity. It is designed for investors who seek to
preserve capital and earn current income from a portfolio of high quality money
market instruments.
THE JPM INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND seeks to provide a high
level of current income exempt from federal income tax and maintain a high
level of liquidity. It is designed for investors who seek current income exempt
from federal income tax, stability of capital and liquidity.
THE JPM INSTITUTIONAL TREASURY MONEY MARKET FUND seeks to provide current in-
come, maintain a high level of liquidity and preserve capital. It is designed
for investors who seek to preserve capital and earn current income from a port-
folio of direct obligations of the U.S. Treasury and obligations of certain
U.S. Government agencies.
THE JPM INSTITUTIONAL SHORT TERM BOND FUND seeks to provide a high total return
while attempting to limit the likelihood of negative quarterly returns. It is
designed for investors who do not require the stable net asset value typical of
a money market fund but who seek less price fluctuation than is typical of a
longer-term bond fund.
THE JPM INSTITUTIONAL BOND FUND seeks to provide a high total return consistent
with moderate risk of capital and maintenance of liquidity. It is designed for
investors who seek a total return over time that is higher than that generally
available from a portfolio of short-term obligations while recognizing the
greater price fluctuation of longer-term instruments.
THE JPM INSTITUTIONAL TAX EXEMPT BOND FUND seeks to provide a high level of
current income exempt from federal income tax consistent with moderate risk of
capital and maintenance of liquidity. It is designed for investors who seek tax
exempt yields greater than those generally available from a portfolio of short-
term tax exempt obligations and who are willing to incur the greater price
fluctuation of longer-term instruments.
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND seeks to provide a high total re-
turn, consistent with moderate risk of capital, from a portfolio of interna-
tional fixed income securities. It is designed for investors who seek exposure
to the international bond markets in their investment portfolios.
THE JPM INSTITUTIONAL SELECTED U.S. EQUITY FUND seeks to provide a high total
return from a portfolio of selected equity securities. It is designed for in-
vestors who want an actively managed portfolio of selected equity securities
that seeks to outperform the S&P 500 Index.
THE JPM INSTITUTIONAL U.S. SMALL COMPANY FUND seeks to provide a high total re-
turn from a portfolio of equity securities of small companies. It is designed
for investors who are willing to assume the somewhat higher risk of investing
in small companies in order to seek a higher total return over time than might
be expected from a portfolio of stocks of large companies.
THE JPM INSTITUTIONAL INTERNATIONAL EQUITY FUND seeks to provide a high total
return from a portfolio of equity securities of foreign corporations. It is de-
signed for investors with a long-term investment horizon who want to diversify
their investments by investing in an actively managed portfolio of non-U.S. Se-
curities that seeks to outperform the Morgan Stanley Capital International Eu-
rope, Australia and Far East Index.
THE JPM INSTITUTIONAL EMERGING MARKETS EQUITY FUND seeks to provide a high to-
tal return from a portfolio of equity securities of companies in emerging mar-
kets. It is designed for long-term investors who want to diversify their in-
vestments by adding exposure to the rapidly growing emerging markets.
THE JPM INSTITUTIONAL DIVERSIFIED FUND seeks to provide a high total return
from a diversified portfolio of equity and fixed income securities. It is de-
signed for investors who wish to invest for long-term objectives such as re-
tirement and who seek over time to attain real appreciation in their invest-
ments, but with somewhat less price fluctuation than a portfolio consisting
solely of equity securities.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Funds Are Designed.................................. 1
Financial Highlights....................................................... 5
Special Information Concerning Hub and Spoke(R)............................ 17
Investment Objectives and Policies......................................... 18
Additional Investment Information and Risk
Factors................................................................... 34
Investment Restrictions.................................................... 40
Management of the Trust and the Portfolios................................. 42
Shareholder Servicing...................................................... 46
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Purchase of Shares......................................................... 47
Redemption of Shares....................................................... 49
Exchange of Shares......................................................... 50
Dividends and Distributions................................................ 50
Net Asset Value............................................................ 51
Organization............................................................... 52
Taxes...................................................................... 52
Additional Information..................................................... 55
Appendix................................................................... A-1
</TABLE>
<PAGE>
The JPM Institutional Funds
INVESTORS FOR WHOM THE FUNDS ARE DESIGNED
The JPM Institutional Funds offer investors the advantages of no-load mutual
funds and are designed to meet a broad range of investment objectives. Each of
the Funds seeks to achieve its investment objective by investing all of its
investable assets in its corresponding Portfolio, which has the same investment
objective as the Fund. Since the investment characteristics and experience of
each Fund will correspond directly with those of its corresponding Portfolio,
the discussion in this Prospectus focuses on the various investments and in-
vestment policies of each Portfolio.
For investors interested in current income, preserving capital and maintaining
liquidity, there are The JPM Institutional Money Market Fund, The JPM Institu-
tional Tax Exempt Money Market Fund, and The JPM Institutional Treasury Money
Market Fund. For investors seeking exposure to the bond markets, The JPM Insti-
tutional Short Term Bond Fund, The JPM Institutional Bond Fund, The JPM Insti-
tutional Tax Exempt Bond Fund, The JPM Institutional International Bond Fund
and The JPM Institutional New York Total Return Bond Fund are available. For
those investors who wish to participate primarily in the U.S. equity markets,
The JPM Institutional Selected U.S. Equity Fund and The JPM Institutional U.S.
Small Company Fund are attractive alternatives. The JPM Institutional Interna-
tional Equity Fund and The JPM Institutional Emerging Markets Equity Fund are
available for investors who seek to diversify their investments by adding in-
ternational equities. For investors interested in a diversified portfolio of
equity and fixed income securities, The JPM Institutional Diversified Fund is
available.
The Money Market, Tax Exempt Money Market and Treasury Money Market Funds seek
to maintain a stable net asset value of $1.00 per share; there can be no assur-
ance that they will be able to continue to do so. The net asset value of shares
in the other Fund fluctuates with changes in the value of the investments in
their corresponding Portfolios. In view of the capitalization of the companies
in which the Portfolio for the U.S. Small Company Fund invests, the risks of
investment in this Fund and the volatility of the value of its shares may be
greater than the general equity markets. In addition, with respect to the In-
ternational Bond, International Equity and Emerging Markets Equity Funds, in-
vestments in securities of foreign issuers, including issuers in emerging mar-
kets, involve foreign investment risks and may be more volatile and less liquid
than domestic securities. Each of these Portfolios may make various types of
investments in seeking its objectives. Among the permissible investments and
investment techniques for certain Portfolios are futures contracts, options,
forward contracts on foreign currencies and certain privately placed securi-
ties. For further information about these investments and investment techniques
and the Portfolios which may use them, see Investment Objectives and Policies
below.
Each of the Funds requires a minimum initial investment and a minimum for sub-
sequent investments. See Purchase of Shares. In addition, each Fund requires a
shareholder to maintain a minimum investment amount in the shares of the Fund.
If a shareholder reduces his or her investment in shares of a Fund to less than
the minimum investment amount applicable to the Fund, the investment will be
subject to mandatory redemption. See Redemption of Shares-Mandatory Redemption
by the Fund.
This Prospectus describes the financial history, investment objectives and pol-
icies, management and operation of each Fund to enable investors to select the
Funds which best suit their needs. The Funds operate through Signature Finan-
cial Group, Inc.'s ("Signature") Hub and Spoke(R) financial services method.
The Trustees believe that each Fund may achieve economies of scale over time by
investing through the Hub and Spoke(R)structure.
The following table illustrates that investors in the Funds incur no share-
holder transaction expenses; their investment in the Funds is subject only to
the operating expenses set forth below for each Fund and its corresponding
Portfolio, as a percentage of average net assets of the Fund. The Trustees of
the Trust believe that the aggregate per share expenses of each Fund and its
corresponding Portfolio will be approximately equal to and may be less than the
expenses that each Fund would incur if it retained the services of an invest-
ment adviser and invested its assets directly in portfolio securities. Fund and
Portfolio expenses are discussed below under the headings Management of the
Trust and the Portfolios and Shareholder Servicing.
1
<PAGE>
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases............................................ None
Sales Load Imposed on Reinvested Dividends................................. None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<CAPTION>
TAX EXEMPT TREASURY
MONEY MARKET MONEY MARKET MONEY MARKET SHORT TERM TAX EXEMPT
FUND FUND FUND BOND FUND BOND FUND BOND FUND
------------- ------------ ------------ ------------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees.......... 0.12% 0.17% 0.20% 0.25% 0.30% 0.30%
Rule 12b-1 Fees........ None None None None None None
Other Expenses (after
applicable expense
reimbursement)........ 0.08% 0.18% None 0.20% 0.20% 0.20%
---- ---- ---- ---- ---- ----
Total Operating
Expenses
(after applicable
expense
reimbursement)...... 0.20% 0.35% 0.20% 0.45% 0.50% 0.50%
==== ==== ==== ==== ==== ====
<CAPTION>
SELECTED U.S. SMALL
INTERNATIONAL U.S. EQUITY COMPANY INTERNATIONAL EMERGING MARKETS DIVERSIFIED
BOND FUND FUND FUND EQUITY FUND EQUITY FUND FUND
------------- ------------ ------------ ------------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees.......... 0.35% 0.40% 0.60% 0.60% 1.00% 0.55%
Rule 12b-1 Fees........ None None None None None None
Other Expenses (after
applicable expense
reimbursement)........ 0.30% 0.20% 0.20% 0.40% 0.51% 0.10%
---- ---- ---- ---- ---- ----
Total Operating
Expenses
(after applicable
expense
reimbursement)...... 0.65% 0.60% 0.80% 1.00% 1.51% 0.65%
==== ==== ==== ==== ==== ====
</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 a
Fund's estimated average daily net assets for its current fiscal year, after
applicable expense reimbursements. See Management of the Trust and the Portfo-
lios. If the above expense table reflected these expenses without current re-
imbursements, Total Operating Expenses would be equal on an annual basis to
the following percentages of such assets of the Funds:
2
<PAGE>
<TABLE>
<S> <C>
Money Market Fund................................................... 0.33%
Tax Exempt Money Market Fund........................................ 0.47%
Treasury Money Market Fund.......................................... 0.51%
Short Term Bond Fund................................................ 1.29%
Bond Fund........................................................... 0.67%
Tax Exempt Bond Fund................................................ 0.74%
International Bond Fund............................................. 2.36%
Selected U.S. Equity Fund........................................... 0.69%
U.S. Small Company Fund............................................. 0.90%
International Equity Fund........................................... 1.05%
Diversified Fund.................................................... 0.99%
</TABLE>
No expense reimbursement arrangements are currently in effect for the Emerging
Markets Equity Fund. Historical expenses without reimbursement expressed as ra-
tios to historical average daily net assets were as follows for the end of the
fiscal years indicated:
<TABLE>
<S> <C> <C>
Money Market Fund................................ November 30, 1995 0.35%
Tax Exempt Money Market Fund..................... August 31, 1995 0.50%
Treasury Money Market Fund....................... October 31, 1995 0.51%
Short Term Bond Fund............................. October 31, 1995 0.67%
Bond Fund........................................ October 31, 1995 0.52%
Tax Exempt Bond Fund............................. August 31, 1995 0.71%
International Bond Fund.......................... September 30, 1995 2.90%
Selected U.S. Equity Fund........................ May 31, 1995 0.71%
U.S. Small Company Fund.......................... May 31, 1995 0.91%
International Equity Fund........................ October 31, 1995 0.94%
Emerging Markets Equity Fund..................... October 31, 1995 1.44%
Diversified Fund................................. December 31, 1994 1.18%
</TABLE>
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>
MONEY MARKET TAX EXEMPT MONEY TREASURY MONEY SHORT TERM TAX EXEMPT
FUND MARKET FUND MARKET FUND BOND FUND BOND FUND BOND FUND
------------- ---------------- -------------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1 Year.................. $ 2 $ 4 $ 2 $ 5 $ 5 $ 5
3 Years................. $ 6 $11 $ 6 $ 14 $ 16 $16
5 Years................. $11 $20 $11 $ 25 $ 28 $28
10 Years................ $26 $44 $26 $ 57 $ 63 $63
<CAPTION>
EMERGING
INTERNATIONAL SELECTED U.S. SMALL INTERNATIONAL MARKETS EQUITY DIVERSIFIED
BOND FUND U.S. EQUITY FUND COMPANY FUND EQUITY FUND FUND FUND
------------- ---------------- -------------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1 Year.................. $ 7 $ 6 $ 8 $ 10 $ 15 $ 7
3 Years................. $21 $19 $26 $ 32 $ 48 $21
5 Years................. $36 $33 $44 $ 55 $ 82 $36
10 Years................ $81 $75 $99 $122 $180 $81
</TABLE>
3
<PAGE>
The above expense table is designed to assist investors in understanding the
various direct and indirect costs and expenses that investors in each Fund
bear. The fees and expenses included in Other Expenses are the fees paid to
Morgan under the Administrative Services Agreements and the Shareholder Servic-
ing Agreement, the fees paid to Pierpont Group, Inc. under the Fund Services
Agreements, the fees paid to SBDS under the Administration Agreements, organi-
zational expenses, the fees paid to State Street Bank and Trust Company as cus-
todian and transfer agent, and other usual and customary expenses of the Fund
and the Portfolio. For a more detailed description of contractual fee arrange-
ments, including applicable expense reimbursements, see Management of the Trust
and the Portfolios and Shareholder Servicing.
In connection with the above example, please note that $1,000 is less than
the Funds' minimum investment requirements and that there are no redemption or
exchange fees of any kind. See Purchase of Shares and Redemption of Shares. THE
EXAMPLE IS HYPOTHETICAL; IT IS SOLELY FOR ILLUSTRATIVE PURPOSES. IT SHOULD NOT
BE CONSIDERED A REPRESENTATION OF FUTURE PERFORMANCE; ACTUAL EXPENSES MAY BE
MORE OR LESS THAN THOSE SHOWN.
4
<PAGE>
FINANCIAL HIGHLIGHTS
The following selected data for a share outstanding for the indicated periods
have been audited by independent accountants except as noted below. Annual re-
ports for each Fund, which are incorporated by reference into the Statement of
Additional Information, include a discussion of those factors, strategies and
techniques that materially affected its performance during the period of the
report, as well as certain related information. A copy of any annual report
will be made available without charge upon request.
<TABLE>
<CAPTION>
THE JPM INSTITUTIONAL
MONEY MARKET FUND
------------------------------------------
FOR THE FISCAL YEAR ENDED FOR THE
NOVEMBER 30, PERIOD
-------------------------- ENDED
1995 1994 11/30/93(1)
------------ ------------ -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period.......................... $1.00 $1.00 $1.00
------------ ------------ -------
Income From Investment
Operations:
Net Investment Income........... 0.0577 0.0385 0.0120
Net Realized and Unrealized Gain
(Loss) on Investment........... 0.0003 (0.0000)(a) (0.0000)(a)
------------ ------------ -------
Total From Investment Operations. 0.0580 0.0385 0.0120
------------ ------------ -------
Less Distributions to
Shareholders From:
Net Investment Income........... (0.0577) (0.0385) (0.0120)
Net Realized Gain............... -0- -0- (0.0000)(a)
------------ ------------ -------
Total Distributions to
Shareholders.................... (0.0577) (0.0385) (0.0120)
------------ ------------ -------
Net Asset Value, End of Period... $1.00 $1.00 $1.00
============ ============ =======
Total Return..................... 5.93% 3.92% 1.21%(b)
Ratios and Supplemental Data:
Net Assets (In Thousands)....... $999,746 $584,867 $27,188
Ratio to Average Net Assets:
Expenses........................ 0.20% 0.21% 0.30%(c)
Net Investment Income........... 5.77% 4.42% 2.88%(c)
Decrease Reflected in Expense
Ratio due to Expense
Reimbursement.................. 0.15% 0.31% 1.10%(c)
</TABLE>
- -------
(1) Commencement of Operations July 12, 1993.
(a) Less than $0.0001 per share.
(b) Not annualized.
(c) Annualized.
5
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
THE JPM INSTITUTIONAL
TAX EXEMPT MONEY MARKET FUND
-------------------------------------------
FOR THE
FOR THE FISCAL YEAR ENDED PERIOD
--------------------------- ENDED
8/31/95 8/31/94 8/31/93(1)
------------- ------------ -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $1.00 $1.00 $1.00
------------- ------------ ---------
Income From Investment
Operations:
Net Investment Income......... 0.0352 0.0228 0.0040
Net Realized and Unrealized
Loss on Investment........... (0.0002) (0.0000)(a) (0.0000)(a)
------------- ------------ ---------
Total From Investment
Operations.................... 0.0350 0.0228 0.0040
------------- ------------ ---------
Less Distributions to
Shareholders from:
Net Investment Income......... (0.0352) (0.0228) (0.0040)
In Excess of Net Realized
Gain......................... -- (0.0000)(a) (0.0000)(a)
------------- ------------ ---------
Total Distributions to
Shareholders.................. (0.0352) (0.0228) (0.0040)
------------- ------------ ---------
Net Asset Value, End of Period. $1.00 $1.00 $1.00
============= ============ =========
Total Return................... 3.57% 2.30% 0.40%(b)
Ratios and Supplemental Data:
Net Assets at end of Period
(in thousands)............... $100,142 $46,083 $ 35,004
Ratios to Average Net Assets:
Expenses...................... 0.35% 0.35% 0.35%(c)
Net Investment Income......... 3.49% 2.34% 2.25%(c)
Decrease Reflected in Expense
Ratio due to Expense
Reimbursement................ 0.15% 0.65% 1.08%(c)
</TABLE>
- -------
(1) Commencement of Operations July 12, 1993.
(a) Less than $0.0001.
(b) Not annualized.
(c) Annualized.
6
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
THE JPM INSTITUTIONAL
TREASURY MONEY MARKET FUND
-------------------------------------------
FOR THE FISCAL YEAR ENDED FOR THE
OCTOBER 31 PERIOD
--------------------------- ENDED
1995 1944 10/31/93(1)
------------- ------------ -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $1.00 $1.00 $1.00
------------- ------------ -------
Income From Investment Operations:
Net Investment Income............ 0.0555 0.0354 0.0220
Net Realized and Unrealized Gain
(Loss) on Investment............ 0.0003 (0.0000)(a) 0.0000(a)
------------- ------------ -------
Total From Investment Operations.. 0.0558 0.0354 0.0220
------------- ------------ -------
Less Distributions to Shareholders
From:
Net Investment Income............ (0.0555) (0.0354) (0.0220)
Net Realized Gain................ -0- (0.0001) -0-
------------- ------------ -------
Total Distributions to
Shareholders..................... (0.0555) (0.0355) (0.0220)
------------- ------------ -------
Net Asset Value, End of Period.... $1.00 $1.00 $1.00
============= ============ =======
Total Return...................... 5.69% 3.61% 2.23%(b)
Ratios and Supplemental Data:
Net Assets (In Thousands)........ $145,108 $ 80,146 $25,477
Ratio to Average Net Assets:
Expenses......................... 0.20% 0.20% 0.27%(c)
Net Investment Income............ 5.56% 3.81% 2.81%(c)
Decrease Reflected in Expense
Ratio due to Expense
Reimbursement................... 0.31% 0.47% 0.76%(c)
</TABLE>
- -------
(1) Commencement of Operations January 4, 1993.
(a) Less than $0.0001 per share.
(b) Not annualized.
(c) Annualized.
7
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
THE JPM INSTITUTIONAL
SHORT TERM BOND FUND
----------------------------------
FOR THE FISCAL YEAR FOR THE
ENDED OCTOBER 31, PERIOD
--------------------- ENDED
1995 1994 10/31/93(1)
--------- --------- -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period...... $ 9.60 $ 9.99 $10.00
--------- --------- -------
Income From Investment Operations:
Net Investment Income.................... 0.58 0.47 0.11
Net Realized and Unrealized Gain (Loss)
on Investment........................... 0.24 (0.39) (0.01)
--------- --------- -------
Total From Investment Operations.......... 0.82 0.08 0.10
--------- --------- -------
Less Distributions to Shareholders From:
Net Investment Income.................... (0.59) (0.47) (0.11)
--------- --------- -------
(0.59) (0.47) (0.11)
--------- --------- -------
Net Asset Value, End of Period............
Total Return.............................. 8.81% 0.87% 1.01%(a)
Ratios and Supplemental Data:
Net Assets (In Thousands)................ $18,916 $47,679 $27,605
Ratio to Average Net Assets:
Expenses................................. 0.45% 0.45% 0.46%(b)
Net Investment Income.................... 6.09% 4.96% 3.92%(b)
Decrease Reflected in Expense Ratio due
to Expense Reimbursement................ 0.22% 0.33% 0.84%(b)
</TABLE>
- -------
(1)Commencement of Operations July 8, 1993.
(a)Not annualized.
(b)Annualized.
8
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
THE JPM INSTITUTIONAL
BOND FUND
----------------------------------
FOR THE FISCAL YEAR FOR THE
ENDED OCTOBER 31, PERIOD
-------------------- ENDED
1995 1994 10/31/93(1)
--------- --------- -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period...... $ 9.23 $10.14 $10.00
--------- --------- -------
Income From Investment Operations:
Net Investment Income.................... 0.63 0.55 0.15
Net Realized and Unrealized Gain (Loss)
on Investment........................... 0.75 (0.88) 0.14
--------- --------- -------
Total From Investment Operations.......... 1.38 (0.33) 0.29
--------- --------- -------
Less Distributions to Shareholders From:
Net Investment Income.................... (0.63) (0.55) (0.15)
Net Realized Gain........................ -0- (0.03) -0-
--------- --------- -------
Total Distributions to Shareholders....... (0.63) (0.58) (0.15)
--------- --------- -------
Net Asset Value, End of Period............ $ 9.98 $ 9.23 $10.14
========= ========= =======
Total Return.............................. 15.50% (3.33)% 2.90%(a)
Ratios and Supplemental Data:
Net Assets (In Thousands)................ $438,610 $253,174 $43,711
Ratio to Average Net Assets:
Expenses................................. 0.47% 0.50 % 0.50%(b)
Net Investment Income.................... 6.62% 6.00 % 4.83%(b)
Decrease Reflected in Expense Ratio due
to Expense Reimbursement................ 0.05% 0.19 % 0.39%(b)
</TABLE>
- -------
(1)Commencement of Operations July 12, 1993.
(a)Not annualized.
(b)Annualized.
9
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
THE JPM INSTITUTIONAL
TAX EXEMPT BOND FUND
--------------------------------------
FOR THE
FOR THE FISCAL YEAR ENDED PERIOD
------------------------- ENDED
8/31/95 8/31/94 8/31/93(1)
------------ ------------ ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period... $ 9.75 $10.07 $10.00
------------ ------------ ------
Income From Investment Operations:
Net Investment Income................. 0.49 0.48 0.06
Net Realized and Unrealized Gain
(Loss) on Investment................. 0.26 (0.32) 0.07
------------ ------------ ------
Total From Investment Operations....... 0.75 0.16 0.13
------------ ------------ ------
Less Distributions to Shareholders from
Net Investment Income................. (0.49) (0.48) (0.06)
------------ ------------ ------
Net Asset Value, End of Period......... $10.01 $ 9.75 $10.07
============ ============ ======
Total Return........................... 8.00% 1.61% 1.39%(a)
Ratios and Supplemental Data:
Net Assets End of Period (in
thousands)........................... $59,867 $16,415 $ 0.2
Ratios to Average Net Assets:
Expenses.............................. 0.50% 0.50% 0.00%(b)
Net Investment Income................. 5.09% 4.70% 3.56%(b)
Decrease Reflected in Expense Ratio
due to Expense Reimbursement and Fee
Waivers by Morgan.................... 0.21% 1.48% 2.50%(b)
</TABLE>
- -------
(1)Commencement of Operations July 12, 1993.
(a)Not annualized.
(b)Annualized.
10
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
THE JPM INSTITUTIONAL
INTERNATIONAL BOND FUND
-----------------------
FOR THE PERIOD
12/1/94
(COMMENCEMENT
OF OPERATIONS)
THROUGH 9/30/95
---------------
<S> <C>
Net Asset Value, Beginning of Period.................. $10.00
------
Income From Investment Operations:
Net Investment Income................................ 0.49
Net Realized and Unrealized Gain on Investment and
Foreign Currency Allocated.......................... 0.78
------
Total from Investment Operations...................... 1.27
------
Less Distributions to Shareholders from Net Investment
Income............................................... (0.15)
------
Net Asset Value, End of Period........................ $11.12
======
Total Return.......................................... 12.83%(a)
Ratios and Supplemental Data:
Net Assets at end of Period (in thousands)........... $4,233
Ratio to Average Net Assets:
Expenses............................................. 0.60%(b)
Net Investment Income................................ 5.82%(b)
Decrease reflected in Expense Ratio due to Expense
Reimbursement....................................... 2.30%(b)
</TABLE>
- -------
(a)Not annualized.
(b)Annualized.
11
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
THE JPM INSTITUTIONAL
SELECTED U.S. EQUITY FUND
-------------------------------------
FOR THE
SIX MONTHS FOR THE FOR THE
ENDED FISCAL YEAR PERIOD
11/30/95 ENDED ENDED
(UNAUDITED) 5/31/95 5/31/94(1)
----------- ----------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period... $12.10 $10.92 $10.00
-------- -------- -------
Income From Investment Operations:
Net Investment Income................. 0.11 0.18 0.08
Net Realized and Unrealized Gain
(Loss) on Investment................. 1.26 1.42 0.88
-------- -------- -------
Total From Investment Operations....... 1.37 1.60 0.96
-------- -------- -------
Less Distributions to Shareholders
From:
Net Investment Income................. (0.07) (0.14) (0.04)
Net Realized Gain..................... (0.24) (0.28) -0-
-------- -------- -------
Total Distributions to Shareholders.... (0.31) (0.42) (0.04)
-------- -------- -------
Net Asset Value, End of Period......... $13.16 $12.10 $10.92
======== ======== =======
Total Return........................... 11.50%(a) 15.40% 9.61%(a)
Ratios and Supplemental Data:
Net Assets (In Thousands)............. $206,388 $172,497 $47,473
Ratio to Average Net Assets:
Expenses.............................. 0.57%(b) 0.60% 0.60%(b)
Net Investment Income................. 1.84%(b) 2.07% 1.74%(b)
Decrease Reflected in Expense Ratio
due to Expense Reimbursement......... 0.01%(b) 0.11% 0.43%(b)
</TABLE>
- -------
(1)Commencement of Operations July 19, 1993.
(a)Not annualized.
(b)Annualized.
12
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
THE JPM INSTITUTIONAL
U.S. SMALL COMPANY FUND
-------------------------------------
FOR THE SIX FOR THE FOR THE
MONTHS ENDED FISCAL YEAR PERIOD
11/30/95 ENDED ENDED
(UNAUDITED) 5/31/95 5/31/94(1)
------------ ----------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.. $11.16 $10.03 $10.00
-------- -------- -------
Income From Investment Operations:
Net Investment Income................ 0.06 0.10 0.04
Net Realized and Unrealized Gain
(Loss) on Investment................ 1.67 1.12 -0-
-------- -------- -------
Total From Investment Operations...... 1.73 1.22 0.04
-------- -------- -------
Less Distributions to Shareholders
From:
Net Investment Income................ (0.04) (0.09) (0.01)
Net Realized Gain.................... (0.30) -0- -0-
-------- -------- -------
Total Distributions to Shareholders... (0.34) (0.09) (0.01)
-------- -------- -------
Net Asset Value, End of Period........ $12.55 $11.16 $10.03
======== ======== =======
Total Return.......................... 15.58%(a) 12.26% 0.42%(a)
Ratios and Supplemental Data:
Net Assets (In Thousands)............ $223,667 $149,279 $71,141
Ratio to Average Net Assets:
Expenses............................. 0.76%(b) 0.80% 0.80%(b)
Net Investment Income................ 1.22%(b) 1.14% 0.93%(b)
Decrease Reflected in Expense Ratio
due to Expense Reimbursement........ 0.01%(b) 0.11% 0.27%(b)
</TABLE>
- -------
(1)Commencement of Operations July 19, 1993.
(a)Not annualized.
(b)Annualized.
13
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
THE JPM INSTITUTIONAL
INTERNATIONAL EQUITY FUND
----------------------------------
FOR THE FISCAL YEAR FOR THE
ENDED OCTOBER 31, PERIOD
--------------------- ENDED
1995 1994 10/31/93(1)
--------- --------- -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period...... $10.83 $10.20 $10.00
--------- --------- ------
Income From Investment Operations:
Net Investment Income.................... 0.06 0.06 0.00
Net Realized and Unrealized Gain (Loss)
on Investment and Foreign
Currency Allocated...................... (0.33) 0.57 0.20
--------- --------- ------
Total From Investment Operations.......... (0.27) 0.63 0.20
--------- --------- ------
Less Distributions to Shareholders From:
Net Realized Gain........................ (0.12) -0- -0-
--------- --------- ------
Net Asset Value, End of Period............ $10.44 $10.83 $10.20
========= ========= ======
Total Return.............................. (2.46)% 6.18% 2.00%(a)
Ratios and Supplemental Data:
Net Assets (In Thousands)................ $467,511 $213,119 $ 0.2
Ratio to Average Net Assets:
Expenses................................. 0.92% 1.00% 0.00%(b)
Net Investment Income.................... 1.24% 0.95% 0.00%(b)
Decrease Reflected in Expense Ratio due
to Expense Reimbursement................ 0.02% 0.16% 2.50%(b)
</TABLE>
- -------
(1)Commencement of Operations October 4, 1993.
(a)Not annualized.
(b)Annualized.
14
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
THE JPM INSTITUTIONAL
EMERGING MARKETS EQUITY FUND
----------------------------
FOR THE FOR THE
FISCAL YEAR PERIOD
ENDED ENDED
OCTOBER 31, 1995 10/31/94(1)
---------------- -----------
<S> <C> <C>
Net Asset Value, Beginning of Period........... $12.47 $10.00
-------- --------
Income From Investment Operations:
Net Investment Income......................... 0.08 0.04
Net Realized and Unrealized Gain (Loss) on
Investment and Foreign Currency Allocated.... (2.66) 2.43
-------- --------
Total From Investment Operations............... (2.58) 2.47
-------- --------
Less Distributions to Shareholders From:
Net Investment Income......................... (0.05) -0-
Net Realized Gain............................. (0.13) -0-
-------- --------
Total Distributions to Shareholders............ (0.18) -0-
-------- --------
Net Asset Value, End of Period................. $ 9.71 $12.47
======== ========
Total Return................................... (20.81)% 24.70%(a)
Ratios and Supplemental Data:
Net Assets (In Thousands)..................... $186,023 $146,667
Ratio to Average Net Assets:
Expenses...................................... 1.43% 1.46%(b)
Net Investment Income......................... 0.96% 0.61%(b)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement........................ 0.01% 0.16%(b)
</TABLE>
- -------
(1)Commencement of Operations November 15, 1993.
(a)Not annualized.
(b) Annualized.
15
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
THE JPM INSTITUTIONAL
DIVERSIFIED FUND
----------------------
FOR THE FOR THE
FISCAL YEAR PERIOD
ENDED ENDED
6/30/95 6/30/94(1)
----------- ----------
<S> <C> <C>
Net Asset Value, Beginning of Period................ $ 9.90 $10.00
-------- -------
Income From Investment Operations:
Net Investment Income.............................. 0.31 0.18
Net Realized and Unrealized Gain (Loss) From
Portfolio......................................... 1.37 (0.23)
-------- -------
Total From Investment Operations.................... 1.68 (0.05)
-------- -------
Less Distributions to Shareholders From:
Net Investment Income.............................. (0.26) (0.05)
Net Realized Gain.................................. (0.06) -0-
-------- -------
Total Distributions to Shareholders................. (0.32) (0.05)
-------- -------
Net Asset Value, End of Period...................... $11.26 $ 9.90
======== =======
Total Return........................................ 17.36% (0.56%)(a)
Ratios and Supplemental Data:
Net Assets (In Thousands).......................... $164,855 $59,222
Ratio to Average Net Assets:
Expenses........................................... 0.65% 0.65%(b)
Net Investment Income.............................. 3.70% 2.92%(b)
Decrease Reflected in the Above Expense Ratio due
to Expense Reimbursements......................... 0.53% 0.97%(b)
</TABLE>
- -------
(1)Commencement of Operations July 8, 1993.
(a)Not annualized.
(b)Annualized.
16
<PAGE>
SPECIAL INFORMATION CONCERNING HUB AND SPOKE(R)
The Trust and the Portfolios use certain proprietary rights, know-how and fi-
nancial services referred to as Hub and Spoke(R). Hub and Spoke(R) is a regis-
tered service mark of Signature. Signature Broker-Dealer Services, Inc. (the
Trust's and Portfolios' Administrator and the Trust's Distributor) is a wholly
owned subsidiary of Signature.
Unlike other mutual funds which directly acquire and manage their own portfolio
of securities, each of the Funds is an open-end management investment company
which seeks to achieve its investment objective by investing all of its
investable assets in its corresponding Portfolio, a separate registered invest-
ment company with the same investment objective as its corresponding Fund. The
investment objective of a Fund or a Portfolio may be changed only with the ap-
proval of the holders of the outstanding shares of the Fund and its correspond-
ing Portfolio. The Hub and Spoke(R) investment fund structure has been devel-
oped relatively recently, so shareholders should carefully consider this in-
vestment approach.
In addition to selling a beneficial interest to a Fund, the corresponding Port-
folio may sell beneficial interests to other mutual funds or institutional in-
vestors. Such investors will invest in the Portfolio on the same terms and con-
ditions and will bear a proportionate share of the Portfolio's expenses. Howev-
er, the other investors investing in the Portfolio may sell shares of their own
fund using a different pricing structure than the Fund. Such different pricing
structures may result in differences in returns experienced by investors in
other funds that invest in the same Portfolio. Such differences in returns are
not uncommon and are present in other mutual fund structures. Information con-
cerning other holders of interests in each Portfolio is available from the Ad-
ministrator at (800) 847-9487.
The Trust may withdraw the investment of any Fund from its corresponding Port-
folio at any time if the Board of Trustees of the Trust determines that it is
in the best interests of a 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 investment objective and restrictions as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the invest-
ment policies described below with respect to its corresponding Portfolio.
Certain changes in a Portfolio's investment objective, policies or restric-
tions, or a failure by a Fund's shareholders to approve a change in the corre-
sponding Portfolio's investment objective or restrictions, may require with-
drawal of that Fund's interest in that Portfolio. Any such withdrawal could re-
sult in a distribution in kind of portfolio securities (as opposed to a cash
distribution) from that Portfolio which may or may not be readily marketable.
The distribution in kind may result in that Fund having a less diversified
portfolio of investments or adversely affect the Fund's liquidity, and that
Fund could incur brokerage, tax or other charges in converting the securities
to cash. Notwithstanding the above, there are other means for meeting share-
holder redemption requests, such as borrowing.
Smaller funds investing in a Portfolio may be materially affected by the ac-
tions of larger funds investing in that Portfolio. For example, if a large fund
withdraws from a Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns. Addition-
ally, because that 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 a Portfolio could have effective voting control of the
operations of the Portfolio. Whenever a Fund is requested to vote on matters
pertaining to its corresponding Portfolio (other than a vote by a Fund to con-
tinue the operation of its corresponding Portfolio upon the withdrawal of an-
other investor in the Portfolio), 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 instructions 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.
17
<PAGE>
For more information about a Portfolio's investment objective, policies and re-
strictions, see Investment Objectives and Policies, Additional Investment In-
formation and Risk Factors and Investment Restrictions. For more information
about a Portfolio's management and expenses, see Management of the Trust and
the Portfolios. For more information about changing the investment objective,
policies and restrictions of a Fund or Portfolio, see Investment Restrictions.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each of the Funds is described below, together with
the policies it employs in its efforts to achieve this objective. As noted
above, each of the Funds seeks to achieve its investment objective by investing
all of its investable assets in its corresponding Portfolio, which has the same
investment objective as its corresponding Fund. Since the investment character-
istics of each Fund will correspond directly with those of its Portfolio, the
following is a discussion of the various investments and investment policies of
each Portfolio. Additional information about the investment policies of each
Portfolio appears in the Statement of Additional Information under Investment
Objectives and Policies. There can be no assurance that the investment objec-
tive of each Fund or its corresponding Portfolio will be achieved.
THE JPM INSTITUTIONAL MONEY MARKET FUND
The JPM Institutional Money Market Fund's investment objective is to maximize
current income and maintain a high level of liquidity. The Fund is designed for
investors who seek to preserve capital and earn current income from a portfolio
of high quality money market instruments. The Fund attempts to achieve its ob-
jective by investing all of its investable assets in The Money Market Portfo-
lio, a diversified open-end management investment company having the same in-
vestment objective as the Fund.
The Portfolio seeks to achieve its investment objective by maintaining a dol-
lar-weighted average portfolio maturity of not more than 90 days and by invest-
ing in the following high quality U.S. dollar-denominated securities which 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
(discussed below).
U.S. GOVERNMENT OBLIGATIONS. The Portfolio may invest in obligations issued or
guaranteed by the U.S. Government and backed by the full faith and credit of
the United States. These securities include Treasury securities, obligations of
the Government National Mortgage Association, the Farmers Home Administration
and the Export Import Bank. The Portfolio may also invest in obligations issued
or guaranteed by U.S. Government agencies or instrumentalities where the Port-
folio must look principally to the issuing or guaranteeing agency for ultimate
repayment; some examples of agencies or instrumentalities issuing these obliga-
tions are the Federal Farm Credit System, the Federal Home Loan Banks and the
Federal National Mortgage Association.
BANK OBLIGATIONS. The Portfolio may invest in high quality U.S. dollar-denomi-
nated negotiable certificates of deposit, time deposits and bankers' accept-
ances of (i) banks, savings and loan associations and savings banks which have
more than $2 billion in total assets and are organized under U.S. federal or
state law, (ii) foreign branches of these banks or of foreign banks of equiva-
lent size (Euros) and (iii) U.S. branches of foreign banks of equivalent size
(Yankees). The Portfolio may also invest in obligations of international bank-
ing institutions designated or supported by national governments to promote
economic reconstruction, development or trade between nations (e.g., the Euro-
pean Investment Bank, the Inter-American Development Bank, or the World Bank).
These obligations may be supported by appropriated but unpaid commitments of
their member countries, and there is no assurance these commitments will be un-
dertaken or met in the future.
COMMERCIAL PAPER; BONDS. The Portfolio may invest in high quality commercial
paper and corporate bonds issued by U.S. corporations. The Portfolio may also
invest in bonds and commercial paper of foreign issuers if the obligation is
U.S. dollar-denominated and is not subject to foreign withholding tax.
18
<PAGE>
ASSET-BACKED SECURITIES. The Portfolio may also invest in securities generally
referred to as asset-backed securities, which directly or indirectly represent
a participation interest in, or are secured by and payable from, a stream of
payments generated by particular assets such as motor vehicle or credit card
receivables. Asset-backed securities provide periodic payments that generally
consist of both interest and principal payments. Consequently, the life of an
asset-backed security varies with the prepayment experience of the underlying
debt instruments.
QUALITY INFORMATION. The Portfolio will limit its investments to those securi-
ties which, in accordance with guidelines adopted by the Trustees, present min-
imal credit risks. In addition, the Portfolio will not purchase any security
(other than a U.S. Government security) unless (i) it is rated with the highest
rating assigned to short-term debt securities by at least two nationally recog-
nized statistical rating organizations such as Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Ratings Group ("Standard & Poor's"), (ii) it
is rated by only one agency with the highest such rating, or (iii) it is not
rated and is determined to be of comparable quality. Determinations of compara-
ble quality shall be made in accordance with procedures established by the
Trustees. For a more detailed discussion of applicable quality requirements,
see Investment Objectives and Policies in the Statement of Additional Informa-
tion. These standards must be satisfied at the time an investment is made. If
the quality of the investment later declines below the quality required for
purchase, the Portfolio shall dispose of the investment, subject in certain
circumstances to a finding by the Trustees that disposing of the investment
would not be in the Portfolio's best interest.
The Portfolio may also invest in securities on a when-issued or delayed deliv-
ery basis and in certain privately placed securities. The Portfolio may also
enter into repurchase and reverse repurchase agreements and loan its portfolio
securities. For a discussion of these investments and for more information on
foreign investments, see Additional Investment Information and Risk Factors.
THE JPM INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
The JPM Institutional 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. The Fund is designed for investors who
seek current income exempt from federal income tax, stability of capital and
liquidity. See Taxes. The Fund attempts to achieve its objective by investing
all of its investable assets in The Tax Exempt Money Market Portfolio, a diver-
sified open-end management investment company having the same investment objec-
tive as the Fund.
The Portfolio attempts to achieve its investment objective by investing primar-
ily in the following municipal securities which earn interest exempt from fed-
eral income tax in the opinion of bond counsel for the issuer and which have
effective maturities not greater than thirteen months and by maintaining a dol-
lar-weighted average portfolio maturity of not more than 90 days. During normal
market conditions, the Portfolio will invest at least 80% of its net assets in
tax exempt obligations. 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.
MUNICIPAL BONDS. The Portfolio may invest in bonds issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies, authorities and instrumen-
talities. These obligations may be general obligation bonds secured by the is-
suer'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 rev-
enue sources, but not generally backed by the issuer's taxing power. These in-
clude industrial development bonds where payment is the responsibility of the
private industrial user of the facility financed by the bonds. The Portfolio
may invest more than 25% of its assets in industrial development bonds, but may
not invest more than 25% of its assets in these bonds in projects of similar
type or in the same state.
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
commer-
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<PAGE>
cial 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 demand
obligations permit the investment of fluctuating amounts at periodically ad-
justed 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.
QUALITY INFORMATION. The Portfolio will limit its investments to those securi-
ties which, in accordance with guidelines adopted by the Trustees, present min-
imal credit risks. In addition, the Portfolio will not purchase any municipal
obligation unless (i) it is rated with the highest rating assigned to short-
term debt securities (or, in the case of New York State municipal notes, with
one of the two highest ratings assigned to short-term debt securities) by at
least two nationally recognized statistical rating organizations such as
Moody's and Standard & Poor's, (ii) it is rated by only one agency with such
rating, or (iii) it is not rated and is determined to be of comparable quality.
Determinations of comparable quality shall be made in accordance with proce-
dures established by the Trustees. For a more detailed discussion of applicable
quality requirements, see Investment Objectives and Policies in the Statement
of Additional Information. These standards must be satisfied at the time an in-
vestment is made. If the quality of the investment later declines below the
quality required for purchase, the Portfolio shall dispose of the investment,
subject in certain circumstances to a finding by the Trustees that disposing of
the investment would not be in the Portfolio's best interest. The credit qual-
ity of variable rate demand notes and other municipal obligations is frequently
enhanced by various arrangements with domestic or foreign financial institu-
tions, such as letters of credit, guarantees and insurance, and these arrange-
ments are considered when investment quality is evaluated.
The Portfolio may also invest up to 20% of the value of its total assets in
taxable securities and may purchase municipal obligations together with puts.
In addition, the Portfolio may purchase municipal obligations on a when-issued
or delayed delivery basis, enter into repurchase and reverse repurchase agree-
ments, loan its portfolio securities and purchase synthetic variable rate in-
struments. For a discussion of these transactions, see Additional Investment
Information and Risk Factors.
THE JPM INSTITUTIONAL TREASURY MONEY MARKET FUND
The JPM Institutional Treasury Money Market Fund's investment objective is to
provide current income, maintain a high level of liquidity and preserve capi-
tal. The Fund attempts to achieve its investment objective by investing all of
its investable assets in The Treasury Money Market Portfolio, a diversified
open-end management investment company having the same investment objective as
the Fund.
The Portfolio seeks to achieve its investment objective by investing in direct
obligations of the U.S. Treasury and, to a lesser extent, in obligations of the
U.S. Government agencies described below. The Portfolio maintains a dollar-
weighted average portfolio maturity of not more than 90 days and invests in the
following securities which have effective maturities of not more than thirteen
months.
TREASURY SECURITIES; CERTAIN U.S. GOVERNMENT AGENCY OBLIGATIONS. The Portfolio
will invest in 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 ("Treasury Securities"). Treasury Bills have initial maturities of one
year or less; Treasury Notes have initial maturities of one to ten years; and
Treasury Bonds generally have initial maturities of greater than ten years.
During ordinary market conditions at least 65% of the Portfolio's net assets
will be invested in Treasury Securities and repurchase agreements collateral-
ized by Treasury Securities. The balance of the Portfolio may be invested in
obligations issued by the following U.S. Government agencies where the Portfo-
lio must look to the issuing agency for ultimate repayment: the
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<PAGE>
Federal Farm Credit System and the Federal Home Loan Banks ("Permitted Agency
Securities"). Each such obligation must have a remaining maturity of thirteen
months or less at the time of purchase by the Portfolio. The market value of
such obligations in which the Portfolio invests is not guaranteed and may rise
and fall in response to changes in interest rates. Neither the shares of the
Fund nor the interests in the Portfolio are guaranteed or insured by the U.S.
Government.
The Portfolio also may purchase Treasury Securities and Permitted Agency Secu-
rities on a when-issued or delayed delivery basis and may engage in repurchase
and reverse repurchase agreement transactions involving such securities. For a
discussion of these transactions, see Additional Investment Information and
Risk Factors.
THE JPM INSTITUTIONAL SHORT TERM BOND FUND
The JPM Institutional Short Term Bond Fund's investment objective is to provide
a high total return while attempting to limit the likelihood of negative quar-
terly returns. Total return will consist of income plus realized and unrealized
capital gains and losses. The Fund seeks to achieve this high total return to
the extent consistent with modest risk of capital and the maintenance of li-
quidity. The Fund attempts to achieve its investment objective by investing all
of its investable assets in The Short Term Bond Portfolio, a diversified open-
end management investment company having the same investment objective as the
Fund.
The 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
and 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 do want less price fluctuation than is typical of a longer-term bond fund.
Morgan actively manages the Portfolio's duration, the allocation of securities
across market sectors and the selection of securities within sectors. Based on
fundamental, economic and capital markets research, Morgan adjusts the duration
of the Portfolio in accordance with its outlook for interest rates. Morgan also
actively allocates the Portfolio's assets among the broad sectors of the fixed
income market including, but not limited to, U.S. Government and agency securi-
ties, corporate securities, private placements, asset-backed and mortgage-re-
lated securities. Specific securities which Morgan believes are undervalued are
selected for purchase within the sectors using advanced quantitative tools,
analysis of credit risk, the expertise of a dedicated trading desk, and the
judgment of fixed income portfolio managers and analysts.
Morgan also seeks to limit the likelihood of negative quarterly returns by bal-
ancing the Portfolio's level of income with the possibility of capital losses.
This balancing effort helps determine the Portfolio's duration.
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 Portfolio's
market value to changes in interest rates. Generally, the longer the duration
of the Portfolio, the more sensitive its market value will be to changes in in-
terest rates. Under normal market conditions, the Portfolio's duration will
range between one and three years. The maturities of the individual securities
in the Portfolio may vary widely, however.
The Portfolio intends to manage its portfolio actively in pursuit of its in-
vestment 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 also engage in short-term
trading consistent with its objective. To the extent the Portfolio engages in
short-term trading, it may incur increased transaction costs. See Taxes below.
CORPORATE BONDS, ETC. The Portfolio may invest in a broad range of debt securi-
ties of domestic and foreign issuers. These include debt securities of various
types and maturities, e.g., debentures, notes, mortgage securities, equipment
trust certificates and other collateralized securities and zero coupon securi-
ties. Collateralized securities are backed by a pool of assets such as loans or
receivables which generate cash flow to cover the payments due on the securi-
ties. Collateralized securities are subject to certain risks, including a de-
cline in the value of the collateral backing the security, failure of the
21
<PAGE>
collateral to generate the anticipated cash flow or in certain cases more
rapid prepayment because of events affecting the collateral, such as acceler-
ated prepayment of mortgages or other loans backing these securities or de-
struction of equipment subject to equipment trust certificates. In the event
of any such prepayment the Portfolio will be required to reinvest the proceeds
of prepayments at interest rates prevailing at the time of reinvestment, which
may be lower. In addition, the value of zero coupon securities which do not
pay interest is more volatile than that of interest bearing debt securities
with the same maturity. The Portfolio does not intend to invest in common
stock but may invest to a limited extent in convertible debt or preferred
stock. The Portfolio may invest in debt securities of foreign issuers only if
such securities are denominated in the U.S. dollar. The Portfolio does not ex-
pect to invest more than 25% of its assets in securities of foreign issuers.
See Additional Investment Information and Risk Factors for further information
on foreign investments and convertible securities.
GOVERNMENT OBLIGATIONS, ETC. The Portfolio may invest in obligations issued or
guaranteed by the U.S. Government and backed by the full faith and credit of
the United States. These securities include Treasury securities, obligations
of the Government National Mortgage Association ("GNMA Certificates"), the
Farmers Home Administration and the Export Import Bank. GNMA Certificates are
mortgage-backed securities which evidence an undivided interest in mortgage
pools. These securities are subject to more rapid repayment than their stated
maturity would indicate because prepayments of principal on mortgages in the
pool are passed through to the holder of the securities. During periods of de-
clining interest rates, prepayments of mortgages in the pool can be expected
to increase. The pass-through of these prepayments would have the effect of
reducing the Portfolio's positions in these securities and requiring the Port-
folio to reinvest the prepayments at interest rates prevailing at the time of
reinvestment. The Portfolio may also invest in obligations issued or guaran-
teed by U.S. Government agencies or instrumentalities where the Portfolio must
look principally to the issuing or guaranteeing agency for ultimate repayment;
some examples of agencies or instrumentalities issuing these obligations are
the Federal Farm Credit System, the Federal Home Loan Banks and the Federal
National Mortgage Association. Although these governmental issuers are respon-
sible for payments on their obligations, they do not guarantee their market
value. The Portfolio may also invest in municipal obligations which may be
general obligations of the issuer or payable only from specific revenue sourc-
es. However, the Portfolio will invest only in municipal obligations that have
been issued on a taxable basis or have an attractive yield excluding tax con-
siderations. In addition, the Portfolio may invest in debt securities of for-
eign governments and governmental entities. See Additional Investment Informa-
tion and Risk Factors for further information on foreign investments.
MONEY MARKET INVESTMENTS. The Portfolio may invest in the types of money mar-
ket instruments in which the Money Market Fund may invest, subject to the
quality requirements of the Short Term Bond Fund. See Quality Information be-
low and Money Market Instruments in the Statement of Additional Information.
Under normal circumstances, the Portfolio will purchase these securities to
invest temporary cash balances or to maintain liquidity to meet withdrawals.
However, the Portfolio may also invest in money market instruments as a tempo-
rary defensive measure taken during, or in anticipation of, adverse market
conditions.
QUALITY INFORMATION. Under normal market circumstances at least 80% of the
Portfolio's total assets will consist of debt securities that are rated at
least A by Moody's or Standard & Poor's or that are unrated and in Morgan's
opinion are of comparable quality. In the case of the remaining 20% of the
Portfolio's investments, the Portfolio may purchase debt securities that are
rated Baa or better by Moody's or BBB or better by Standard & Poor's or are
unrated and in Morgan's opinion are 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 satisfied
at the time an investment is made. If the quality of the investment later de-
clines, the Portfolio may continue to hold the investment. See Appendix A in
the Statement of Additional Information for more detailed information on these
ratings.
The Portfolio may also purchase obligations on a when-issued or delayed deliv-
ery basis, enter into repurchase and reverse repurchase agreements, loan its
portfolio securities, purchase certain privately placed securities and enter
into certain hedg-
22
<PAGE>
ing transactions that may involve options on securities and securities indexes,
futures contracts and options on futures contracts. For a discussion of these
investments and investment techniques, see Additional Investment Information
and Risk Factors.
THE JPM INSTITUTIONAL BOND FUND
The JPM Institutional Bond Fund's investment objective is to provide a high to-
tal return consistent with moderate risk of capital and maintenance of liquidi-
ty. Total return will consist of income plus realized and unrealized capital
gains and losses. Although the net asset value of the Fund will fluctuate, the
Fund attempts to preserve the value of its investments to the extent consistent
with its objective. The Fund attempts to achieve its objective by investing all
of its investable assets in The U.S. Fixed Income Portfolio, a diversified
open-end management investment company having the same investment objective as
the Fund.
The Fund is designed for investors who seek a total return over time that is
higher than that generally available from a portfolio of shorter-term obliga-
tions while recognizing the greater price fluctuation of longer-term instru-
ments. It may also be a convenient way to add fixed income exposure to diver-
sify an existing portfolio.
Morgan actively manages the Portfolio's duration, the allocation of securities
across market sectors, and the selection of specific securities within sectors.
Based on fundamental, economic and capital markets research, Morgan adjusts the
duration of the Portfolio in light of market conditions and Morgan's interest
rate outlook. For example, if interest rates are expected to fall, the duration
may be lengthened to take advantage of the expected associated increase in bond
prices. Morgan also actively allocates the Portfolio's assets among the broad
sectors of the fixed income market including, but not limited to, U.S. Govern-
ment and agency securities, corporate securities, private placements, asset-
backed and mortgage-related securities. Specific securities which Morgan be-
lieves are undervalued are selected for purchase within the 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. Under normal circumstances, Morgan intends to keep the Portfolio es-
sentially fully invested with at least 65% of the Portfolio's assets invested
in bonds.
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 Portfolio's
market value to changes in interest rates. Generally, the longer the duration
of the Portfolio, the more sensitive its market value will be to changes in in-
terest rates. Under normal market conditions the Portfolio's duration will
range between one year shorter and one year longer than the duration of the
U.S. investment grade fixed income universe, as represented by Salomon Brothers
Broad Investment Grade Bond Index, the Portfolio's benchmark. Currently, the
benchmark's duration is approximately 5 years. The maturities of the individual
securities in the Portfolio may vary widely, however.
Since the Portfolio has a longer duration than that of the Short Term Bond
Fund, over the long term its total return generally can be expected to be
higher and its net asset value less stable than that of the Short Term Bond
Fund.
The Portfolio intends to manage its portfolio actively in pursuit of its in-
vestment 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 also engage in short-term
trading consistent with its objective. To the extent the Portfolio engages in
short-term trading, it may incur increased transaction costs. See Taxes below.
CORPORATE BONDS, ETC. The Portfolio may invest in the corporate debt obliga-
tions permitted for the Short Term Bond Fund.
GOVERNMENT OBLIGATIONS, ETC. The Portfolio may invest in the government debt
obligations permitted for the Short Term Bond Fund.
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<PAGE>
MONEY MARKET INSTRUMENTS. The Portfolio may invest in the types of money mar-
ket instruments in which the Money Market Fund may invest, subject to the
quality requirements of the Bond Fund. See Quality Information below and Money
Market Instruments in the Statement of Additional Information. Under normal
circumstances, the Portfolio will purchase these securities to invest tempo-
rary cash balances or to maintain liquidity to meet withdrawals. However, the
Portfolio may also invest in money market instruments as a temporary defensive
measure taken during, or in anticipation of, adverse market conditions.
QUALITY INFORMATION. It is a current policy of the Portfolio that under normal
circumstances at least 65% of its total assets will consist of securities that
are rated at least A by Moody's or Standard & Poor's or that are unrated and
in Morgan's opinion are of comparable quality. In the case of 30% of the Port-
folio's investments, the Portfolio may purchase debt securities that are rated
Baa or better by Moody's or BBB or better by Standard & Poor's or are unrated
and in Morgan's opinion are of comparable quality. The remaining 5% of the
Portfolio's assets may be invested in debt securities that are rated Ba or
better by Moody's or BB or better by Standard & Poor's or are unrated and in
Morgan's opinion are of comparable quality. Securities rated Baa by Moody's or
BBB by Standard & Poor's are considered investment grade, but have some specu-
lative characteristics. Securities rated Ba by Moody's or BB by Standard &
Poor's are below investment grade and considered to be speculative with regard
to payment of interest and principal. These standards must be satisfied 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.
The Portfolio may also purchase obligations on a when-issued or delayed deliv-
ery basis, enter into repurchase and reverse repurchase agreements, loan its
portfolio securities, purchase certain privately placed securities and enter
into certain hedging transactions that may involve options on securities and
securities indexes, futures contracts and options on futures contracts. For a
discussion of these investments and investment techniques, see Additional In-
vestment Information and Risk Factors.
THE JPM INSTITUTIONAL TAX EXEMPT BOND FUND
The JPM Institutional Tax Exempt Bond Fund's investment objective is to pro-
vide 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, a diversified open-end
management investment company having the same investment objective as the
Fund.
The Fund is designed for investors who seek tax exempt yields greater than
those generally available from a portfolio of short-term tax exempt obliga-
tions and who are willing to incur the greater price fluctuation of longer-
term instruments.
The Portfolio attempts to achieve its investment objective by investing pri-
marily in municipal securities of the types permitted for the Tax Exempt Money
Market Fund which earn interest exempt from federal income tax in the opinion
of bond counsel for the issuer. During normal market conditions, the Portfolio
will invest at least 80% of its net assets in tax exempt obligations. Interest
on these securities may be subject to state and local taxes. For more detailed
information regarding tax matters, including the applicability of the alterna-
tive minimum tax, see Taxes.
Morgan believes that based upon current market conditions, the Portfolio will
consist of a portfolio of securities with a duration of four to seven years.
In view of the duration of the Portfolio, under normal market conditions, the
Fund's yield can be expected to be higher and its net asset value less stable
than those of the Tax Exempt Money Market Fund. 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 Portfolio's market value to changes in
interest rates. The maturities of the individual securities in the Portfolio
may vary widely, however, as Morgan adjusts the Portfolio's holdings of long-
term and short-term debt securities to reflect its assessment of prospective
changes in interest rates, which may adversely affect current income.
24
<PAGE>
The Portfolio intends to manage its portfolio actively in pursuit of its in-
vestment 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 also engage in short-term
trading consistent with its objective. To the extent the Portfolio engages in
short-term trading, it may incur increased transaction costs. See Taxes below.
The value of Portfolio's investments will generally fluctuate inversely with
changes in prevailing interest rates. The value of the Portfolio's investments
will also be affected by changes in the creditworthiness of issuers and other
market factors. The quality criteria applied in the selection of portfolio se-
curities are intended to minimize adverse price changes due to credit consider-
ations. The value of the Portfolio's municipal securities can also be affected
by market reaction to legislative consideration of various tax reform propos-
als. Although the net asset value of Portfolio fluctuates, the Portfolio at-
tempts to preserve the value of its investments to the extent consistent with
its objective.
MUNICIPAL BONDS. The municipal securities in which the Portfolio may invest in-
clude municipal bonds of the types permitted for the Tax Exempt Money Market
Fund. The Portfolio may invest more than 25% of its assets in industrial devel-
opment bonds, but may not invest more than 25% of its assets in industrial de-
velopment bonds in projects of similar type or in the same state.
MONEY MARKET INSTRUMENTS. The Portfolio may invest in the types of short-term
municipal obligations in which the Tax Exempt Money Market Fund may invest.
These obligations will meet the quality requirements described below except
that short-term municipal obligations of New York State issuers may be rated
MIG-2 by Moody's or SP-2 by Standard & Poor's. Under normal circumstances, the
Portfolio will purchase these securities to invest temporary cash balances or
to maintain liquidity to meet withdrawals. However, the Portfolio may also in-
vest in money market instruments as a temporary defensive measure taken during,
or in anticipation of, adverse market conditions.
QUALITY INFORMATION. The Portfolio will not purchase any municipal obligation
unless it is rated at least A, MIG-1 or Prime-1 by Moody's or A, SP-1 or A1 by
Standard & Poor's (except for short-term obligations of New York State issuers
as described above) or it is unrated and in Morgan's opinion it is of compara-
ble quality. These standards must be satisfied at the time an investment is
made. If the quality of the investment later declines, the Portfolio may con-
tinue to hold the investment.
In certain circumstances, the Portfolio may also invest up to 20% of the value
of its total assets in taxable securities. In addition, the Portfolio may pur-
chase municipal obligations together with puts, securities on a when-issued or
delayed delivery basis, enter into repurchase and reverse repurchase agree-
ments, purchase synthetic variable rate instruments, loan its portfolio securi-
ties, purchase certain privately placed securities and enter into certain hedg-
ing transactions that may involve options on securities and securities indexes,
futures contracts and options on futures contracts. For a discussion of these
transactions, see Additional Investment Information and Risk Factors.
THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
The JPM Institutional International Bond Fund's investment objective is to pro-
vide a high total return, consistent with moderate risk of capital, from a
portfolio of international fixed income securities. Total return will consist
of income plus realized and unrealized capital gains and losses. The Fund at-
tempts to achieve its objective by investing all of its investable assets in
The Non-U.S. Fixed Income Portfolio, a non-diversified open-end management in-
vestment company having the same investment objective as the Fund. The Portfo-
lio seeks to achieve its objective by investing in the types of fixed income
securities described below. The expected total return of a portfolio of fixed
income securities may not be as high as that of a portfolio of equity securi-
ties.
The Fund is designed for investors who seek exposure to the international bond
markets in their investment portfolios.
25
<PAGE>
Morgan actively manages the Portfolio's allocation across countries, its dura-
tion and the selection of specific securities within countries. Based on funda-
mental economic and capital markets research, quantitative valuation techniques
and experienced judgment, Morgan allocates the Portfolio's assets primarily
among the developed countries of the world outside the United States. Morgan
adjusts the Portfolio's duration in light of market conditions and the Advi-
sor's interest rate outlook for the countries in which it invests. The Advisor
selects securities among the broad sectors of the fixed income market includ-
ing, but not limited to, debt obligations of governments and their agencies,
supranational organizations, corporations and banks, taking into consideration
such factors as their relative value, the likelihood of a change in credit rat-
ing, and the liquidity of the issue. Under normal circumstances, the Advisor
intends to keep the Portfolio essentially fully invested with at least 65% of
the Portfolio's assets invested in bonds of foreign issuers. These investments
will be made in at least three foreign countries. For further information on
international investments, see Additional Information and Risk Factors.
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 Portfolio's
market value to changes in interest rates. Generally, the longer the duration
of the Portfolio, the more sensitive its market value will be to changes in in-
terest rates. Typically, the Portfolio's duration will range between one year
shorter and one year longer than the duration of the non-U.S. fixed income uni-
verse, as represented by Salomon Brothers Non-U.S. World Government Bond Index
(currency hedged), the Portfolio's benchmark. Currently the benchmark's dura-
tion is approximately five years. The maturities of the individual bonds in the
Portfolio may vary widely, however.
The Portfolio may invest in securities denominated in foreign currencies, the
U.S. dollar or multinational currency units such as the ECU. The Advisor will
generally attempt to hedge the Portfolio's foreign currency exposure into the
U.S. dollar. However, the Advisor may from time to time decide to keep foreign
currency positions unhedged or engage in foreign currency transactions if,
based on fundamental research, technical factors and the judgment of experi-
enced currency managers, it believes the foreign currency exposure will benefit
the Portfolio. For further information on foreign currency exchange transac-
tions, see Additional Investment Information and Risk Factors.
The Portfolio intends to manage its portfolio actively in pursuit of its in-
vestment 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 in each country, but the Portfolio may also engage
in short-term trading consistent with its objective. To the extent the Portfo-
lio engages in short-term trading, it may realize short-term capital gains or
losses and incur increased transaction costs. See Taxes below. The estimated
annual portfolio turnover rate for the Portfolio is generally not expected to
exceed 300%.
CORPORATE BONDS. The Portfolio may invest in a broad range of debt obligations
of foreign issuers. These include debt securities of foreign corporations; debt
obligations of foreign banks and bank holding companies; and debt obligations
issued or guaranteed by supranational organizations such as the World Bank, the
European Investment Bank and the Asian Development Bank. To a limited extent,
the Portfolio may also invest in non-U.S. dollar denominated securities of U.S.
issuers.
GOVERNMENT SECURITIES. The Portfolio may invest in debt obligations issued or
guaranteed by a foreign sovereign government or one of its agencies, authori-
ties, instrumentalities or political subdivisions including a foreign state,
province or municipality.
MONEY MARKET INSTRUMENTS. The Portfolio may invest in money market instruments
of foreign or domestic issuers denominated in U.S. dollars and other curren-
cies. Under normal circumstances the Portfolio will purchase these securities
as a part of its management of the Portfolio's duration to invest temporary
cash balances or to maintain liquidity to meet redemptions. However, the Port-
folio may also invest in money market instruments without limitation as a tem-
porary defensive measure taken in the Advisor's judgment during, or in antici-
pation of, adverse market conditions. For more
26
<PAGE>
detailed information about these money market investments, see Investment Ob-
jectives and Policies in the Statement of Additional Information.
QUALITY INFORMATION. Under normal circumstances at least 65% of the Portfolio's
total assets will consist of securities that at the time of purchase are rated
at least A by Moody's or Standard & Poor's or that are unrated and in the Advi-
sor's opinion are of comparable quality. In the case of the remaining 35% of
the Portfolio's investments, the Portfolio may purchase securities that are
rated Baa or better by Moody's or BBB or better by Standard & Poor's or are
unrated and in the Advisor's opinion are 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 invested in the obligations of a single issuer. Thus, the Portfolio may in-
vest a greater proportion of its assets in the securities of a smaller number
of issuers and, as a result, may be subject to greater risk with respect to its
portfolio securities. The Portfolio, however, will comply with the diversifica-
tion requirements imposed by the Internal Revenue Code of 1986, as amended (the
"Code"), for qualification as a regulated investment company. See Taxes below.
The Portfolio may also purchase securities on a when-issued or delayed delivery
basis, enter into repurchase and reverse repurchase agreements, loan its port-
folio securities, purchase certain privately placed securities and enter into
forward foreign currency exchange contracts. In addition, the Portfolio may use
options on securities and indexes of securities, futures contracts and options
on futures contracts for hedging and risk management purposes. Forward foreign
currency exchange contracts, options and futures contracts are derivative in-
struments. For a discussion of these investments and investment techniques, see
Additional Investment Information and Risk Factors.
THE JPM INSTITUTIONAL SELECTED U.S. EQUITY FUND
The JPM Institutional Selected U.S. Equity Fund's investment objective is to
provide a high total return from a portfolio of selected equity securities. To-
tal return will consist of realized and unrealized capital gains and losses
plus income. The Fund attempts to achieve its investment objective by investing
all of its investable assets in The Selected U.S. Equity Portfolio, a diversi-
fied open-end management investment company having the same investment objec-
tive as the Fund. The Portfolio invests primarily in the common stock of large
and medium sized U.S. corporations.
The Fund is designed for investors who want an actively managed portfolio of
selected equity securities that seeks to outperform the S&P 500 Index.
Morgan seeks to enhance the Portfolio's total return relative to that of the
universe of large and medium sized U.S. companies, typically represented by the
S&P 500 Index, through fundamental analysis, systematic stock valuation and
disciplined portfolio construction. Based on internal fundamental research,
Morgan uses a dividend discount model to rank companies within economic sectors
according to their relative value. From the universe of securities this model
shows as undervalued, Morgan selects stocks for the Portfolio based on a vari-
ety of criteria including the company's managerial strength, prospects for
growth and competitive position. Morgan may modestly under or over-weight se-
lected economic sectors against the S&P 500 Index's sector weightings to seek
to enhance the Portfolio's total return or reduce the fluctuation in its market
value relative to the Index.
The Portfolio intends to manage its portfolio actively in pursuit of its in-
vestment objective. The Portfolio does not intend to respond to short-term mar-
ket fluctuations or to acquire securities for the purpose of short-term trad-
ing; how-
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ever, it may take advantage of short-term trading opportunities that are con-
sistent with its objective. To the extent the Portfolio engages in short-term
trading, it may incur increased transaction costs. See Taxes below.
EQUITY INVESTMENTS. During ordinary market conditions, the Advisor intends to
keep the Portfolio essentially fully invested with at least 65% of the Portfo-
lio's net assets invested in equity securities consisting of common stocks and
other securities with equity characteristics such as preferred stocks, war-
rants, rights and convertible securities. The Portfolio's primary equity in-
vestments are the common stocks of large and medium-sized U.S. corporations
and, to a limited extent, similar securities of foreign corporations. The com-
mon stock in which the Portfolio may invest includes the common stock of any
class or series or any similar equity interest, such as trust or limited part-
nership interests. These equity investments may or may not pay dividends and
may or may not carry voting rights. The Portfolio invests in securities listed
on a securities exchange or traded in an over-the-counter market, and may in-
vest in certain restricted or unlisted securities.
FOREIGN INVESTMENTS. The Portfolio may invest in equity securities of foreign
corporations included in the S&P 500 Index or listed on a national securities
exchange. However, the Portfolio does not expect to invest more than 5% of its
assets at the time of purchase in securities of foreign issuers. For further
information on foreign investments and foreign currency exchange transactions,
see Additional Investment Information and Risk Factors.
The Portfolio may also invest in securities on a when-issued or delayed deliv-
ery basis, enter into repurchase and reverse repurchase agreements, loan its
portfolio securities, purchase certain privately placed securities and money
market instruments, and enter into certain hedging transactions that may in-
volve options on securities and securities indexes, futures contracts and op-
tions on futures contracts. For a discussion of these investments and invest-
ment techniques, see Additional Investment Information and Risk Factors.
THE JPM INSTITUTIONAL U.S. SMALL COMPANY FUND
The JPM Institutional U.S. Small Company Fund's investment objective is to
provide a high total return from a portfolio of equity securities of small
companies. Total return will consist of realized and unrealized capital gains
and losses plus income. The Fund attempts to achieve its investment objective
by investing all of its investable assets in The U.S. Small Company Portfolio,
a diversified open-end management investment company having the same invest-
ment objective as the Fund. The Portfolio invests primarily in the common
stock of small U.S. companies. The small company holdings of the Portfolio are
primarily companies included in the Russell 2500 Index.
The 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 compa-
nies. The Fund may also serve as an efficient vehicle to diversify an existing
portfolio by adding the equities of smaller U.S. companies.
Morgan seeks to enhance the Portfolio's total return relative to that of the
U.S. small company universe. To do so, Morgan uses fundamental research, sys-
tematic stock valuation and a disciplined portfolio construction process. Mor-
gan continually screens the universe of small capitalization companies to
identify for further analysis those companies which exhibit favorable charac-
teristics such as significant and predictable cash flow and high quality man-
agement. Based on fundamental research and using a dividend discount model,
Morgan ranks these companies within economic sectors according to their rela-
tive value. Morgan then selects for purchase the most attractive companies
within each economic sector.
Morgan uses a disciplined portfolio construction process to seek to enhance
returns and reduce volatility in the market value of the Portfolio relative to
that of the U.S. small company universe. Morgan believes that under normal
market conditions, the Portfolio will have sector weightings comparable to
that of the U.S. small company universe, although it
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may moderately under or over-weight selected economic sectors. In addition, as
a company moves out of the market capitalization range of the small company
universe, it generally becomes a candidate for sale by the Portfolio.
The Portfolio intends to manage its investments actively in pursuit of its in-
vestment objective. Since the Portfolio has a long-term investment perspec-
tive, it does not intend to respond to short-term market fluctuations or to
acquire securities for the purpose of short-term trading; however, it may take
advantage of short-term trading opportunities that are consistent with its ob-
jective. To the extent the Portfolio engages in short-term trading, it may in-
cur increased transaction costs. See Taxes below.
PERMISSIBLE INVESTMENTS. The Portfolio may invest in the same types of securi-
ties and use the same investment techniques, subject to the same limitations,
as permitted for the Selected U.S. Equity Fund, except that its foreign in-
vestments are limited to the equity securities of foreign issuers that are
listed on a national securities exchange or denominated or principally traded
in U.S. dollars.
THE JPM INSTITUTIONAL INTERNATIONAL EQUITY FUND
The JPM Institutional International Equity Fund's investment objective is to
provide a high total return from a portfolio of equity securities of foreign
corporations. Total return will consist of realized and unrealized capital
gains and losses plus income. The Fund attempts to achieve its investment ob-
jective by investing all of its investable assets in The Non-U.S. Equity Port-
folio, a diversified open-end management investment company having the same
investment objective as the Fund.
The Fund is designed for investors with a long-term investment horizon who
want to diversify their portfolios by investing in an actively managed portfo-
lio of non-U.S. securities that seeks to outperform the Morgan Stanley Capital
International Europe, Australia and Far East Index (the "EAFE Index").
The Portfolio seeks to achieve its investment objective through country allo-
cation, stock selection and management of currency exposure. Morgan uses a
disciplined portfolio construction process to seek to enhance returns and re-
duce volatility in the market value of the Portfolio relative to that of the
EAFE Index.
Based on fundamental research, quantitative valuation techniques, and experi-
enced judgment, Morgan uses a structured decision-making process to allocate
the Portfolio primarily across the developed countries of the world outside
the United States by under- or overweighting selected countries in the EAFE
Index. Currently, Japan has the heaviest weighting in the EAFE Index and in
the Portfolio. At November 30, 1995, the approximate Japan weighting was 41%
in the EAFE Index and 45% in the Portfolio.
Using a dividend discount model and based on analysts' industry expertise, se-
curities within each country are ranked within economic sectors according to
their relative value. Based on this valuation, Morgan selects the securities
which appear the most attractive for the Portfolio. Morgan believes that under
normal market conditions, economic sector weightings generally will be similar
to those of the EAFE Index.
Finally, Morgan actively manages currency exposure, in conjunction with coun-
try and stock allocation, in an attempt to protect and possibly enhance the
Portfolio's market value. Through the use of forward foreign currency exchange
contracts, Morgan will adjust the Portfolio's foreign currency weightings to
reduce its exposure to currencies deemed unattractive and, in certain circum-
stances, increase exposure to currencies deemed attractive, as market condi-
tions warrant, based on fundamental research, technical factors, and the judg-
ment of a team of experienced currency managers. For further information on
foreign currency exchange transactions, see Additional Investment Information
and Risk Factors.
The Portfolio intends to manage its portfolio actively in pursuit of its in-
vestment objective. The Portfolio does not expect to trade in securities for
short-term profits; however, when circumstances warrant, securities may be
sold without
29
<PAGE>
regard to the length of time held. To the extent the Portfolio engages in
short-term trading, it may incur increased transaction costs. See Taxes below.
EQUITY INVESTMENTS. In normal circumstances, Morgan intends to keep the Portfo-
lio essentially fully invested with at least 65% of the value of its total as-
sets in equity securities of foreign issuers consisting of common stocks and
other securities with equity characteristics comprised of preferred stock, war-
rants, rights, convertible securities, trust certificates, limited partnership
interests and equity participations. The Portfolio's primary equity investments
are the common stock of established companies based in developed countries out-
side the United States. Such investments will be made in at least three foreign
countries. The common stock in which the Portfolio may invest includes the com-
mon stock of any class or series or any similar equity interest, such as trust
or limited partnership interests. These equity investments may or may not pay
dividends and may or may not carry voting rights. The Portfolio may also invest
in securities of issuers located in developing countries. See Additional In-
vestment Information and Risk Factors. The Portfolio invests in securities
listed on foreign or domestic securities exchanges and securities traded in
foreign or domestic over-the-counter markets, and may invest in certain re-
stricted or unlisted securities.
The Portfolio may also invest in money market instruments denominated in U.S.
dollars and other currencies, purchase securities on a when-issued or delayed
delivery basis, enter into repurchase and reverse repurchase agreements, loan
its portfolio securities, purchase certain privately placed securities, enter
into forward contracts on foreign currencies and enter into certain hedging
transactions that may involve options on securities and securities indexes,
futures contracts and options on futures contracts. For a discussion of these
investments and investment techniques, see Additional Investment Information
and Risk Factors.
THE JPM INSTITUTIONAL EMERGING MARKETS EQUITY FUND
The JPM Institutional Emerging Markets Equity Fund's investment objective is to
achieve a high total return from a portfolio of equity securities of companies
in emerging markets. Total return will consist of realized and unrealized capi-
tal gains and losses plus income. The Fund attempts to achieve its investment
objective by investing all its investable assets in The Emerging Markets Equity
Portfolio, a diversified open-end management investment company having the same
investment objective as the Fund.
The Fund is designed for long-term investors who want exposure to the rapidly
growing emerging markets. THE FUND DOES NOT REPRESENT A COMPLETE INVESTMENT
PROGRAM NOR IS THE FUND SUITABLE FOR ALL INVESTORS. Many investments in emerg-
ing markets can be considered speculative, and therefore may offer higher po-
tential for gains and losses and may be more volatile than investments in the
developed markets of the world. See Additional Investment Information and Risk
Factors.
The Advisor considers "emerging markets" to be any country which is generally
considered to be an emerging or developing country by the World Bank, the In-
ternational Finance Corporation, the United Nations or its authorities. These
countries generally include every country in the world except Australia, Aus-
tria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Ja-
pan, Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, United King-
dom and United States. The Portfolio will focus its investments in those emerg-
ing markets countries which it believes have strongly developing economies and
in which the markets are becoming more sophisticated.
A company in an emerging market is one that: (i) has its principal securities
trading market in an emerging market country; (ii) is organized under the laws
of an emerging market; (iii) derives 50% or more of its total revenue from ei-
ther goods produced, sales made or services performed in emerging markets; or
(iv) has at least 50% of its assets located in emerging markets.
The Advisor seeks to achieve the Portfolio's investment objective by a disci-
plined process of country allocation and company selection. Based on fundamen-
tal research, quantitative analysis, and experienced judgment, the Advisor
identi-
30
<PAGE>
fies those countries where economic and political factors, including currency
movements, are likely to produce above-average returns. Based on their relative
value, the Advisor then selects those companies in each country's major indus-
try sectors which it believes are best positioned and managed to take advantage
of these economic and political factors.
The Portfolio's investments are primarily denominated in foreign currencies but
it may also invest in securities denominated in the U.S. dollar or multina-
tional currency units such as the ECU. The Advisor will not routinely attempt
to hedge the Portfolio's foreign currency exposure. However, the Advisor may
from time to time engage in foreign currency exchange transactions if, based on
fundamental research, technical factors, and the judgement of experienced cur-
rency managers, it believes the transactions would be in the Portfolio's best
interest. For further information on foreign currency exchange transactions,
see Additional Investment Information and Risk Factors.
The Portfolio intends to manage its portfolio actively in pursuit of its in-
vestment objective. The Portfolio does not expect to trade in securities for
short-term profits; however, when circumstances warrant, securities may be sold
without regard to the length of time held. To the extent the Portfolio engages
in short-term trading, it may incur increased transaction costs. See Taxes be-
low.
INVESTING IN EMERGING MARKETS. The Portfolio invests primarily in equity secu-
rities of companies in emerging markets. Investments in securities of issuers
in emerging markets countries may involve a high degree of risk and many may be
considered speculative. These investments carry all of the risks of investing
in securities of foreign issuers described herein to a heightened degree.
EQUITY INVESTMENTS. In normal circumstances, the Advisor intends to keep the
Portfolio essentially fully invested with at least 65% of the value of its to-
tal assets in equity securities of companies in emerging markets consisting of
common stocks and other securities with equity characteristics comprised of
preferred stock, warrants, rights, convertible securities, trust certificates,
limited partnership interests and equity participations. The Portfolio's pri-
mary equity investments are the common stock of established companies in the
emerging markets countries the Advisor has identified as attractive. The assets
of the Portfolio ordinarily will be invested in the securities of issuers in at
least three different countries considered to be emerging markets. The common
stock in which the Portfolio may invest includes the common stock of any class
or series or any similar equity interest, such as trust or limited partnership
interests. These equity investments may or may not pay dividends and may or may
not carry voting rights. The Portfolio invests in securities listed on foreign
or domestic securities exchanges and securities traded in foreign or domestic
over-the-counter markets, and may invest in certain restricted or unlisted se-
curities.
Certain emerging markets are closed in whole or in part to equity investments
by foreigners except through specifically authorized investment funds. Securi-
ties of other investment companies may be acquired by the Portfolio to the ex-
tent permitted under the 1940 Act-that is, the Portfolio may invest up to 10%
of its total assets in securities of other investment companies so long as not
more than 3% of the outstanding voting stock of any one investment company is
held by the Portfolio. In addition, not more than 5% of the Portfolio's total
assets may be invested in the securities of any one investment company. As a
shareholder in an investment fund, the Portfolio would bear its share of that
investment fund's expenses, including its advisory and administration fees. At
the same time the Portfolio and the Fund would continue to pay their own oper-
ating expenses.
The Portfolio may also invest in money market instruments denominated in U.S.
dollars and other currencies, purchase securities on a when-issued or delayed
delivery basis, enter into repurchase and reverse repurchase agreements, loan
its portfolio securities, purchase certain privately placed securities and en-
ter into forward foreign currency exchange contracts. In addition, the Portfo-
lio may use options on securities and indexes of securities, futures contracts
and options on futures contracts for hedging and risk management purposes. For
a discussion of these investments and investment techniques, see Additional In-
vestment Information and Risk Factors.
31
<PAGE>
THE JPM INSTITUTIONAL DIVERSIFIED FUND
The JPM Institutional Diversified Fund's investment objective is to provide a
high total return from a diversified portfolio of equity and fixed income se-
curities. Total return will consist of income plus realized and unrealized
capital gains and losses. The Fund attempts to achieve its investment objec-
tive 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 Fund.
The Portfolio seeks to provide a total return that approaches that of the uni-
verse of equity securities of large and medium sized U.S. companies and that
exceeds the return typical of a portfolio of fixed income securities. The
Portfolio attempts to achieve this return by investing in equity and fixed in-
come instruments, as described below.
The Fund is designed primarily for investors who wish to invest for long-term
objectives such as retirement. It is appropriate for investors who seek to at-
tain real appreciation in the market value of their investments over the long
term, but with somewhat less price fluctuation than a portfolio consisting
only of equity securities. The Fund may be an attractive option for investors
who want a professional investment adviser to decide how their investments
should be allocated between equity and fixed income securities.
Under normal circumstances, the Portfolio will be invested approximately 65%
in equities and 35% in fixed income securities. The equity portion of the
Portfolio will be invested primarily in large and medium sized U.S. companies
with market capitalizations above $1.5 billion, with the balance in small U.S.
companies primarily included in the Russell 2000 Index and in foreign issuers
primarily in developed countries. Under normal circumstances, Morgan expects
that approximately 52% of the Portfolio will be in equity securities of large
and medium sized companies, 3% in small companies and 10% in foreign issuers.
However, Morgan may allocate the Portfolio's investments among these asset
classes in a manner consistent with the Portfolio's investment objective and
current market conditions. Using a variety of analytical tools, Morgan
assesses the relative attractiveness of each asset class and determines an op-
timal allocation among them. Morgan then selects securities within each asset
class based on fundamental research and quantitative analysis.
The Portfolio intends to manage its portfolio actively in pursuit of its in-
vestment objective. Since the Portfolio has a long-term investment perspec-
tive, it does not intend to respond to short-term market fluctuations or to
acquire securities for the purpose of short-term trading; however, it may take
advantage of short-term trading opportunities that are consistent with its ob-
jective. To the extent the Portfolio engages in short-term trading, it may in-
cur increased transaction costs. See Taxes below.
EQUITY INVESTMENTS. For the equity portion of the Portfolio, Morgan seeks to
achieve a high total return through fundamental analysis, systematic stock
valuation and disciplined portfolio construction. For domestic equities, based
on internal fundamental research, Morgan uses a dividend discount model to
value equity securities and rank a universe of large and medium capitalization
companies or small companies within economic sectors according to their rela-
tive value. Morgan then buys and sells securities within each economic sector
based on this valuation process to seek to enhance the Portfolio's return. For
foreign equities, the Portfolio's investment process involves country alloca-
tion, stock selection and management of currency exposure. Morgan allocates
this portion of the Portfolio by under- or over-weighting selected countries
in the EAFE Index. Using a dividend discount model and based on analysts' in-
dustry expertise, securities within each country are ranked within economic
sectors according to their relative value and those which appear the most at-
tractive are selected. Currency exposure is also actively managed to protect
and possibly enhance the market value of the Portfolio. In addition, Morgan
uses this disciplined portfolio construction process to seek to reduce the
volatility of the large and medium capitalization equity portion of the Port-
folio relative to that of the S&P 500 Index, of the small company portion of
the Portfolio relative to that of the Russell 2000 and of the foreign equity
portion of the Portfolio relative to that of the EAFE Index.
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The Portfolio's equity investments will include common stock of any class or
series or any similar equity interest, such as trust or limited partnership
interests. The Portfolio's equity investments may also include preferred
stock, warrants, rights and convertible securities. The Portfolio's equity se-
curities may or may not pay dividends and may or may not carry voting rights.
FIXED INCOME INVESTMENTS. For the fixed income portion of the Portfolio, Mor-
gan seeks to provide a high total return by actively managing the duration of
the Portfolio's fixed income securities, the allocation of securities across
market sectors, and the selection of securities within sectors. Based on fun-
damental, economic and capital markets research, Morgan adjusts the duration
of the Portfolio's fixed income investments in light of market conditions.
Morgan also actively allocates the Portfolio's fixed income investments among
the broad sectors of the fixed income market. Securities which Morgan believes
are undervalued are selected for purchase from the sectors using advanced
quantitative tools, analysis of credit risk, the expertise of a dedicated
trading desk, and the judgment of fixed income portfolio managers and ana-
lysts.
Duration is a measure of the weighted average maturity of the fixed income se-
curities held in the Portfolio and can be used as a measure of the sensitivity
of the Portfolio's market value to changes in interest rates. Under normal
market conditions the duration of the fixed income portion of the Portfolio
will range between one year shorter and one year longer than the duration of
the U.S. investment grade fixed income universe, as represented by the Salomon
Brothers Broad Investment Grade Bond Index. Currently, the Index's duration is
approximately five years. The maturities of the individual fixed income secu-
rities in the Portfolio may vary widely, however.
The Portfolio may invest in a broad range of debt securities of domestic and
foreign issuers. These include corporate bonds, debentures, notes, mortgage-
related securities, and asset-backed securities; U.S. Government and agency
securities; and private placements. See The JPM Institutional Short Term Bond
Fund for more detailed information on fixed income securities.
QUALITY INFORMATION. It is a current policy of the Portfolio that under normal
circumstances at least 65% of that portion of the Portfolio invested in fixed
income securities will consist of securities that are rated at least A by
Moody's or Standard & Poor's or that are unrated and in Morgan's opinion are
of comparable quality. In the case of 30% of the Portfolio's fixed income in-
vestments, the Portfolio may purchase debt securities that are rated Baa or
better by Moody's or BBB or better by Standard & Poor's or are unrated and in
Morgan's opinion are of comparable quality. The remaining 5% of the Portfo-
lio's fixed income investments may be debt securities that are rated Ba or
better by Moody's or BB or better by Standard & Poor's or are unrated and in
Morgan's opinion are of comparable quality. Securities rated Baa by Moody's or
BBB by Standard & Poor's are considered investment grade, but have some specu-
lative characteristics. Securities rated Ba by Moody's or BB by Standard &
Poor's are below investment grade and considered to be speculative with regard
to payment of interest and principal. These standards must be satisfied 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.
FOREIGN INVESTMENTS. The Portfolio may invest in common stocks and convertible
securities of foreign corporations as well as fixed income securities of for-
eign government and corporate issuers. However, the Portfolio does not expect
to invest more than 30% of its assets at the time of purchase in securities of
foreign issuers. For further information on foreign investments and foreign
currency exchange transactions, see Additional Investment Information and Risk
Factors.
The Portfolio may also invest in securities on a when-issued or delayed deliv-
ery basis, enter into repurchase and reverse repurchase agreements, loan its
portfolio securities, purchase certain privately placed securities and money
market instruments and enter into forward contracts on foreign currencies. In
addition, the Portfolio may use options on securities and
33
<PAGE>
indexes of securities, futures contracts and options on futures contracts for
hedging and risk management purposes. For a discussion of these investments and
investment techniques, see Additional Investment Information and Risk Factors.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
CONVERTIBLE SECURITIES. The Portfolios for the Short Term Bond, Bond, Interna-
tional Bond, Selected U.S. Equity, U.S. Small Company, Emerging Markets Equity,
International Equity and Diversified Funds may invest in convertible securities
of domestic and, subject to each Portfolio's investment restrictions, foreign
issuers. The convertible securities in which the 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 enti-
tle 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.
COMMON STOCK WARRANTS. The Portfolios for the Selected U.S. Equity, U.S. Small
Company, International Equity, Emerging Markets Equity and Diversified 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 war-
rants 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 ex-
ercised on or prior to the expiration date.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each of the Portfolios may pur-
chase securities 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
fluctuation during this period and for fixed income investments no interest ac-
crues to the Portfolio until settlement. At the time of settlement, a when-is-
sued security may be valued at less than its purchase price. Each Portfolio
maintains with the Custodian a separate account with a segregated portfolio of
securities in an amount at least equal to these commitments. When entering into
a when-issued or delayed delivery transaction, the Portfolio relies 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 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 these commitments.
REPURCHASE AGREEMENTS. Each of the Portfolios may engage in repurchase agree-
ment transactions with brokers, dealers or banks that meet the credit guide-
lines established 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 Portfolio for the Treasury Money Market Fund
only enters into repurchase agreements involving Treasury Securities and Per-
mitted Agency Securities and under ordinary market conditions does not expect
to enter into repurchase agreements involving more than 5% of its net assets.
The term of these agreements is usually from overnight to one week. A repur-
chase 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 respect to the seller, the Portfo-
lio's realization upon the disposition of collateral may be delayed or limited.
Investments in certain repurchase agreements and certain other investments
which may be considered illiquid are limited. See Illiquid Investments; Pri-
vately Placed and other Unregistered Securities below.
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LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
each of the Portfolios is permitted to lend its securities in an amount up to
33 1/3% of the value of the Portfolio's net assets. Each of the Portfolios may
lend its securities if such loans are secured continuously by cash or equiva-
lent 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 Portfolio in the normal settlement time, generally three business days af-
ter 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, the Port-
folios will consider all facts and circumstances, including the creditworthi-
ness of the borrowing financial institution, and the Portfolios will not 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 Portfo-
lios, the Advisor or the Distributor, unless otherwise permitted by applicable
law.
REVERSE REPURCHASE AGREEMENTS. Each of the Portfolios is permitted to enter
into reverse repurchase agreements. In a reverse repurchase agreement, the
Portfolio sells a security and agrees to repurchase it at a mutually agreed
upon date and price, reflecting the interest rate effective for the term of
the agreement. For purposes of the 1940 Act, it is considered a form of bor-
rowing 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 informa-
tion, see Investment Objectives and Policies in the Statement of Additional
Information.
FOREIGN INVESTMENT INFORMATION. The Portfolios for the Money Market, Short
Term Bond, Bond, Selected U.S. Equity, U.S. Small Company and Diversified
Funds may invest in certain foreign securities. The Portfolios for the Inter-
national Bond, International Equity and Emerging Markets Equity Funds invest
primarily in foreign securities. Investment in securities of foreign issuers
and in obligations of foreign branches of domestic banks involves somewhat
different investment risks from those affecting securities of U.S. domestic
issuers. There may be limited publicly available information with respect to
foreign issuers, and foreign issuers are not generally subject to uniform ac-
counting, auditing and financial standards and requirements comparable to
those applicable to domestic companies. Dividends and interest paid by foreign
issuers may be subject to withholding and other foreign taxes which may de-
crease the net return on foreign investments as compared to dividends and in-
terest paid to these Portfolios by domestic companies.
Investors should realize that the value of each Portfolio's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation, na-
tionalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or depre-
ciation of portfolio securities and could favorably or unfavorably affect the
Portfolio's operations. Furthermore, the economies of individual foreign na-
tions may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital re-
investment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign is-
suer. Any foreign investments made by the Portfolios must be made in compli-
ance with U.S. and foreign currency restrictions and tax laws restricting the
amounts and types of foreign investments.
In addition, while the volume of transactions effected in foreign bond markets
or on foreign stock exchanges has increased in recent years, in most cases it
remains appreciably below that of domestic markets or security exchanges. Ac-
cordingly, a Portfolio's foreign investments may be less liquid and their
prices may be more volatile than comparable investments in securities of U.S.
issuers or companies. Moreover, the settlement periods for foreign securities,
which are often longer than those for securities of U.S. issuers, may affect
portfolio liquidity. In buying and selling securities on foreign exchanges,
purchasers normally pay fixed commissions that are generally higher than the
negotiated commissions charged
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in the United States. In addition, there is generally less government supervi-
sion and regulation of securities exchanges, brokers, financial institutions
and issuers located in foreign countries than in the United States.
Although the Portfolios for the International Bond and International Equity
Funds invest primarily in securities of established issuers based in developed
foreign countries, they may also invest in securities of issuers in emerging
markets countries. The Portfolio for the Emerging Markets Equity Fund invests
primarily in equity securities of companies in emerging markets countries. In-
vestments in securities of issuers in emerging markets countries may involve a
high degree of risk and many may be considered speculative. These investments
carry all of the risks of investing in securities of foreign issuers outlined
in this section to a heightened degree. These heightened risks include (i)
greater risks of expropriation, confiscatory taxation, nationalization, and
less social, political and economic stability; (ii) the small current size of
the markets for securities of emerging markets issuers and the currently low
or nonexistent volume of trading, resulting in lack of liquidity and in price
volatility; (iii) certain national policies which may restrict the Portfolios'
investment opportunities including restrictions on investing in issuers or in-
dustries deemed sensitive to relevant national interests; and (iv) the absence
of developed legal structures governing private or foreign investment and pri-
vate property.
Each of the Portfolios may invest in securities of foreign issuers directly or
in the form of American Depositary Receipts ("ADRs"), European Depositary Re-
ceipts ("EDRs") or other similar securities of foreign issuers. These securi-
ties may not necessarily be denominated in the same currency as the securities
they represent. ADRs are receipts typically issued by a U.S. bank or trust
company evidencing ownership of the underlying foreign securities. Certain
such institutions issuing ADRs may not be sponsored by the issuer of the un-
derlying foreign securities. A non-sponsored depository may not provide the
same shareholder information that a sponsored depository is required to pro-
vide under its contractual arrangements with the issuer of the underlying for-
eign securities. EDRs are receipts issued by a European financial
institution evidencing a similar arrangement. Generally, ADRs, in registered
form, are designed for use in the U.S. securities markets, and EDRs, in bearer
form, are designed for use in European securities markets.
In the case of the Portfolios for the International Bond, Selected U.S. Equi-
ty, U.S. Small Company, International Equity, Emerging Markets Equity and Di-
versified Funds, since investments in foreign securities involve foreign cur-
rencies, the value of their assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. See Foreign Currency Exchange Trans-
actions.
For a discussion of investment risks associated with the general economic and
political conditions in Japan, see Investment Objectives and Policies in the
Statement of Additional Information.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolios for the Inter-
national Bond, Selected U.S. Equity, U.S. Small Company, International Equity,
Emerging Markets Equity and Diversified Funds buy and sell securities and re-
ceive interest and dividends in currencies other than the U.S. dollar, the
Portfolios for these Funds may enter from time to time into foreign currency
exchange transactions. The Portfolios either enter into these transactions on
a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market or use forward contracts to purchase or sell foreign curren-
cies. The cost of a Portfolio's spot currency exchange transactions is gener-
ally the difference between the bid and offer spot rate of the currency being
purchased or sold.
A forward foreign currency exchange contract is an obligation by the Portfolio
to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These con-
tracts are derivative instruments, as their value derives from the spot ex-
change rates of the currencies underlying the contracts. These contracts are
entered into in the interbank market directly between currency traders (usu-
ally large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. The Portfolios will not enter into forward contracts
for speculative purposes. Neither spot transactions nor forward foreign
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<PAGE>
currency exchange contracts eliminate fluctuations in the prices of the Portfo-
lio's securities or in foreign exchange rates, or prevent loss if the prices of
these securities should decline.
Each of these Portfolios may enter into foreign currency exchange transactions
in an attempt to protect against changes in foreign currency exchange rates be-
tween the trade and settlement dates of specific securities transactions or an-
ticipated securities transactions. The Portfolios may also enter into forward
contracts to hedge against a change in foreign currency exchange rates that
would cause a decline in the value of existing investments denominated or prin-
cipally traded in a foreign currency. To do this, a Portfolio would enter into
a forward contract to sell the foreign currency in which the investment is de-
nominated or principally traded in exchange for U.S. dollars or in exchange for
another foreign currency. A Portfolio will only enter into forward contracts to
sell a foreign currency in exchange for another foreign currency if the Advisor
expects the foreign currency purchased to appreciate against the U.S. dollar.
Although these transactions are intended to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time they limit any
potential gain that might be realized should the value of the hedged currency
increase. In addition, forward contracts that convert a foreign currency into
another foreign currency will cause the Portfolio to assume the risk of fluctu-
ations in the value of the currency purchased against the hedged currency and
the U.S. dollar. The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible because the fu-
ture value of such securities in foreign currencies will change as a conse-
quence of market movements in the value of such securities between the date the
forward contract is entered into and the date it matures. The projection of
currency market movements is extremely difficult, and the successful execution
of a hedging strategy is highly uncertain.
TAXABLE INVESTMENTS FOR THE TAX EXEMPT FUNDS. The Portfolios for the Tax Exempt
Money Market and Tax Exempt Bond Funds each attempt to invest its assets in tax
exempt municipal securities; however, these Portfolios are each permitted to
invest up to 20% of the value of their respective total assets in securities,
the interest income on which may be subject to federal, state or local income
taxes. These Portfolios may make taxable investments pending investment of pro-
ceeds from sales of their interests or portfolio securities, pending settlement
of purchases of portfolio securities, to maintain liquidity or when it is ad-
visable in Morgan's opinion because of adverse market conditions. The Portfo-
lios will invest in taxable securities only if there are no tax exempt securi-
ties available for purchase or if the after tax yield, in the case of the Port-
folio for the Money Market Fund, or the expected return, in the case of the
Portfolio for the Tax Exempt Bond Fund, from an investment in taxable securi-
ties exceeds the yield or expected return, as the case may be, on available tax
exempt securities. In abnormal market conditions, if, in the judgment of Mor-
gan, tax exempt securities satisfying the Tax Exempt Bond Fund's investment ob-
jective may not be purchased, its corresponding Portfolio may, for defensive
purposes only, temporarily invest more than 20% of its net assets in debt secu-
rities the interest on which is subject to federal, state or local income tax-
es. The taxable investments permitted for these Portfolios include obligations
of the U.S. Government and its agencies and instrumentalities, bank obliga-
tions, commercial paper and repurchase agreements and, in the case of the Tax
Exempt Bond Fund, other debt securities which meet the Fund's quality require-
ments. See Taxes.
PUTS FOR THE TAX EXEMPT FUNDS. The Portfolios for the Tax Exempt Money Market
and Tax Exempt Bond Funds may purchase without limit municipal bonds or notes
together 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. Consistent with the investment objectives of
these Portfolios and subject to the supervision of the Trustees, the purpose of
this practice is to permit the Portfolios to be fully invested in tax exempt
securities while maintaining the necessary liquidity to purchase securities on
a when-issued basis, to meet unusually large withdrawals, to purchase at a
later date securities other than those subject to the put and, in the case of
the Tax Exempt Bond Fund, to facilitate Morgan's ability to manage the portfo-
lio actively. The
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<PAGE>
principal risk of puts is that the put writer may default on its obligation to
repurchase. Morgan will monitor each writer's ability to meet its obligations
under puts.
The amortized cost method is used by the Portfolio for the Tax Exempt Money
Market Fund to value all municipal securities; no value is assigned to any
puts. This method is also used by the Portfolio for the Tax Exempt Bond Fund to
value municipal securities with maturities of less than 60 days; when these se-
curities 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 State-
ment of Additional Information for the valuation procedure if the Portfolio for
the Tax Exempt Bond Fund were to invest in municipal securities with maturities
of 60 days or more that are subject to separate puts.
SYNTHETIC VARIABLE RATE INSTRUMENTS FOR THE TAX EXEMPT FUNDS. The Portfolios
for the Tax Exempt Money Market and Tax Exempt Bond Funds may invest in certain
synthetic 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. Morgan
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 avail-
able, the risk to the Portfolios will be that of holding the long-term bond,
which in the case of the Portfolio for the Tax Exempt Money Market Fund may re-
quire the disposition of the bond which could be at a loss.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED
SECURITIES. Subject to the limitations described below, each of the Portfolios
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 il-
liquid 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 illiquid securi-
ties 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.
Acquisition of illiquid investments by the Portfolio for the Money Market Fund
is subject to the 10% fundamental policy limitation described below under In-
vestment Restrictions. Acquisitions of illiquid investments by the Portfolios
for the other Funds is subject to the following non-fundamental policies. The
Portfolio for each of the Tax Exempt Money Market and Treasury Money Market
Funds may not acquire any illiquid securities if, as a result thereof, more
than 10% of the market value of the Portfolio's net assets would be in illiquid
investments. The Portfolio for each of the Short Term Bond, Bond, Tax Exempt
Bond, International Bond, Selected U.S. Equity, U.S. Small Company, Interna-
tional Equity, Emerging Markets Equity and Diversified Funds may not invest in
additional illiquid securities if, as a result, more than 15% of the market
value of its net assets would be invested in illiquid securities.
Each of the Portfolios may also purchase Rule 144A securities sold to institu-
tional investors without registration under the 1933 Act. These securities may
be determined to be liquid in accordance with guidelines established by the Ad-
visor and approved by the Trustees. The Trustees will monitor the Advisor's im-
plementation of these guidelines on a periodic basis.
FUTURES AND OPTIONS TRANSACTIONS. The Portfolios for each of the Bond, Short
Term Bond, Tax Exempt Bond, International Bond and Diversified Funds may (a)
purchase exchange traded and over-the-counter (OTC) put and call options on
fixed income securities and indexes of fixed income securities, (b) purchase
and sell futures contracts on fixed
38
<PAGE>
income securities and indexes of fixed income securities and (c) purchase put
and call options on futures contracts on fixed income securities and indexes
of fixed income securities. The Portfolios for each of the Bond, Short Term
Bond, Tax Exempt Bond and Diversified Funds may also purchase and sell futures
contracts on fixed income securities and purchase put and call options on
futures contracts on fixed income securities. In addition, the Portfolios for
the International Bond and Diversified Funds may sell (write) exchange traded
and OTC put and call options on indexes of fixed income securities and on
futures contracts on indexes of fixed income securities; the Portfolio for the
Diversified Fund may also sell these options on fixed income securities and on
futures contracts on fixed income securities. Each of these instruments is a
derivative instrument as its value derives from the underlying asset or index.
The Portfolios for each of the Selected U.S. Equity, U.S. Small Company, In-
ternational Equity, Emerging Markets Equity and Diversified Funds may (a) pur-
chase exchange traded and OTC put and call options on equity securities or in-
dexes of equity securities, (b) purchase and sell futures contracts on indexes
of equity securities, and (c) purchase put and call options on futures con-
tracts on indexes of equity securities. In addition, the Portfolios for the
Emerging Markets Equity and Diversified Funds may sell (write) exchange traded
and OTC put and call options on equity securities and indexes of equity secu-
rities and on futures contracts on indexes of equity securities.
Each of these Portfolios may use futures contracts and options for hedging
purposes. The Portfolios for each of the International Bond, Emerging Markets
Equity and Diversified Funds may also use futures contracts and options for
risk management purposes. See Risk Management in the Statement of Additional
Information. None of the Portfolios may use futures contracts and options for
speculation.
Each of these Portfolios may utilize options and futures contracts to manage
their exposure to changing interest rates and/or security prices. Some options
and futures strategies, including selling futures contracts and buying puts,
tend to hedge a Portfolio's investments against price fluctuations. Other
strategies, including buying futures contracts, writing puts and calls, and
buying calls, tend to increase market exposure. Options and futures contracts
may be combined with each other or with forward contracts in order to adjust
the risk and return characteristics of a Portfolio's overall strategy in a
manner deemed appropriate to the Advisor and consistent with a Portfolio's ob-
jective and policies. Because combined options positions involve multiple
trades, they result in higher transaction costs and may be more difficult to
open and close out.
The use of options and futures is a highly specialized activity which involves
investment strategies and risks different from those associated with ordinary
portfolio securities transactions, and there can be no guarantee that their
use will increase a Portfolio's return. While the use of these instruments by
a Portfolio may reduce certain risks associated with owning its portfolio se-
curities, these techniques themselves entail certain other risks. If the Advi-
sor applies a strategy at an inappropriate time or judges market conditions or
trends incorrectly, options and futures strategies may lower a Portfolio's re-
turn. Certain strategies limit a 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, a 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.
Each of the Portfolios may purchase put and call options on securities, in-
dexes of securities and futures contracts, or purchase and sell futures con-
tracts, only if such options are written by other persons and if (i) the ag-
gregate 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 depos-
its required on all such futures or options thereon held at any time do not
exceed 5% of the Portfolio's total assets. In addition, the Portfolios for the
Emerging Markets Equity and Diversified Funds 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
asset value of such Portfolio.
39
<PAGE>
For more detailed information about these transactions, see the Appendix to
this Prospectus and Risk Management in the Statement of Additional Information.
MONEY MARKET INSTRUMENTS. The Portfolios for the Selected U.S. Equity, U.S.
Small Company, International Equity, Emerging Markets Equity and Diversified
Funds are permitted to invest in money market instruments, although each of
these Portfolios intends to stay invested in equity securities (or, in the case
of the Diversified Fund, equity and longer-term fixed income securities) to the
extent practical in light of its objectives and long-term investment perspec-
tive. These Portfolios may make money market investments pending other invest-
ment or settlement, for liquidity or in adverse market conditions as described
above under Taxable Investments for the Tax Exempt Funds. The money market in-
vestments permitted for these Portfolios include obligations of the U.S. Gov-
ernment and its agencies and instrumentalities, other debt securities, commer-
cial paper, bank obligations and repurchase agreements. The Portfolios for the
International Equity and Emerging Markets Equity Funds may also invest in
short-term obligations of sovereign foreign governments, their agencies, in-
strumentalities and political subdivisions. For more detailed information about
these money market investments, see Investment Objectives and Policies in the
Statement of Additional Information.
INVESTMENT RESTRICTIONS
As diversified investment companies, 75% of the assets of each of the Portfo-
lios, except for the Portfolio for the International Bond Fund, are subject to
the following fundamental limitations: (a) the Portfolio may not invest more
than 5% of its total assets in the securities of any one issuer, except U.S.
Government securities, and (b) the Portfolio may not own more than 10% of the
outstanding voting securities of any one issuer. The Money Market and Treasury
Money Market Portfolios are subject to additional non-fundamental requirements
governing non-tax exempt money market funds. These non-fundamental requirements
generally prohibit the Money Market and Treasury Money Market Portfolios from
investing more than 5% of their respective total assets in the securities of
any single issuer, except obligations of the U.S. Government and its agencies
and instrumentalities.
The Portfolio for the International Bond Fund is registered as a non-diversi-
fied investment company, which means that the Portfolio is not limited by the
1940 Act in the proportion of its assets that may be invested in the obliga-
tions 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 re-
sult, may be subject to greater risk with respect to its portfolio securities.
The Portfolio, however, will comply with the diversification requirements im-
posed by the Code for qualification as a regulated investment company. See
Taxes below.
The investment objective of each Fund and its corresponding Portfolio, together
with the investment restrictions described below and in the Statement of Addi-
tional Information, 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 a Fund and its corresponding Portfolio. Each
Fund has the same investment restrictions as its corresponding Portfolio, ex-
cept that each Fund may invest all of its investable assets in another open-end
investment company with the same investment objective and restrictions (such as
its corresponding Portfolio). References below to a Portfolio's investment re-
strictions also include the corresponding Fund's investment restrictions.
The Portfolio for the Money Market Fund may not (i) acquire any illiquid secu-
rities if as a result more than 10% of the market value of its total assets
would be in investments which are illiquid, (ii) enter into reverse repurchase
agreements exceeding one-third of the market value of its total assets, less
certain liabilities, (iii) borrow money, except from banks for extraordinary or
emergency purposes and then only in amounts up to 10% of the value of the Port-
folio's total assets, taken at cost at the time of borrowing, or purchase secu-
rities while borrowings exceed 5% of its total assets; or mortgage, pledge or
hypothecate any assets except in connection with any such borrowings in amounts
up to 10% of the value of the Portfolio's net assets at the time of borrowing
(the "10% Emergency Borrowing Restriction"), or (iv) invest more
40
<PAGE>
than 25% of its assets in any one industry, except there is no percentage limi-
tation 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.
The Portfolio for the Treasury Money Market Fund may not (i) enter into reverse
repurchase agreements which together with any other borrowings exceed one-third
of the market value of its total assets, less certain liabilities, or (ii) bor-
row 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 its total assets, taken at cost at the time of borrowing
(and provided that such borrowings and reverse repurchase agreements do not ex-
ceed in the aggregate one-third of the market value of the Portfolio's total
assets less liabilities other than the obligations represented by the bank
borrowings and reverse repurchase agreements), or purchase securities while
borrowings exceed 5% of its total assets; or mortgage, pledge or hypothecate
any assets except in connection with any such borrowings in amounts up to 10%
of the value of the Portfolio's net assets at the time of borrowing, or (iii)
make loans, except through purchasing or holding debt obligations, repurchase
agreements, or loans of portfolio securities in accordance with the Portfolio's
investment objective and policies.
The Portfolios for the Tax Exempt Money Market and Tax Exempt Bond Funds are
subject to the 10% Emergency Borrowing Restriction, except that borrowings may
be for temporary as well as extraordinary or emergency purposes in the case of
the Portfolio for the Tax Exempt Money Market Fund, and may not acquire indus-
trial revenue bonds if as a result more than 5% of total Portfolio assets would
be invested in industrial revenue bonds where payment of principal and interest
is the responsibility of companies with fewer than three years of operating
history.
Each of the Portfolios for the Short Term Bond and Diversified Funds may not
(i) purchase securities or other obligations of issuers conducting their prin-
cipal business activity in the same industry if its investments in such indus-
try would exceed 25% of the value of the Portfolio's total assets, except this
limitation shall not apply to investments in U.S. Government securities (the
"Industry Concentration Restriction"; for purposes of this limitation, the
staff of the SEC considers (a) all supranational organizations as a group to be
a single industry and (b) each foreign government and its political subdivi-
sions to be a single industry); (ii) borrow money (not including reverse repur-
chase agreements), except from banks for temporary or extraordinary or emer-
gency purposes and then only in amounts up to 30% of the value of its total as-
sets, taken at cost at the time of borrowing (and provided that such borrowings
and reverse repurchase agreements do not exceed in the aggregate one-third of
the market value of the Portfolio's total assets less liabilities other than
the obligations represented by the bank borrowings and reverse repurchase
agreements), or purchase securities while borrowings exceed 5% of its total as-
sets; or mortgage, pledge or hypothecate any assets except in connection with
any such borrowings in amounts not to exceed 30% of the value of the Portfo-
lio's net assets at the time of borrowing; or (iii) enter into reverse repur-
chase agreements and other permitted borrowings which constitute senior securi-
ties under the 1940 Act, exceeding in the aggregate one-third of the market
value of the Portfolio's total assets, less certain liabilities (the "Senior
Securities Restriction").
The Portfolio for the Bond Fund is subject to the Industry Concentration Re-
striction and the Senior Securities Restriction and may not borrow money, ex-
cept from banks for extraordinary or emergency purposes and then only in
amounts up to 30% of the value of the Portfolio's total assets taken at cost at
the time of borrowing and except in connection with reverse repurchase agree-
ments or purchase securities while borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; or mortgage, pledge or hypothecate
any assets except in connection with any such borrowing in amounts up to 30% of
the value of the Portfolio's net assets at the time of borrowing.
The Portfolios for the Selected U.S. Equity and U.S. Small Company Funds are
subject to the 10% Emergency Borrowing Restriction, the Industry Concentration
Restriction, and may not purchase securities of any issuer if, as a result of
the purchase, more than 5% of total Portfolio assets would be invested in secu-
rities of companies with fewer than three years of operating history (including
predecessors).
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<PAGE>
The Portfolio for the International Equity Fund is subject to the Industry
Concentration Restriction and the Senior Securities Restriction. In addition,
the Portfolio may not borrow money, except from banks for extraordinary or
emergency purposes and then only in amounts up to 30% of the value of the
Portfolio's net assets at the time of borrowing, and except in connection with
reverse repurchase agreements and then only in amounts up to 33 1/3% of the
value of the Portfolio's net assets; or purchase securities while borrowings,
including reverse repurchase agreements, exceed 5% of its total assets; or
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 Portfolio's net
assets at the time of such borrowing.
Each of the Portfolios for the International Bond and Emerging Markets Equity
Funds are subject to the Industry Concentration Restriction and may not (i)
borrow money except that each Portfolio may (a) borrow money from banks for
temporary or emergency purposes (not for leveraging purposes) and (b) enter
into reverse repurchase agreements for any purpose, provided that (a) and (b)
in total do not exceed one-third of the Portfolio's total assets less liabili-
ties (other than borrowings), or (ii) issue senior securities except as per-
mitted by the 1940 Act or any rule, order or interpretation thereunder.
For a more detailed discussion of the above investment restrictions, as well
as a description of certain other investment restrictions, see Investment Re-
strictions in the Statement of Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIOS
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the
Portfolios, the Trustees decide upon matters of general policy and review the
actions of the Advisor and other service providers. The Trustees of the Trust
and of each Portfolio are identified below.
<TABLE>
<S> <C>
Frederick S. Addy................... Former Executive Vice President and Chief
Financial Officer, Amoco Corporation
William G. Burns.................... Former Vice Chairman of the Board and Chief
Financial Officer, NYNEX Corporation
Arthur C. Eschenlauer............... Former Senior Vice President, Morgan
Guaranty Trust Company of New York
Matthew Healey...................... Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi................. Senior Vice President, Capital Cities/ABC,
Inc., President, Broadcast Group
</TABLE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are trustees of the Trust, each Portfolio
and The Pierpont Funds, up to and including creating a separate board of
trustees. See Trustees and Officers in the Statement of Additional Information
for more information about the Trustees and Officers of the Funds and the
Portfolios.
Each of the Portfolios and the Trust have entered into a Fund Services Agree-
ment with Pierpont Group, Inc. to assist the Trustees in exercising their
overall supervisory responsibilities for the Portfolios' and the Trust's af-
fairs. The fees to be 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 princi-
pal offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York,
New York 10017.
ADVISOR. None of the Funds has retained the services of an investment adviser
because each Fund seeks to achieve its investment objective by investing all
of its investable assets in its corresponding Portfolio. Each Portfolio has
retained the
42
<PAGE>
services 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 subsidiary
of J.P. Morgan & Co. Incorporated ("J.P. Morgan"), a bank holding company orga-
nized 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 clients with com-
bined assets under management of over $179 billion (of which the Advisor ad-
vises over $28 billion). Morgan provides investment advice and portfolio man-
agement services to each Portfolio. Subject to the supervision of each Portfo-
lio's Trustees, Morgan makes each Portfolio's day-to-day investment decisions,
arranges for the execution of portfolio transactions and generally manages each
Portfolio's investments. See Investment Advisor in the Statement of Additional
Information. Morgan also provides certain accounting and operations services to
the Funds and the Portfolios, including services related to Portfolio and Fund
tax returns, Portfolio and Fund financial reports, computing Fund dividends and
net asset value per share and keeping the Trust's books of account. Morgan
Guaranty also provides shareholder services to shareholders of the Funds. See
Shareholder Servicing below.
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, quantita-
tive and credit analysis, and, for foreign fixed income securities, country se-
lection. Morgan has managed portfolios of domestic fixed income securities on
behalf of its clients for over 60 years and international fixed income securi-
ties on behalf of its clients since 1977. The portfolio managers making invest-
ments in domestic and international fixed income securities work in con- junc-
tion with fixed income, credit, capital market and economic research analysts,
as well as traders and administrative officers.
For equity portfolios, this process utilizes fundamental research, systematic
stock selection, disciplined portfolio construction and, in the case of foreign
equities, country exposure and currency management. Morgan has managed portfo-
lios of U.S. equity securities on behalf of its clients for over 40 years, eq-
uity securities of small U.S. companies since the 1960s, international equity
securities since 1974 and emerging markets equity securities since 1990. The
portfolio managers making investments in domestic, international or emerging
markets equity securities work in conjunction with Morgan's equity analysts, as
well as capital market, credit and economic research analysts, traders and ad-
ministrative officers, in Morgan's offices around the globe. The U.S. equity
analysts each cover a different industry, following both the small and large
companies in their respective industries, and currently monitor universes of
700 predominately large and medium-sized and 300 small U.S. companies. The in-
ternational equity analysts, located in London, Tokyo, Singapore and Melbourne,
each cover a different industry, monitoring a universe of nearly 1,000 non-U.S.
companies. The emerging markets research analysts, located in New York, London
and Singapore, each cover a different industry, monitoring a universe of ap-
proximately 900 companies in emerging markets countries.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the respective Portfolios or their
predecessor entities (the inception date of each person's responsibility for a
Portfolio (or its predecessor) and his or her business experience for the past
five years is indicated parenthetically): the Money Market Fund: Robert R.
Johnson, Vice President (since June, 1988, employed by Morgan since prior to
1991) and Daniel B. Mulvey, Vice President (since January, 1995, employed by
Morgan since September, 1991, previously securities trader, Equitable Life In-
surance Company); the Tax Exempt Money Market Fund: Daniel B. Mulvey, Vice
President (since August, 1995, employed by Morgan since September, 1991) and
Elizabeth A. Augustin, Vice President (since January, 1992, employed by Morgan
since prior to 1991); the Treasury Money Market Fund: James A. Hayes, Vice
President (since January, 1993, employed by Morgan since prior to 1991) and
Robert R. Johnson, Vice President (since January, 1993, employed by Morgan
since prior to 1991); the Short Term Bond Fund: Connie J. Plaehn, Vice Presi-
dent (since July, 1993, employed by Morgan since prior to 1991 as a portfolio
manager of U.S. fixed income investments) and William G. Tennille, Vice Presi-
dent (since January, 1994, employed by Morgan since March, 1992, previously
Managing
43
<PAGE>
Director, Manufacturers Hanover Trust Company as a portfolio manager of U.S.
fixed income investments); the Bond Fund: William G. Tennille, Vice President
(since January, 1994, employed by Morgan since March, 1992, previously Manag-
ing Director, Manufacturers Hanover Trust Company as a portfolio manager of
U.S. fixed income investments) and Connie J. Plaehn, Vice President (since
January, 1994, employed by Morgan since prior to 1991 as a portfolio manager
of U.S. fixed income investments); the Tax Exempt Bond Fund: Elizabeth A. Au-
gustin, Vice President (since January, 1992, employed by Morgan since prior to
1991) and Gregory J. Harris, Vice President (since January, 1996, employed by
Morgan since prior to 1991); the International Bond Fund: Robert P. Browne,
Vice President (since October 1994, employed by Morgan since 1991 as a portfo-
lio manager of international fixed income investments) and Lili B.L. Dung,
Vice President (since October 1994, employed by Morgan since prior to 1991 as
a portfolio manager of international fixed income investments); the Selected
U.S. Equity Fund: William B. Petersen, Managing Director (since February,
1993, employed by Morgan since prior to 1991 as a portfolio manager of U.S.
equity investments) and William M. Riegel, Jr., Vice President (since Febru-
ary, 1993, employed by Morgan since prior to 1991 as a portfolio manager of
U.S. equity investments); the U.S. Small Company Fund: James B. Otness, Manag-
ing Director (since February, 1993, employed by Morgan since prior to 1991 as
a portfolio manager of equity securities of small and medium sized U.S. compa-
nies) and Fred W. Kittler, Vice President (since February, 1993, employed by
Morgan since prior to 1991 as a portfolio manager of equity securities of
small and medium sized U.S. companies); the International Equity Fund: Paul A.
Quinsee, Vice President (since April, 1993, employed by Morgan since February,
1992, previously Vice President and Citibank N.A. prior to 1992 as a portfolio
manager of international equity investments) and Thomas P. Madsen, Managing
Director (since April, 1993, employed by Morgan since prior to 1991 as a port-
folio manager of international equity investments); the Emerging Markets Eq-
uity Fund: Douglas J. Dooley, Managing Director (since November, 1993, em-
ployed by Morgan since prior to 1991 and has been a portfolio manager of
emerging markets investments since 1991) and Satyen Mehta, Vice President
(since November, 1993, employed by Morgan since prior to 1991 and has been a
portfolio manager of emerging markets investments since 1991); and the Diver-
sified Fund: Gerald H. Osterberg, Vice President (since July, 1993, employed
by Morgan since prior to 1991) and John M. Devlin, Vice President (since De-
cember, 1993, 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 each Portfolio, the Portfolios
have agreed to pay Morgan a fee, which is computed daily and may be paid
monthly, equal to the following annual rates of each Portfolio's average daily
net assets: the Portfolios for the Money Market, Tax Exempt Money Market and
Treasury Money Market Funds, 0.20% of net assets up to $1 billion, and 0.10%
of net assets in excess of $1 billion; the Portfolio for the Short Term Bond
Fund, 0.25%; the Portfolios for the Bond and Tax Exempt Bond Funds, 0.30%; the
Portfolio for the International Bond Fund, 0.35%; the Portfolio for the Se-
lected U.S. Equity Fund, 0.40%; the Portfolios for the U.S. Small Company and
International Equity Funds, 0.60%; the Portfolio for the Emerging Markets Eq-
uity Fund, 1.00%; and the Portfolio for the Diversified Fund, 0.55%. While the
advisory fee for the Portfolio for the Emerging Markets Equity Fund is higher
than that of most investment companies, it is similar to the advisory fees of
other emerging markets funds.
Under separate agreements, Morgan also provides financial, fund accounting and
administrative services to the Trust and each Portfolio and shareholder serv-
ices to shareholders of the Funds. See Administrative Services Agent and
Shareholder Servicing below. INVESTMENTS IN THE JPM INSTITUTIONAL FUNDS ARE
NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, MORGAN GUARANTY
TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.
ADMINISTRATOR AND DISTRIBUTOR. Under Administration Agreements with the Trust
and each Portfolio, Signature Broker-Dealer Services, Inc. ("SBDS") serves as
the Administrator for the Trust and the Portfolios. In this capacity, SBDS ad-
ministers and manages all aspects of the Funds' and the Portfolios' day-to-day
operations subject to the supervision of the Trustees, except as set forth un-
der Advisor, Administrative Services Agent, Custodian and Shareholder Servic-
ing. In connection with its responsibilities as Administrator, SBDS (i) fur-
nishes ordinary clerical and related services for
44
<PAGE>
day-to-day operations including certain recordkeeping responsibilities; (ii)
takes responsibility for compliance with all applicable federal and state se-
curities and other regulatory requirements; (iii) is responsible for the reg-
istration of sufficient Fund shares under federal and state securities laws;
(iv) takes responsibility for monitoring each Fund's status as a regulated in-
vestment company under the Code; and (v) performs such administrative and man-
agerial oversight of the activities of the Trust's and the Portfolios' custo-
dian and transfer agent as the Trustees may direct from time to time.
Under the Trust's and the Portfolios' Administration Agreements with SBDS,
each Fund and Portfolio has agreed to pay to SBDS a fee equal to its propor-
tionate share of an annual complex-wide charge. This charge is calculated
daily based on the aggregate net assets of the Portfolios and the other port-
folios (collectively the "Master Portfolios") in which series of the Trust,
The Pierpont Funds or The JPM Advisor Funds invest. This charge is calculated
in accordance with the following annual schedule: 0.03% on the first $7 bil-
lion of the Master Portfolios' aggregate average daily net assets and 0.01% of
the Master Portfolio's aggregate average daily net assets in excess of $7 bil-
lion. The portion of this charge payable by each Fund or Portfolio is deter-
mined by the proportionate share that its net assets bear to the total of the
net assets of the Trust, The Pierpoint Funds, The JPM Advisor Funds and the
Master Portfolios.
SBDS, a registered broker-dealer, also serves as the Distributor of shares of
the Funds and the exclusive placement agent for the Portfolios. SBDS is a
wholly owned subsidiary of Signature. Signature and its affiliates currently
provide administration and distribution services for a number of registered
investment companies through offices located in Boston, New York, London, To-
ronto and George Town, Grand Cayman.
ADMINISTRATIVE SERVICES AGENT. Under Administrative Services Agreements with
the Trust and each Portfolio, Morgan is responsible for certain financial,
fund accounting and administrative services provided to the Trust and each
Portfolio, including services related to Portfolio and Fund tax returns, Port-
folio and Fund financial reports, computing Fund dividends and net asset value
per share and keeping the Trust's books of account. Under these agreements,
each Fund and Portfolio has agreed to pay Morgan a fee equal to its propor-
tionate share of an annual complex-wide charge. This charge is calculated
daily based on the aggregate net assets of the Master Portfolios in accordance
with the following annual schedule: 0.06% on the first $7 billion of the Mas-
ter Portfolios' aggregate average daily net assets, and 0.03% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion. The
portion of this charge payable by each Fund or Portfolio is determined by the
proportionate share that its net assets bear to the total 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. Under the terms of the agreements, Morgan may delegate one or more
of its responsibilities to other entities, at Morgan's expense.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02101, serves as the Funds' and the Portfolios' Custodian and
Transfer and Dividend Disbursing Agent.
EXPENSES. In addition to the fees payable to Morgan, Pierpont Group, Inc. and
SBDS (under the various agreements discussed under Trustees, Advisor, Adminis-
trator and Distributor and Administrative Services Agent above and Shareholder
Servicing below), the Funds and the Portfolios 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 a Fund or
Portfolio. For each Fund, such expenses also include transfer, registrar and
dividend disbursing costs, the expenses of printing and mailing reports, no-
tices and proxy statements to Fund shareholders, and registration fees under
state securities laws. For each Portfolio, such expenses also include applica-
ble registration fees under foreign securities laws, custodian fees and bro-
kerage expenses.
45
<PAGE>
Morgan has agreed that it will reimburse each Fund through at least the indi-
cated date to the extent necessary to maintain such Fund's total operating ex-
penses (which includes expenses of the Fund and its corresponding Portfolio) at
the following percentage of such Fund's average daily net assets:
<TABLE>
<CAPTION>
EXPENSE
FUND CAP DATE
---- ------- ----
<S> <C> <C>
The JPM Institutional Money Market Fund 0.20% February 28, 1997
The JPM Institutional Tax Exempt Money Market
Fund 0.35% December 31, 1996
The JPM Institutional Treasury Money Market
Fund 0.20% February 28, 1997
The JPM Institutional Short Term Bond Fund 0.45% February 28, 1997
The JPM Institutional Bond Fund 0.50% February 28, 1997
The JPM Institutional Tax Exempt Bond Fund 0.50% December 31, 1996
The JPM Institutional International Bond Fund 0.65% January 31, 1997
The JPM Institutional Selected U.S. Equity
Fund 0.60% September 30, 1996
The JPM Institutional U.S. Small Company Fund 0.80% September 30, 1996
The JPM Institutional International Equity
Fund 1.00% February 28, 1997
The JPM Institutional Diversified Fund 0.65% October 31, 1996
</TABLE>
These limits do not cover extraordinary expenses during the period. There is no
assurance that Morgan will continue these waivers beyond the specified periods,
except as required by the following sentence. Morgan has agreed to waive fees
as necessary if in any fiscal year the sum of any Fund's expenses exceeds the
limits set by applicable regulations of state securities commissions. Such an-
nual 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
Each Fund has entered into a Shareholder Servicing Agreement with Morgan pursu-
ant to which Morgan acts as shareholder servicing agent for its customers and
other Fund investors who are customers of an eligible institution which is a
customer of Morgan (an "Eligible Institution"). Each Fund has agreed to pay
Morgan for these services at the following annual rate (expressed as a percent-
age of the average daily net assets of Fund shares owned by or for shareholders
for whom Morgan is acting as shareholder servicing agent):
<TABLE>
<CAPTION>
FUND FEE
---- ---
<S> <C>
The JPM Institutional Money Market
Fund 0.05% of average daily net assets
The JPM Institutional Treasury Money
Market Fund
The JPM Institutional Tax Exempt Money
Market Fund
The JPM Institutional Short Term Bond
Fund 0.075% of average daily net assets
The JPM Institutional Bond Fund
The JPM Institutional Tax Exempt Bond
Fund
The JPM Institutional International
Bond Fund 0.10% of average daily net assets
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 Diversified Fund
</TABLE>
46
<PAGE>
Under the terms of the Shareholder Servicing Agreement with each 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 each Fund and its corresponding Portfolio are the days the
New York Stock Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with a Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
as shareholder servicing agent and the Funds are authorized to accept any in-
structions relating to a Fund account from Morgan as agent for the customer.
All purchase orders must be accepted by the Distributor. Investors must be cus-
tomers of Morgan or an Eligible Institution. Investors may also be employer-
sponsored retirement plans that have designated the Funds as investment options
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 transac-
tions. There are no charges associated with becoming a Morgan customer for this
purpose. Morgan reserves the right to determine the customers that it will ac-
cept, and the Trust reserves the right to determine the purchase orders that it
will accept.
Each Fund requires the minimum initial investment shown below and a minimum
subsequent investment of $25,000:
<TABLE>
<CAPTION>
INITIAL
FUND INVESTMENT
- ---- -----------
<S> <C>
The JPM Institutional Money Market Fund............................ $10,000,000
The JPM Institutional Tax Exempt Money Market Fund................. $10,000,000
The JPM Institutional Treasury Money Market Fund................... $10,000,000
The JPM Institutional Short Term Bond Fund......................... $ 5,000,000
The JPM Institutional Bond Fund.................................... $ 5,000,000
The JPM Institutional Tax Exempt Bond Fund......................... $ 5,000,000
The JPM Institutional International Bond Fund...................... $ 1,000,000
The JPM Institutional Selected U.S. Equity Fund.................... $ 3,000,000
The JPM Institutional U.S. Small Company Fund...................... $ 1,000,000
The JPM Institutional International Equity Fund.................... $ 1,000,000
The JPM Institutional Emerging Markets Equity Fund................. $ 500,000
The JPM Institutional Diversified Fund............................. $ 3,000,000
</TABLE>
These minimum investment requirements may be waived for investors for whom the
Advisor is a fiduciary or who maintain related accounts with The JPM Institu-
tional Funds or the Advisor when such accounts, together with investments in
the Funds, total $5 million or more.
An employer-sponsored retirement plan opening an account in each of the follow-
ing Funds will be required to attain the minimum balance indicated in such Fund
within thirteen months of opening the account. For investors such as investment
advisors, trust companies and financial advisors who make investments for a
group of clients, the minimum investment in a Fund is (i) the amount shown
above if the account is opened for one client or (ii) the amount shown below
for an aggregated purchase order for more than one client. The Trust may permit
an investor in each of the following Funds to attain the Fund's minimum invest-
ment indicated below within a reasonable period of time that will be no longer
than thirteen months after opening its account. The minimum subsequent invest-
ment in the same Fund is $25,000.
47
<PAGE>
<TABLE>
<CAPTION>
INITIAL
FUND INVESTMENT
- ---- -----------
<S> <C>
The JPM Institutional Short Term Bond Fund......................... $10,000,000
The JPM Institutional Bond Fund.................................... $10,000,000
The JPM Institutional Tax Exempt Bond Fund......................... $10,000,000
The JPM Institutional International Bond Fund...................... $ 2,000,000
The JPM Institutional Selected U.S. Equity Fund.................... $ 6,000,000
The JPM Institutional U.S. Small Company Fund...................... $ 2,000,000
The JPM Institutional International Equity Fund.................... $ 2,000,000
The JPM Institutional Emerging Markets Equity Fund................. $ 1,000,000
The JPM Institutional Diversified Fund............................. $ 6,000,000
</TABLE>
PURCHASE PRICE AND SETTLEMENT. Each 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.
THE MONEY MARKET, TAX EXEMPT MONEY MARKET AND TREASURY MONEY MARKET FUNDS.
To purchase shares in these Funds, investors should request their Morgan rep-
resentative (or a representative of their Eligible Institution) to assist them
in placing a purchase order with the Fund's Distributor and to transfer imme-
diately available funds to the Distributor on the same day. Any shareholder
may also call J.P. Morgan Funds Services at (800) 766-7722 for assistance with
placing an order for Fund shares. Immediately available funds must be received
by 3:00 P.M. New York time on a business day in the case of the Money Market
Fund, 12:00 noon New York time on a business day in the case of The Treasury
Money Market Fund, and by 11:00 A.M. New York time on a business day for the
Tax Exempt Money Market Fund, for the purchase to be effective and dividends
to be earned on the same day. None of the Money Market, Treasury Money Market
or Tax Exempt Money Market Funds accepts orders after the indicated time. If
funds are received after that time, for any reason, including that the day is
a Federal Reserve holiday, the purchase is not effective and dividends are not
earned until the next business day.
THE SHORT TERM BOND, BOND, TAX EXEMPT BOND AND INTERNATIONAL BOND FUNDS. To
purchase shares in these Funds, 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 with
placing an order for Fund shares. If the Fund receives a purchase order prior
to 4:00 P.M. New York time on any business day, the purchase of Fund shares is
effective and is made at the net asset value determined that day. If the Fund
receives a purchase order after 4:00 P.M. New York time, the purchase is ef-
fective 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 Funds' Distributor on settlement date. The settlement date is generally
the business day after the purchase is effective. For Funds other than the In-
ternational Bond Fund, the purchaser will begin to receive the daily dividends
on the settlement date. See Dividends and Distributions.
THE SELECTED U.S. EQUITY, U.S. SMALL COMPANY, INTERNATIONAL EQUITY, EMERGING
MARKETS EQUITY AND DIVERSIFIED FUNDS. To purchase shares in these Funds, in-
vestors should request their Morgan representative (or a representative of
their Eligible Institution) to assist them in placing a purchase order with
the Fund's Distributor and to transfer immediately available funds to the
Funds' Distributor on the next business day. Any shareholder may also call
J.P. Morgan Funds Services at (800) 766-7722 for assistance with placing an
order for Fund shares. If the Fund receives a purchase order prior to 4:00
P.M. New York time on any business day, the purchase of Fund shares is effec-
tive and is made at the net asset value determined that day, and the purchaser
generally becomes a holder of record on the next business day upon the Fund's
receipt of payment. If the Fund receives a purchase order after 4:00 P.M. New
York time,
48
<PAGE>
the purchase is effective and is made at the net asset value determined on the
next business day, and the purchaser becomes a holder of record on the follow-
ing business day upon the Fund's receipt of payment.
ELIGIBLE INSTITUTIONS. The services provided by Eligible Institutions may in-
clude establishing and maintaining shareholder accounts, processing purchase
and redemption transactions, arranging for bank wires, performing shareholder
sub-accounting, answering client inquiries regarding the Trust, assisting cli-
ents in changing dividend options, account designations and addresses, provid-
ing periodic statements showing the client's account balance and integrating
these statements with those of other transactions and balances in the client's
other accounts serviced by the Eligible Institution, transmitting proxy state-
ments, periodic reports, updated prospectuses and other communications to
shareholders and, with respect to meetings of shareholders, collecting, tabu-
lating and forwarding executed proxies and obtaining such other information
and performing such other services as Morgan or the Eligible Institution's
clients may reasonably request and agree upon with the Eligible Institution.
Eligible Institutions may separately establish their own terms, conditions and
charges for providing the aforementioned services and for providing other
services.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in any Fund, an investor may instruct
Morgan or his Eligible Institution, as appropriate, to submit a redemption re-
quest to the Fund or may telephone J.P. Morgan Funds Services directly at
(800) 766-7722 and give the Shareholder Service Representative a preassigned
shareholder Personal Identification Number and the amount of the redemption.
Each Fund executes effective redemption requests at the next determined net
asset value per share. See Net Asset Value. See Additional Information below
for an explanation of the telephone redemption policy.
THE MONEY MARKET, TAX EXEMPT MONEY MARKET AND TREASURY MONEY MARKET
FUNDS. A redemption request received on a business day prior to 1:00 P.M. New
York time in the case of the Money Market Fund, prior to 12:00 noon New York
time in the case of the Treasury Money Market Fund, and prior to 11:00 A.M.
New York time in the case of the Tax Exempt Money Market Fund, is effective on
that day. A redemption request received after that time becomes effective on
the next day. Proceeds of an effective redemption are generally deposited the
same day in immediately available funds to the shareholder's account at Morgan
or at his Eligible Institution or, in the case of certain Morgan customers,
are mailed by check or wire transferred in accordance with the customer's in-
structions. If a redemption request becomes effective on a day when the New
York Stock Exchange is open but which is a Federal Reserve holiday, the pro-
ceeds are paid the next business day. See Further Redemption Information.
THE SHORT TERM BOND, BOND, TAX EXEMPT BOND AND INTERNATIONAL BOND FUNDS. A re-
demption request received by the Short Term Bond, Bond, Tax Exempt Bond or In-
ternational Bond Funds prior to 4:00 P.M. New York time is effective on that
day. A redemption request received after that time becomes effective on the
next business day. Proceeds of an effective redemption are deposited on set-
tlement date in immediately available funds to the shareholder's account at
Morgan or at his Eligible Institution or, in the case of certain Morgan cus-
tomers, are mailed by check or wire transferred in accordance with the custom-
er's instructions. For Funds other than the International Bond Fund the re-
deemer will continue to receive dividends on these shares through the day be-
fore the settlement date. Settlement date is generally the next business day
after a redemption is effective and, subject to Further Redemption Information
below, in any event is within seven days. See Dividends and Distributions.
THE SELECTED U.S. EQUITY, U.S. SMALL COMPANY, INTERNATIONAL EQUITY, EMERGING
MARKETS EQUITY AND DIVERSIFIED FUNDS. A redemption request received by the Se-
lected U.S. Equity, U.S. Small Company, International Equity, Emerging Markets
Equity or Diversified Funds prior to 4:00 P.M. New York time is effective on
that day. A redemption request received after that time becomes effective on
the next business day. Proceeds of an effective redemption are generally de-
posited the next business day in immediately available funds to the sharehold-
er's account at Morgan or at his
49
<PAGE>
Eligible Institution or, in the case of certain Morgan customers, are mailed by
check or wire transferred in accordance with the customer's instructions, and,
subject to Further Redemption Information below, in any event are paid within
seven days.
MANDATORY REDEMPTION BY THE FUND. If the value of a shareholder's holdings in
any Fund falls below the Fund's applicable minimum initial investment amount
(these are set forth under Purchase of Shares above) for more than 30 days be-
cause of a redemption of shares, the shareholder's remaining shares may be re-
deemed by the Fund 60 days after written notice to the shareholder unless the
account is increased to the Fund's minimum investment amount or more.
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions from
the Funds may not be processed if a redemption request is not submitted in
proper form. To be in proper form, Trust must have received the shareholder's
taxpayer identification number and address. As discussed under Taxes below, the
Funds may be required to impose "back-up" withholding of federal income tax on
dividends, distributions and redemption proceeds when non-corporate investors
have not provided a certified taxpayer identification number. In addition, if a
shareholder sends a check for the purchase of Fund shares and shares are pur-
chased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days.
Each 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 pe-
riods 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 any JPM Institutional Fund into any other
JPM Institutional Fund or Pierpont Fund without charge. An exchange may be made
so long as after the exchange the investor has shares, in each fund in which he
or she remains an investor, with a value of at least each of those fund's mini-
mum investment amounts. See Method of Purchase for the minimum investment
amount for each of The JPM Institutional Funds. See the prospectus for The
Pierpont Funds for the minimum purchase amounts for those funds. Shares are ex-
changed on the basis of relative net asset value per share. Exchanges are in
effect redemptions from one fund and purchases of another fund and the usual
purchase and redemption procedures and requirements are applicable to ex-
changes. See Purchase of Shares and Redemption of Shares in this Prospectus and
in the prospectus for The Pierpont Funds. See also Additional Information below
for an explanation 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 Trust reserves the right to discontinue, alter or limit the
exchange privilege at any time. For investors in certain states, state securi-
ties laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
THE MONEY MARKET, TAX EXEMPT MONEY MARKET AND TREASURY MONEY MARKET FUNDS. In
the case of each of these Funds, all net investment income is declared as a
dividend daily and paid monthly. If an investor's shares are redeemed during a
month, accrued but unpaid dividends are paid with the redemption proceeds. The
net investment income of each Fund for dividend purposes consists of its pro
rata share of the net income of the corresponding Portfolio less the Fund's ex-
penses. Dividends and distributions are payable to shareholders of record at
the time of declaration. The net investment income of the Money Market, Tax Ex-
empt Money Market and Treasury Money Market Funds for each business day is de-
termined immediately prior to the determination of net asset value. Net invest-
ment income for other days is determined at the time net asset value is deter-
mined on the prior business day. Shares of the Money Market, Tax
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Exempt Money Market and Treasury Money Market Funds earn dividends on the busi-
ness day their purchase is effective, but not on the business day redemption
proceeds are paid. See Purchase of Shares and Redemption of Shares.
Substantially all the realized net capital gains, if any, of the Money Market,
Tax Exempt Money Market and Treasury Money Market Funds are declared and paid
on an annual basis, except that an additional capital gains distribution may be
made in a given year to the extent necessary to avoid the imposition of federal
excise tax on a Fund.
THE SHORT TERM BOND, BOND AND TAX EXEMPT BOND FUNDS. Each of these Funds in-
tends to distribute substantially all of its net investment income. The net in-
vestment income of each Fund is declared as a dividend daily immediately prior
to the determination of the net asset value of the Fund on that day and paid
monthly. If an investor's shares are redeemed during a month, accrued but un-
paid dividends are paid with the redemption proceeds. The net investment income
of each Fund for dividend purposes consists of its pro rata share of the net
income of the corresponding Portfolio less the Fund's expenses. Expenses of
each Fund and Portfolio, including the fees payable to Morgan, are accrued dai-
ly. Shares will accrue dividends as long as they are issued and outstanding.
Shares are issued and outstanding as of the settlement date of a purchase order
to the settlement date of a redemption order.
Substantially all the realized net capital gains of the Short Term Bond, Bond
and Tax Exempt Bond Funds are declared and paid on an annual basis, except that
an additional capital gains distribution may be made in a given year to the ex-
tent necessary to avoid the imposition of federal excise tax on a Fund.
THE INTERNATIONAL BOND, SELECTED U.S. EQUITY, U.S. SMALL COMPANY, INTERNATIONAL
EQUITY, EMERGING MARKETS EQUITY AND DIVERSIFIED FUNDS. Income dividends are de-
clared and paid quarterly for the International Bond Fund. Dividends consisting
of substantially all the Fund's net investment income, if any, are declared and
paid twice a year for the Selected U.S. Equity, U.S. Small Company and Diversi-
fied Funds and annually for the International Equity and Emerging Markets Eq-
uity Funds. These Funds may also declare an additional dividend of net invest-
ment income in a given year to the extent necessary to avoid the imposition of
federal excise tax on the Funds. Substantially all the realized net capital
gains for these Funds are declared and paid on an annual basis, except that an
additional capital gains distribution may be made in a given year to the extent
necessary to avoid the imposition of federal excise tax on a Fund. Declared
dividends and distributions are payable to shareholders of record on the record
date.
Dividends and capital gains distributions paid for each Fund are automatically
reinvested in additional shares of the same 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 In-
stitution or, in the case of certain Morgan customers, are mailed by check in
accordance with the customer's instructions. The Trust reserves the right to
discontinue, alter or limit the automatic reinvestment privilege at any time.
NET ASSET VALUE
Net asset value per share for each Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in its cor-
responding Portfolio and other assets) the amount of its liabilities and divid-
ing the remainder by the number of its outstanding shares, rounded to the near-
est cent. Expenses, including the fees payable to Morgan, are accrued daily.
Each of the Portfolios for the Money Market, Tax Exempt Money Market and Trea-
sury Money Market Funds values all portfolio securities by the amortized cost
method. This method attempts to maintain for each of these Funds a constant net
asset value per share of $1.00. No assurances can be given that this goal can
be attained. See Net Asset Value in the Statement of Additional Information for
more information on valuation of portfolio securities for these Portfolios.
Each of Fund computes its net asset value once daily on Monday through Friday,
except that the net asset value is not computed on the holidays listed under
Net Asset Value in the Statement of Additional Information. The Funds compute
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net asset value as follows, New York time: the Money Market, Tax Exempt Money
Market, Treasury Money Market, International Equity and Emerging Markets Eq-
uity Funds, 4:00 P.M.; the Tax Exempt Bond, Bond, Short Term Bond, Interna-
tional Bond, Selected U.S. Equity, U.S. Small Company and Diversified Funds,
4:15 P.M.
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, shares of sixteen series have been authorized and are
available for sale to the public. The JPM Institutional New York Total Return
Bond Fund, The JPM Institutional Japan Equity Fund, The JPM Institutional Eu-
ropean Equity Fund, and The JPM Institutional Asia Growth Fund are described
in, and offered pursuant to, separate prospectuses. 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 any 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 any
Fund, but that the Trust property only shall be liable.
Shareholders of each 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 non-assessable by each Fund. The Trust does not intend to hold meetings of
shareholders annually. As of January 31, 1996, each of the following techni-
cally met the definition of a control person of the indicated Fund: the Trea-
sury Money Market Fund--Quintiles Transnational Corporation; the Short Term
Bond Fund--United Gaming, Inc.; and the International Bond Fund--J.P. Morgan
as agent for Albany Medical Center Insurance Trust - Fleet Trust and J.P. Mor-
gan as agent for General Motors Savings Plan. The Trustees may call meetings
of shareholders for action by shareholder vote as may be required by either
the 1940 Act or the Declaration of Trust. The Trustees will call a meeting of
shareholders to vote on removal of a Trustee upon the written request of the
record holders of ten percent of Trust shares and will assist shareholders in
communicating with each other as prescribed in Section 16(c) of the 1940 Act.
For further organization information, including certain shareholder rights,
see Description of Shares in the Statement of Additional Information.
Each Portfolio in which all of the assets of each corresponding Fund are in-
vested is organized as a trust under the laws of the State of New York. Each
Portfolio's Declaration of Trust provides that the Fund and other entities in-
vesting 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 a 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 a Fund nor its shareholders will be adversely affected by reason of a
Fund's investing in a Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are sub-
ject to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to fed-
eral taxes and with respect to the applicability of state or local taxes. See
Taxes in the Statement of Additional Information. Annual statements as to the
current federal tax status of distributions, if applicable, are mailed to
shareholders after the end of the taxable year for the Funds.
The Trust intends to qualify each of the Funds as a separate regulated invest-
ment company under Subchapter M of the Code. As a regulated investment compa-
ny, each Fund should not be subject to federal income taxes or federal excise
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taxes if all of its net investment income and capital gains less any available
capital loss carryforwards are distributed to shareholders within allowable
time limits. Each Portfolio intends to qualify as an association treated as a
partnership for federal income tax purposes. As such, each Portfolio should not
be subject to tax. Each Fund's status as a regulated investment company is de-
pendent on, among other things, the corresponding Portfolio's continued quali-
fication as a partnership for federal income tax purposes.
If a correct and certified taxpayer identification number is not on file, a
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to noncorporate shareholders.
THE MONEY MARKET FUND, TREASURY MONEY MARKET, SHORT TERM BOND, BOND, INTERNA-
TIONAL BOND, SELECTED U.S. EQUITY, U.S. SMALL COMPANY, INTERNATIONAL EQUITY,
EMERGING MARKETS EQUITY AND DIVERSIFIED FUNDS. Distributions of net investment
income and realized net short-term capital gains in excess of net long-term
capital losses are taxable as ordinary income to shareholders of these Funds,
whether such distributions are taken in cash or reinvested in additional
shares. Distributions of this type to corporate shareholders of the Money Mar-
ket, Treasury Money Market, Short Term Bond, Bond and International Bond Funds
are not eligible for the dividends-received deduction; however, the Selected
U.S. Equity, U.S. Small Company and Diversified Funds expect a portion of these
distributions to corporate shareholders to be eligible for the dividends-re-
ceived deduction. Distributions of this type to corporate shareholders of the
International Equity and Emerging Markets Equity Funds will not qualify for the
dividends-received deduction because the income of these Funds will not consist
of dividends paid by United States corporations.
Distributions of net long-term capital gains in excess of net short-term capi-
tal losses are taxable to shareholders of each of these Funds as long-term cap-
ital 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 dividends-received deduction. The Money Market and Treasury Money Market
Funds do not expect to realize long-term capital gains and thus do not contem-
plate paying distributions taxable to shareholders who are subject to tax as
long-term capital gains.
In the case of the Short Term Bond, Bond and International Bond Funds, any dis-
tribution of capital gains will have the effect of reducing the net asset value
of Fund shares held by a shareholder by the same amount as the distribution. In
the case of the Selected U.S. Equity, U.S. Small Company, International Equity,
Emerging Markets Equity and Diversified Funds, any distribution of net invest-
ment income or capital gains will have the same effect. If the net asset value
of the shares is reduced below a shareholder's cost as a result of such a dis-
tribution, the distribution, although constituting a return of capital to the
shareholder, will be taxable as described above.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term 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 the case of the Treasury Money Market Fund, shareholders should consult
their tax advisors to assess the consequences of investing in the Fund under
state and local laws. Interest income derived from Treasury Securities is gen-
erally not subject to state and local personal income taxation. Most states al-
low a pass-through to the individual shareholders of the Fund of the tax-exempt
character of this income, subject to certain restrictions, for purposes of
those states' personal income taxes.
The International Equity, International Bond and Emerging Markets Equity Funds
are subject to foreign withholding taxes with respect to income received from
sources within certain foreign countries. So long as more than 50% of the
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value of the Fund's total assets at the close of any taxable year consists of
stock or securities of foreign corporations, the Fund may elect to treat any
such foreign income taxes paid by it as paid directly by its shareholders. The
Fund will make such an election only if it deems it to be in the best interests
of its shareholders and will notify shareholders in writing each year if it
makes the election and of the amount of foreign income taxes, if any, to be
treated as paid by the shareholders. If the Fund makes the election, each
shareholder will be required to include in income his proportionate share of
the amount of foreign income taxes paid by the Fund and will be entitled to
claim either a credit (which is subject to certain limitations) or, if the
shareholder itemizes deductions, a deduction for his share of the foreign in-
come taxes in computing his federal income tax liability. (No deduction will be
permitted to individuals in computing their alternative minimum tax liability.)
In the case of the International Bond Fund, distributions of foreign exchange
gains resulting from certain transactions, including the sale of foreign cur-
rencies and bonds, are taxed as ordinary income. Consequently, the Fund's divi-
dends may be more or less than the interest earned by the Fund. If these trans-
actions result in reducing the Fund's net income, a portion of the dividends
may be classified as a return of capital (which lowers a shareholder's tax ba-
sis).
THE TAX EXEMPT MONEY MARKET AND TAX EXEMPT BOND FUNDS. Each of these Funds in-
tends to qualify to pay exempt-interest dividends to its shareholders by hav-
ing, 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 these Funds which con-
sists of interest received by the Funds on tax exempt securities. Exempt-inter-
est dividends received from these Funds will be treated for federal income tax
purposes as tax exempt interest income. In view of the Funds' investment poli-
cies, it is expected that a substantial portion of the Funds' 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 tax-
able securities under certain circumstances. See Taxable Investments for the
Tax Exempt Funds.
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 exempt-interest dividend of a regulated investment company that
is allocable to these obligations will be treated as a preference item for pur-
poses of the alternative minimum tax. The Tax Exempt Money Market and Tax Ex-
empt Bond Funds have limited their investments to those securities the interest
on which will not be treated as preference items for purposes of the alterna-
tive minimum tax in the opinion of bond counsel for the issuer. The Tax Exempt
Money Market and Tax Exempt Bond Funds currently have no intention of investing
in obligations subject to the alternative minimum tax under normal market
conditions.
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 effec-tively connected earnings and
profits of United States branches of foreign corporations. Furthermore, special
tax provi-sions may apply to certain financial institutions and property and
casualty insurance companies, and they should consult their tax advisors before
purchasing shares of these Funds.
Interest on indebtedness incurred or continued by a shareholder (whether a cor-
poration or an individual) to purchase or carry shares of these Funds is 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 these Funds owned by the taxpayer's spouse, minor child or entity controlled
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 these Funds.
Distributions of taxable net investment income, realized net short-term capital
gains in excess of net long-term capital losses, and net long-term capital
gains in excess of net short-term capital losses by these Funds, as well as
gains or losses
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realized on the redemption or exchange of shares of these Funds, are generally
treated as described above. Any loss realized by a shareholder, however, upon
the redemption or exchange of shares in these Funds held six months or less
will be disallowed to the extent of any exempt-interest dividends received by
the shareholder with respect to these shares. See Taxes in the Statement of
Additional Information. In addition, in the case of the Tax Exempt Bond Fund,
any distribution of capital gains will have the effect of reducing the net as-
set value of Fund shares as described under the same heading.
ADDITIONAL INFORMATION
Each of the Funds sends to its shareholders annual and semiannual reports. The
financial statements appearing in annual reports are audited by independent
accountants. Shareholders also will be sent confirmations of each purchase and
redemption and monthly statements, reflecting all account activity, including
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. Each 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 Funds may make historical performance information available and may com-
pare their performance to other investments, relevant indexes or appropriate
industry averages, including data from Lipper Analytical Services, Inc.,
Micropal Inc., Morningstar, Inc., Ibbotson Associates, the Dow Jones Indus-
trial Average and other industry publications. See Investment Advisor in the
Statement of Additional Information. The Money Market, Tax Exempt Money Mar-
ket, Treasury Money Market, Short Term Bond, Bond, Tax Exempt Bond and Inter-
national Bond Funds may advertise "yield"; the Money Market, Tax Exempt Money
Market and Treasury Money Market Funds may also advertise "effective yield";
and the Tax Exempt Money Market and Tax Exempt Bond Funds may also advertise
"tax equivalent yield."
In the case of the Money Market, Tax Exempt Money Market and Treasury Money
Market Funds, the yield refers to the net income generated by an investment in
each of these Funds over a stated seven-day period. This income is then
annualized--i.e., the amount of income generated by the investment during that
week is assumed to be generated each week over a 52-week period and is shown
as a percentage of the investment. In the case of the Short Term Bond, Bond,
Tax Exempt Bond, International Bond and Selected U.S. Equity Funds, the yield
refers to the net income generated by an investment in each of these Funds
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 percent-
age of the investment. The income earned on the investment is also assumed to
be reinvested at the end of the sixth 30-day period. In the case of the Money
Market, Tax Exempt Money Market and Treasury Money Market Funds, the effective
yield is calculated similarly to the yield for each of these Funds, but, when
annualized, the income earned by an investment in each of the Funds is assumed
to be reinvested; the effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment. In the case of
the Tax Exempt Money Market and Tax Exempt Bond Funds, the tax equivalent
yield is calculated similarly to the yield for each of these Funds, 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 each of these
Funds.
Each of the Funds may advertise "total return" and non-standardized total re-
turn data. The total return shows what an investment in each of these Funds
would have earned over a specified period of time (one, five or ten years or
since
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commencement of operations, if less) assuming that all distributions and divi-
dends by the Fund were reinvested on the reinvestment dates during the period
and less all recurring fees. These methods of calculating yield and total re-
turn are required by regulations of the Securities and Exchange Commission.
Yield and total return data similarly calculated, unless otherwise indicated,
over other specified periods of time may also be used. See Performance Data in
the Statement of Additional Information. All performance figures are based on
historical earnings and are not intended to indicate future performance. Per-
formance information may be obtained by calling the Funds' Distributor at (800)
847-9487.
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APPENDIX
As described in the Prospectus, certain Portfolios may engage in futures and
options transactions.
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a Portfolio ob-
tains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays
the current market price for the option (known as the option premium). Options
have various types of underlying instruments, including specific securities,
indexes of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by al-
lowing it to expire or by exercising the option. The Portfolio may also close
out a put option position by entering into an offsetting transaction, if a liq-
uid market exists. If the option is allowed to expire, the Portfolio will lose
the entire premium it paid. If the Portfolio exercises a put option on a secu-
rity, it will sell the instrument underlying the option at the strike price. If
the Portfolio exercises an option on an index, settlement is in cash and does
not involve the actual sale of securities. If an option is American style, it
may be exercised on any day up to its expiration date. A European style option
may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the in-
strument underlying the option does not fall enough to offset the cost of pur-
chasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase,
rather than sell, the instrument underlying the option at the option's strike
price. A call buyer typically attempts to participate in potential price in-
creases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect
to suffer a loss if security prices do not rise sufficiently to offset the cost
of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When a 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 a Portfolio to sell or deliver the option's un-
derlying instrument in return for the strike price upon exercise of the option.
The characteristics of writing call options are similar to those of writing 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.
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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. Each Portfolio permitted to enter into options transactions
may purchase put and call options on any securities index based on securities
in which the Portfolio may invest. The Portfolios for the Emerging Markets Eq-
uity and Diversified Funds may also sell (write) put and call options on such
indexes. 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 securi-
ties or segment of the securities market rather than price fluctuations in a
single security. A Portfolio, in purchasing or selling index options, is sub-
ject to the risk that the value of its portfolio securities may not change as
much as an index because the Portfolio's investments generally will not match
the composition of an index.
For a number of reasons, a liquid market may not exist and thus a Portfolio may
not be able to close out an option position that it has previously entered in-
to. When a Portfolio purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and a Portfolio may incur additional
losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When a 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 a Portfolio sells
a futures contract, it agrees to sell a specified quantity of the underlying
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 a 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 a
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 a 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 a Portfolio buys or sells a futures contract it will be re-
quired 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. A 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 a Portfolio to close out its
futures positions. Until it closes out a futures position, a 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 Portfolios'
investment restrictions. In the event of the bankruptcy of an FCM that holds
margin on behalf of a 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.
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Each Portfolio will segregate liquid, high quality assets in connection with
its use of options and futures contracts to the extent required by the staff of
the Securities and Exchange Commission. Securities held in a segregated account
cannot be sold while the futures contract or option is outstanding, unless they
are replaced with other suitable assets. As a result, there is a possibility
that segregation of a large percentage of a Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
For further information about the Portfolios' use of futures and options and a
more detailed discussion of associated risks, see Investment Objectives and
Policies in the Statement of Additional Information.
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No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied
upon as having been authorized by the Trust or the Distributor. This Prospectus
does not constitute an offer by the Trust or by the Distributor to sell or a
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Trust or the
Distributor to make such offer in such jurisdiction.
The JPM Institutional 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 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 Emerging Markets Equity Fund
The JPM Institutional Diversified Fund
PROSPECTUS
March 1, 1996
<PAGE>
PROSPECTUS
The JPM Institutional Money Market Fund
6 St. James Avenue
Boston, Massachusetts 02116
For information call (800) 766-7722
The JPM Institutional Money Market Fund (the "Fund") seeks to maximize current
income and maintain a high level of liquidity. It is designed for investors who
seek to preserve capital and earn current income from a portfolio of high
quality money market instruments.
The Fund is a diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The JPM
Institutional Funds, an open-end management investment company organized as a
Massachusetts 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 MONEY MARKET PORTFOLIO (THE "PORTFOLIO"), A
CORRESPONDING DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT COMPANY HAVING THE
SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND INVESTS IN THE PORTFOLIO
THROUGH SIGNATURE FINANCIAL GROUP, INC.'S HUB AND SPOKE(R) FINANCIAL SERVICES
METHOD. THE HUB AND SPOKE(R) INVESTMENT FUND STRUCTURE EMPLOYS A TWO-TIER
MASTER FEEDER STRUCTURE AND IS A REGISTERED SERVICE MARK OF SIGNATURE FINANCIAL
GROUP, INC. SEE SPECIAL INFORMATION CONCERNING HUB AND SPOKE(R) ON PAGE 3.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or "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 March 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, Signature Broker-Dealer Services, Inc., 6
St. James Avenue, Boston, Massachusetts 02116, Attention: The JPM Institutional
Funds, or by calling (800) 847-9487.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.
SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE
HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR. ALTHOUGH
THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, THERE
CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO CONTINUE TO DO SO.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MARCH 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund Is Designed.................................... 1
Financial Highlights....................................................... 3
Special Information Concerning Hub and Spoke(R)............................ 3
Investment Objective and Policies.......................................... 4
Additional Investment Information and Risk
Factors................................................................... 6
Investment Restrictions.................................................... 7
Management of the Trust and the Portfolio.................................. 8
Shareholder Servicing...................................................... 10
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Purchase of Shares......................................................... 11
Redemption of Shares....................................................... 12
Exchange of Shares......................................................... 12
Dividends and Distributions................................................ 13
Net Asset Value............................................................ 13
Organization............................................................... 13
Taxes...................................................................... 14
Additional Information..................................................... 15
</TABLE>
<PAGE>
The JPM Institutional Money Market Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed to be an economical and convenient means of making sub-
stantial investments in money market instruments for investors who are inter-
ested in current income, preserving capital and maintaining liquidity. The Fund
seeks to achieve its investment objective by investing all of its investable
assets in The Money Market Portfolio, a diversified open-end management invest-
ment company having the same investment objective as the Fund. Since the in-
vestment 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 FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE
CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO CONTINUE TO DO SO.
The Fund requires 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 investment in the Fund to less than $10 million for more than 30
days, the investment will be subject to mandatory redemption. See Redemption of
Shares-Mandatory Redemption by the Fund.
This Prospectus describes the financial history, investment objective and poli-
cies, management and operation of the Fund to enable investors to decide if the
Fund suits their needs. The Fund operates through Signature Financial Group,
Inc.'s ("Signature") Hub and Spoke(R) financial services method. The Trustees
believe that the Fund may achieve economies of scale over time by investing
through the Hub and Spoke(R) 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>
<S> <C>
Advisory Fees............................................................. 0.12%
Rule 12b-1 Fees........................................................... None
Other Expenses (after expense reimbursement).............................. 0.08%
-----
Total Operating Expenses (after expense reimbursement).................... 0.20%
</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, Total Operating Expenses for the Fund would be equal on an
annual basis to 0.33% of such assets. Historical expenses without reimburse-
ment expressed as a ratio to historical average daily net assets were 0.35%
for the fiscal year ended November 30, 1995.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year...................................................................... $ 2
3 Years..................................................................... $ 6
5 Years..................................................................... $11
10 Years.................................................................... $26
</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 SBDS under the 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, including expense reimbursements, see Management of the Trust and
the Portfolio and Shareholder Servicing. In connection with the above example,
please note that $1,000 is less than the Fund's minimum investment requirement
and that there are no redemption or exchange fees of any kind. See Purchase of
Shares and Redemption of Shares. THE EXAMPLE IS HYPOTHETICAL; IT IS INCLUDED
SOLELY FOR ILLUSTRATIVE PURPOSES. IT SHOULD NOT BE CONSIDERED A REPRESENTATION
OF FUTURE PERFORMANCE; ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following selected data for a share outstanding for the indicated periods
have been audited by independent accountants. The Fund's annual report, which
is incorporated by reference into the Statement of Additional Information, in-
cludes 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.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL YEAR JULY 12, 1993
ENDED NOVEMBER 30, (COMMENCEMENT OF
-------------------- OPERATIONS) THROUGH
1995 1994 NOVEMBER 30, 1993
--------- --------- -------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $ 1.00 $ 1.00 $ 1.00
--------- --------- --------
Income From Investment Operations
Net Investment Income............ 0.0577 0.0385 0.0120
Net Realized Gain (Loss) on
Investment...................... 0.0003 (0.0000)(a) 0.0000(a)
--------- --------- --------
Total From Investment Operations.. 0.0580 0.0385 0.0120
--------- --------- --------
Less Distributions to Shareholders
From
Net Investment Income............ (0.0577) (0.0385) (0.0120)
Net Realized Gain................ -- -- 0.0000(a)
--------- --------- --------
Total Distributions to
Shareholders..................... (0.0577) (0.0385) (0.0120)
--------- --------- --------
Net Asset Value, End of Period.... $ 1.00 $ 1.00 $ 1.00
========= ========= ========
Total Return...................... 5.93% 3.92% 1.21%(b)
Ratios and Supplemental Data
Net Assets at end of Period (In
Thousands)...................... $ 999,746 $584,867 $ 27,188
Ratio to Average Net Assets:
Expenses........................ 0.20% 0.21% 0.30%(c)
Net Investment Income........... 5.77% 4.42% 2.88%(c)
Decrease Reflected in Expense
Ratio due to Reimbursement..... 0.15% 0.31% 1.10%(c)
</TABLE>
- -------
(a) Less than $0.0001.
(b) Not Annualized.
(c) Annualized.
SPECIAL INFORMATION CONCERNING HUB AND SPOKE(R)
The Trust and the Portfolio use certain proprietary rights, know-how and finan-
cial services referred to as Hub and Spoke(R). Hub and Spoke(R) is a registered
service mark of Signature. Signature Broker-Dealer Services, Inc. (the Trust's
and the Portfolio's Administrator and the Trust's Distributor) is a wholly
owned subsidiary of Signature.
Unlike other mutual funds which directly acquire and manage their own portfolio
of securities, the Fund is an open-end management investment company which
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio, a separate registered investment company with the same
investment objective as the Fund. The investment objective of the Fund or Port-
folio may be changed only with the approval of the holders of the outstanding
shares of the Fund and the Portfolio. The Hub and Spoke(R) investment fund
structure has been developed relatively recently, so shareholders should care-
fully consider this investment approach.
3
<PAGE>
In addition to selling a beneficial interest to the Fund, the Portfolio may
sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions
and will pay a propor-tionate share of the Portfolio's expenses. However, the
other investors investing in the Portfolio may sell shares of their own fund
using a different pricing structure than the Fund. Such different pricing
structures may result in differences in returns experienced by investors in
other funds that invest in the Portfolio. Such differences in returns are not
uncommon and are present in other mutual fund structures. Information concern-
ing other holders of interests in the Portfolio is available from the Adminis-
trator at (800) 847-9487.
The Trust may withdraw the investment of the Fund from the Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same invest-
ment objective and restrictions as the Fund or the retaining of an investment
adviser to manage the Fund's assets in accordance with the investment policies
described below with respect to the Portfolio.
Certain changes in the Portfolio's investment objective, policies or restric-
tions, or a failure by the Fund's shareholders to approve a change in the Port-
folio's investment objective or restrictions, may require withdrawal of the
Fund's interest in the Portfolio. Any such withdrawal could result in a distri-
bution in kind of portfolio securities (as opposed to a cash distribution) from
the Portfolio which may or may not be readily marketable. The distribution in
kind may result in the Fund having a less diversified portfolio of investments
or adversely affect the Fund's liquidity, and the Fund could incur brokerage,
tax or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in the Portfolio may be materially affected by the ac-
tions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns. Addition-
ally, because the Portfolio would become smaller, it may become less diversi-
fied, resulting in potentially increased portfolio risk (however, these possi-
bilities also exist for traditionally structured funds which have large or in-
stitutional investors who may withdraw from a fund). Also, funds with a greater
pro rata ownership in the Portfolio could have effective voting control of the
operations of the Portfolio. Whenever the Fund is requested to vote on matters
pertaining to the Portfolio (other than a vote by the Fund to continue the op-
eration of the Portfolio upon the withdrawal of another investor in the Portfo-
lio), the Trust will hold a meeting of shareholders of the Fund and will cast
all of its votes proportionately as instructed by the Fund's shareholders. The
Trust will vote the shares held by Fund shareholders who do not give voting in-
structions in the same proportion as the shares of Fund shareholders who do
give voting instructions. Shareholders of the Fund who do not vote will have no
effect on the outcome of such matters.
For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Additional Investment In-
formation and Risk Factors and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment Restric-
tions.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and the Portfolio is described below, 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.
4
<PAGE>
The Fund's investment objective is to maximize current income and maintain a
high level of liquidity. The Fund is designed for investors who seek to pre-
serve capital and earn current income from a portfolio of high quality money
market instruments. The Fund attempts to achieve its objective by investing all
of its investable assets in The Money Market Portfolio, a diversified open-end
management investment company having the same investment objective as the Fund.
The Portfolio seeks to achieve its investment objective by maintaining a dol-
lar-weighted average portfolio maturity of not more than 90 days and by invest-
ing in the following high quality U.S. dollar-denominated securities which 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
(discussed below).
UNITED STATES GOVERNMENT OBLIGATIONS. The Portfolio may invest in obligations
issued or guaranteed by the U.S. Government and backed by the full faith and
credit of the United States. These securities include Treasury securities, ob-
ligations of the Government National Mortgage Association, the Farmers Home Ad-
ministration and the Export Import Bank. The Portfolio may also invest in obli-
gations issued or guaranteed by U.S. Government agencies or instrumentalities
where the Portfolio must look principally to the issuing or guaranteeing agency
for ultimate repayment; some examples of agencies or instrumentalities issuing
these obligations are the Federal Farm Credit System, the Federal Home Loan
Banks and the Federal National Mortgage Association.
BANK OBLIGATIONS. The Portfolio may invest in high quality U.S. dollar-denomi-
nated negotiable certificates of deposit, time deposits and bankers' accept-
ances of (i) banks, savings and loan associations and savings banks which have
more than $2 billion in total assets and are organized under U.S. federal or
state law, (ii) foreign branches of these banks or of foreign banks of equiva-
lent size (Euros) and (iii) U.S. branches of foreign banks of equivalent size
(Yankees). The Portfolio may also invest in obligations of international bank-
ing institutions designated or supported by national governments to promote
economic reconstruction, development or trade between nations (e.g., the Euro-
pean Investment Bank, the Inter-American Development Bank, or the World Bank).
These obligations may be supported by appropriated but unpaid commitments of
their member countries, and there is no assurance these commitments will be un-
dertaken or met in the future.
COMMERCIAL PAPER; BONDS. The Portfolio may invest in high quality commercial
paper and corporate bonds issued by U.S. corporations. The Portfolio may also
invest in bonds and commercial paper of foreign issuers if the obligation is
U.S. dollar-denominated and is not subject to foreign withholding tax.
ASSET-BACKED SECURITIES. The Portfolio may also invest in securities generally
referred to as asset-backed securities, which directly or indirectly represent
a participation interest in, or are secured by and payable from, a stream of
payments generated by particular assets such as motor vehicle or credit card
receivables. Asset-backed securities provide periodic payments that generally
consist of both interest and principal payments. Consequently, the life of an
asset-backed security varies with the prepayment experience of the underlying
debt instruments.
QUALITY INFORMATION. The Portfolio will limit its investments to those securi-
ties which, in accordance with guidelines adopted by the Trustees, present min-
imal credit risks. In addition, the Portfolio will not purchase any security
(other than a U.S. Government security) unless (i) it is rated with the highest
rating assigned to short-term debt securities by at least two nationally recog-
nized statistical rating organizations such as Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Corporation ("Standard & Poor's"), (ii) it is
rated by only one agency with the highest such rating, or (iii) it is not rated
and is determined to be of comparable quality. Determinations of comparable
quality shall be made in accordance with procedures established by the Trust-
ees. For a more detailed discussion of applicable quality requirements, see In-
vestment Objective and Policies in the Statement of Additional Information.
These standards must be satisfied at the time an investment is made. If the
quality of the investment later declines below the quality required for pur-
chase,
5
<PAGE>
the Portfolio shall dispose of the investment, subject in certain circum-
stances to a finding by the Trustees that disposing of the investment would
not be in the Portfolio's best interest.
The Portfolio may also invest in securities on a when-issued or delayed deliv-
ery basis and in certain privately placed securities. The Portfolio may also
enter into repurchase and reverse repurchase agreements and loan its portfolio
securities. For a discussion of these investments and for more information on
foreign investments, see Additional Investment Information.
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 val-
ued at less than its purchase price. The Portfolio maintains with the Custo-
dian 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 de-
layed delivery transaction, the Portfolio will rely on the other party to con-
summate 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 obligations cre-
ated 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 amount up to 33 1/3% of
the value of the Portfolio's net assets. The Portfolio 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 in-
come accruing thereon. Loans will be subject to termination by the Portfolio
in the normal settlement time, generally three business days after notice, or
by the borrower on one day's notice. Borrowed securities must be returned when
the loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to the Portfolio
and its respective investors. The Portfolio may pay reasonable finders' and
custodial fees in connection with a loan. In addition, the Portfolio will con-
sider all facts and circumstances, including the creditworthiness of the bor-
rowing financial institution, and the Portfolio will not make any loans in ex-
cess of one year. The Portfolio will not lend its securities to any officer,
Trustee, Director, employee or other affiliate of the Portfolio, the Advisor
or the Distributor, unless otherwise permitted by applicable law.
REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into re-
verse repurchase agreements. In a reverse repurchase agreement, the Portfolio
sells a security and agrees to repurchase it at a mutually agreed upon date
and price,
6
<PAGE>
reflecting the interest rate effective for the term of the agreement. For pur-
poses of the Investment Company Act of 1940, as amended (the "1940 Act"), it
is considered a form of borrowing 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 Information.
FOREIGN INVESTMENT INFORMATION. The Portfolio may invest in certain U.S. dol-
lar-denominated foreign securities. Investment in securities of foreign is-
suers and in obligations of foreign branches of domestic banks involves some-
what different investment risks from those affecting securities of U.S. domes-
tic issuers. There may be limited publicly available information with respect
to foreign issuers, and foreign issuers are not generally subject to uniform
accounting, auditing and financial standards and requirements comparable to
those applicable to domestic companies. The Portfolio may only invest in for-
eign securities that are not subject to foreign withholding tax.
Investors should realize that the value of the Portfolio's investments in for-
eign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation, na-
tionalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or depre-
ciation of portfolio securities and could favorably or unfavorably affect the
Portfolio's operations. Furthermore, the economies of individual foreign na-
tions may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital re-
investment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign is-
suer. Any foreign investments made by the Portfolio must be made in compliance
with U.S. and foreign currency restrictions and tax laws restricting the
amounts and types of foreign investments.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may not acquire any illiquid securities if, as a result thereof,
more than 10% of the market value of the Portfolio's net assets would be in
illiquid investments. Subject to this fundamental policy limitation, the Port-
folio 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 "1993 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.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio are
subject to the following fundamental limitations: (a) the Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except U.S. Government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer. The Portfolio is
subject to additional non-fundamental requirements governing non-tax exempt
money market funds. These non-fundamental requirements generally prohibit the
Portfolio from investing more than 5% of its total assets in the securities of
any single issuer, except obligations of the U.S. Government and its agencies
and instrumentalities.
The investment objective of the Fund and the Portfolio, together with the in-
vestment restrictions described below and in the Statement of Additional In-
formation, except as noted, are deemed fundamental policies, i.e., they may be
changed
7
<PAGE>
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 investment re-
strictions 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) acquire any illiquid securities if as a result more
than 10% of the market value of its total assets would be in investments which
are illiquid, (ii) enter into reverse repurchase agreements exceeding one-third
of the market value of its total assets, less certain liabilities, (iii) borrow
money, except from banks for extraordinary or emergency purposes and then only
in amounts up to 10% of the value of the Portfolio's total assets, taken at
cost at the time of borrowing, or purchase securities while borrowings exceed
5% of its total assets; or mortgage, pledge or hypothecate any assets except in
connection with any such borrowings in amounts up to 10% of the value of the
Portfolio's net assets at the time of borrowing; or (iv) invest more than 25%
of its assets in any one industry, except there is no percentage limitation
with respect to investments in U.S. Government securities, negotiable certifi-
cates of deposit, time deposits, and bankers' acceptances of U.S. branches of
U.S. banks.
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>
<S> <C>
Frederick S. Addy................... Former Executive Vice President and Chief
Financial Officer, Amoco Corporation
William G. Burns.................... Former Vice Chairman of the Board and Chief
Financial Officer, NYNEX Corporation
Arthur C. Eschenlauer............... Former Senior Vice President, Morgan
Guaranty Trust Company of New York
Matthew Healey...................... Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi................. Senior Vice President, Capital Cities/ABC,
Inc., President, Broadcast Group
</TABLE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust, the Portfolio and
The Pierpont Funds, up to and including creating a separate board of trustees.
See Trustees and Officers in the Statement of Additional Information for more
information about the Trustees and Officers of the Fund and the Portfolio.
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pier-
pont Group, Inc. in providing these services. Pierpont Group, Inc. was orga-
nized in 1989 at the request of the Trustees of The Pierpont Family of Funds
for the purpose of providing these services at cost to these funds. See Trust-
ees and Officers in the Statement of Additional Information. The principal of-
fices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New
York 10017.
8
<PAGE>
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. The following persons are primarily responsible for the
day-to-day management and implementation of Morgan's process for the Portfolio
(the inception date of each person's responsibility for the Portfolio and his
business experience for the past five years is indicated parenthetically):
Robert R. Johnson, Vice President (since June, 1988, employed by Morgan since
prior to 1991) and Daniel B. Mulvey, Vice President (since January, 1995, em-
ployed by Morgan since September, 1991, previously securities trader, Equita-
ble Life Insurance Company).
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 0.20% of the Portfolio's average daily net assets up to
$1 billion, and 0.10% of average daily net assets in excess of $1 billion.
Under separate agreements, Morgan also provides financial, fund accounting and
administrative services to the Fund and the Portfolio and shareholder services
to shareholders of the Fund. See Administrative Services Agent and Shareholder
Servicing below. 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.
ADMINISTRATOR AND DISTRIBUTOR. Under Administration Agreements with the Trust
and the Portfolio, Signature Broker-Dealer Services, Inc. ("SBDS") serves as
the Administrator for the Trust and the Portfolio. In this capacity, SBDS ad-
ministers and manages all aspects of the Fund's and the Portfolio's day-to-day
operations subject to the supervision of the Trustees, except as set forth un-
der Advisor, Administrative Services Agent, Custodian and Shareholder Servic-
ing. In connection with its responsibilities as Administrator, SBDS (i) fur-
nishes ordinary clerical and related services for day-to-day operations in-
cluding certain recordkeeping responsibilities; (ii) takes responsibility for
compliance with all applicable federal and state securities and other regula-
tory requirements; (iii) is responsible for the registration of sufficient
Fund shares under federal and state securities laws; (iv) takes responsibility
for monitoring the Fund's status as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"); and (v) performs such
administrative and managerial oversight of the activities of the Trust's and
the Portfolio's custodian and transfer agent as the Trustees may direct from
time to time.
Under the Trust's and the Portfolio's Administration Agreements with SBDS,
each of the Fund and the Portfolio has agreed to pay SBDS a fee equal to its
proportionate share of an annual complex-wide charge. This charge is calcu-
lated 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. This charge is cal-
culated in accordance with the following annual schedule: 0.03% on the first
$7 billion of the Master Portfolios' aggregate average daily net assets, and
0.01% of the Master Portfolios' aggregate average daily net assets in excess
of $7 billion. The portion of this
9
<PAGE>
charge payable by the Fund or the Portfolio is determined by the proportionate
share that its net assets bear to the total net assets of the Trust, The Pier-
pont Funds, The JPM Advisor Funds and the Master Portfolios.
SBDS, a registered broker-dealer, also serves as the Distributor of shares and
exclusive placement agent for the Portfolio. SBDS is a wholly owned subsidiary
of Signature. Signature and its affiliates currently provide administration and
distribution services for a number of registered investment companies through
offices located in Boston, New York, London, Toronto and George Town, Grand
Cayman.
ADMINISTRATIVE SERVICES AGENT. Under Administrative Services Agreements with
the Trust and the Portfolio, Morgan is responsible for certain financial, fund
accounting and administrative services provided to the Fund and the Portfolio,
including services related to Portfolio and Fund tax returns, Portfolio and
Fund financial reports, computing Fund dividends and net asset value per share
and keeping the Fund's books of account. Under these agreements, each of the
Fund and the Portfolio has agreed to pay Morgan a fee equal to its proportion-
ate share of an annual complex-wide charge. This charge is calculated daily
based on the aggregate net assets of the Master Portfolios in accordance with
the following annual schedule: 0.06% on the first $7 billion of the Master
Portfolios' aggregate average daily net assets, and 0.03% of the Master Portfo-
lios' aggregate average daily net assets in excess of $7 billion. The portion
of this charge payable by the Fund or the Portfolio is determined by the pro-
portionate share that its net assets bear to the total net assets of the Trust,
The Pierpont Funds, The JPM Advisor Funds, the Master Portfolios and other in-
vestors in the Master Portfolios for which Morgan provides similar services.
Under the terms of the agreements, Morgan may delegate one or more of its re-
sponsibilities to other entities, at Morgan's expense.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02101, serves as the Fund's and the Portfolio's Custodian and
Transfer and Dividend Disbursing Agent.
EXPENSES. In addition to the fees payable to Morgan, SBDS and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor, Adminis-
trator and Distributor, and Administrative Services Agent above and Shareholder
Servicing below, the Fund and the Portfolio are responsible for usual and cus-
tomary expenses associated with their respective operations. Such expenses in-
clude organization expenses, legal fees, accounting expenses, insurance costs,
the compensation and expenses of the Trustees, registration fees under federal
securities laws, and extraordinary expenses applicable to the Fund or the Port-
folio. For the Fund, such expenses also include transfer, registrar and divi-
dend 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 registration
fees under foreign securities laws, custodian fees and brokerage expenses.
Morgan has agreed that it will reimburse the Fund through at least March 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
0.20% 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 fis-
cal year the sum of the Fund's expenses exceeds the limits set by applicable
regulations of state securities commissions. Such annual limits are currently
2.5% of the first $30 million of average net assets, 2% of the next $70 million
of such net assets and 1.5% of such net assets in excess of $100 million for
any fiscal year.
SHAREHOLDER SERVICING
The Fund has entered into a Shareholder Servicing Agreement with Morgan pursu-
ant to which Morgan acts as shareholder servicing agent for its customers and
other Fund investors who are customers of an eligible institution which is a
customer of Morgan (an "Eligible Institution"). The Fund has agreed to pay Mor-
gan for these services at an annual rate
10
<PAGE>
(expressed as a percentage of the average daily net asset values of Fund shares
owned by or for shareholders for whom Morgan is acting as shareholder servicing
agent) of 0.05% of the Fund's average daily net assets. Under the terms of the
Shareholder Servicing 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.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
as shareholder servicing agent and the Fund is authorized to accept any in-
structions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Fund's Dis-
tributor. Investors must be customers of Morgan or an Eligible Institution. In-
vestors 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 becom-
ing a Morgan customer for this purpose. Morgan reserves the right to determine
the customers that it will accept, and the Fund reserves the right to determine
the purchase orders that it will accept.
The Fund requires a minimum initial investment of $10 million and a minimum
subsequent investment of $25,000. These minimum investment requirements may be
waived for certain retirement plans. For purposes of minimum investment re-
quirements, the Fund may aggregate investments by related shareholders.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value per share next determined after
receipt of an order. Prospective investors may purchase shares with the assis-
tance of an Eligible Institution that may establish its own terms, conditions
and charges.
To purchase shares in the Fund, investors should request their Morgan represen-
tative (or a representative of their Eligible Institution) to assist them in
placing a purchase order with the Fund's Distributor and to transfer immedi-
ately available funds to the Fund's Distributor on the same day. Any share-
holder may also call J.P. Morgan Funds Services at (800) 766-7722 for assis-
tance in placing an order for Fund shares. Immediately available funds must be
received by 3:00 P.M. New York time on a business day for the purchase to be
effective and dividends to be earned on the same day. The Fund does not accept
orders after the indicated time. If funds are received after 3:00 P.M. New York
time for any reason, including that the day is a Federal Reserve holiday, the
purchase is not effective and dividends are not earned until the next business
day.
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
sub- accounting, 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
11
<PAGE>
agree upon with the Eligible Institution. Eligible Institutions may separately
establish their own terms, conditions and charges for providing the aforemen-
tioned services and for providing other services.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
Morgan or his 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 Number 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 on a business day prior to 1:00 P.M. New York
time is effective on that day. A redemption request received after that time
becomes effective on the next day. Proceeds of an effective redemption are
generally deposited the same day in immediately available funds to the share-
holder's account at Morgan or at his Eligible Institution or, in the case of
certain Morgan customers, are mailed by check or wire transferred in accor-
dance with the customer's instructions. If a redemption request becomes effec-
tive on a day when the New York Stock Exchange is open but which is a Federal
Reserve holiday, the proceeds are paid the next business day. See Further Re-
demption Information.
MANDATORY REDEMPTION BY THE FUND. If the value of a shareholder's holdings in
the Fund falls below the Fund's initial investment amount of $10 million for
more than 30 days because of a redemption of shares, the shareholder's remain-
ing shares may be redeemed by the Fund 60 days after written notice to the
shareholder unless the account is increased to the Fund's minimum investment
amount or more.
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions
from the Fund may not be processed if a redemption request is not submitted in
proper form. To be in proper form, the Fund must have received the sharehold-
er's taxpayer identification number and address. As discussed under Taxes be-
low, the Fund may be required to impose "back-up" withholding of federal in-
come tax on dividends, distributions and redemption proceeds when non-corpo-
rate investors have not provided a certified taxpayer identification number.
In addition, if a shareholder sends a check for the purchase of Fund shares
and shares are purchased before the check has cleared, the transmittal of re-
demption proceeds from the shares will occur upon clearance of the check which
may take up to 15 days.
The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other
periods as the 1940 Act or the Securities and Exchange Commission may permit.
See Redemption of Shares in the Statement of Additional Information.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other JPM Institutional
Fund or Pierpont Fund without charge. An exchange may be made so long as after
the exchange the investor has shares, in each fund in which he or she remains
an investor, with a value of at least each of those fund's minimum investment
amounts. See Method of Purchase in the prospectuses for the other JPM Institu-
tional Funds and The Pierpont Funds for the minimum investment amount for each
of those funds. Shares are exchanged on the basis of relative net asset value
per share. Exchanges are in effect redemptions from one fund and purchases of
another fund and the usual purchase and redemption procedures and requirements
are applicable to exchanges. See Purchase of Shares and Redemption of Shares
in this Prospectus and in the prospectuses for the other JPM Institutional
Funds and The Pierpont Funds. See also Additional Information below for an ex-
planation of the telephone exchange policy of The JPM Institutional Funds.
12
<PAGE>
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income
tax purposes. The Fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state securi-
ties laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
All of the Fund's net investment income is declared as a dividend daily and
paid monthly. If an investor's shares are redeemed during a month, accrued but
unpaid dividends are paid with the redemption proceeds. The net investment in-
come of the Fund for dividend purposes consists of its pro rata share of the
net income of the Portfolio less the Fund's expenses. Dividends and distribu-
tions are payable to shareholders of record at the time of declaration. The net
investment income of the Fund for each business day is determined immediately
prior to the determination of net asset value. Net investment income for other
days is determined at the time net asset value is determined on the prior busi-
ness day. Shares of the Fund earn dividends on the business day their purchase
is effective, but not on the business day their redemption is effective. See
Purchase of Shares and Redemption of Shares.
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. The Portfo-
lio values all portfolio securities by the amortized cost method. This method
attempts to maintain for the Fund a constant net asset value per share of
$1.00. No assurances can be given that this goal can be attained. See Net Asset
Value in the Statement of Additional Information for more information on valua-
tion of portfolio securities for the Portfolio.
The Fund computes its net asset value once daily at 4:00 P.M. New York time on
Monday through Friday, except that the net asset value is not computed on the
holidays listed under Net Asset Value in the Statement of Additional Informa-
tion.
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 "Massachusetts
business trust". The Declaration of Trust permits the Trustees to issue an un-
limited number of full and fractional shares ($0.001 par value) of one or more
series. To date sixteen series of shares have been authorized and are available
for sale to the public. Only shares of the Fund are offered through this Pro-
spectus. No series of shares has any preference over any other series of
shares. See Massachusetts Trust in the Statement of Additional Information.
13
<PAGE>
The Declaration of Trust for the Trust provides that no Trustee, shareholder,
officer, employee, or agent of the Fund shall be held to any personal liabili-
ty, nor shall resort be had to their private property for the satisfaction of
any obligation or claim or otherwise in connection with the affairs of the
Fund, but that the Trust property only shall be liable.
Shareholders of the Fund are entitled to one vote for each share and to the ap-
propriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and non- assessable by the Fund. The Trust does not intend to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for ac-
tion by shareholder vote as may be required by either the 1940 Act or the Dec-
laration of Trust. The Trustees will call a meeting of shareholders to vote on
removal of a Trustee upon the written request of the record holders of ten per-
cent of Trust shares and will assist shareholders in communicating with each
other as prescribed in Section 16(c) of the 1940 Act. For further organization
information, including certain shareholder rights, see Description of Shares in
the Statement of Additional Information.
The Portfolio in which all of the assets of the Fund are invested 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 com-
mon 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. According-
ly, the Trustees of the Trust believe that neither the Fund nor its sharehold-
ers will be adversely affected by reason of the Fund's investing in the Portfo-
lio.
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 federal
taxes and with respect to the applicability of state or local taxes. See Taxes
in the Statement of Additional Information. Annual statements as to the current
federal tax status of distributions, if applicable, are mailed to shareholders
after the end of the taxable year for the Fund.
The Trust intends to qualify the Fund as a separate regulated investment com-
pany under Subchapter M of the Code. As a regulated investment company, the
Fund should not be subject to federal income taxes or federal excise taxes if
all of its net investment income and capital gains less any available capital
loss carryforwards are distributed to shareholders within allowable time lim-
its. The Portfolio intends to qualify as an association treated as a partner-
ship for federal income tax purposes. As such, the Portfolio should not be sub-
ject to tax. The Fund's status as a regulated investment company is dependent
on, among other things, the Portfolio's continued qualification as a partner-
ship 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 non-corporate shareholders.
Distributions of net investment income and realized net short-term capital
gains in excess of net long-term capital losses are taxable as ordinary income
to shareholders of the Fund whether such distributions are taken in cash or re-
invested in additional shares. Distributions of this type to corporate share-
holders of the Fund are not eligible for the dividends- received deduction. The
Fund does not expect to realize long-term capital gains and thus does not con-
template paying distributions taxable to shareholders who are subject to tax as
long-term capital gains.
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
14
<PAGE>
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.
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, the Donoghue averages and other industry publications. The Fund
may advertise "yield" and "effective yield". Yield refers to the net income
generated by an investment in the Fund over a stated seven-day period. This
income is then annualized i.e., the amount of income generated by the invest-
ment during that week is assumed to be generated each week over a 52-week pe-
riod and is shown as a percentage of the investment. Effective yield is calcu-
lated similarly to the yield, but, when annualized, the income earned by an
investment in the Fund is assumed to be reinvested; the effective yield will
be slightly higher than the yield because of the compounding effect of this
assumed reinvestment.
The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of op-
erations, if less) assuming that all distributions and dividends by the Fund
were reinvested on the reinvestment dates during the period and less all re-
curring fees. These methods of calculating yield and total return are required
by regulations of the Securities and Exchange Commission. Yield and total re-
turn data similarly calculated, unless otherwise indicated, over other speci-
fied periods of time may also be used. See Performance Data in the Statement
of Additional Information. All performance figures are based on historical
earnings and are not intended to indicate future performance. Performance in-
formation may be obtained by calling the Fund's Distributor at (800) 847-9487.
15
<PAGE>
---------------------------------------
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied
upon as having been authorized by the Trust or the Distributor. This Prospectus
does not constitute an offer by the Trust or by the Distributor to sell or a
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Trust or the
Distributor to make such offer in such jurisdiction.
The JPM Institutional Money Market Fund
PROSPECTUS
March 1, 1996
<PAGE>
PROSPECTUS
The JPM Institutional Treasury Money Market Fund
6 St. James Avenue
Boston, Massachusetts 02116
For information call (800) 766-7722
The JPM Institutional Treasury Money Market Fund (the "Fund") seeks to provide
current income, maintain a high level of liquidity and preserve capital. It is
designed for investors who seek to preserve capital and earn current income
from a portfolio of direct obligations of the U.S. Treasury and obligations of
certain U.S. Government agencies.
The Fund is a diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The JPM
Institutional Funds, an open-end management investment company organized as a
Massachusetts 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 TREASURY MONEY MARKET PORTFOLIO (THE
"PORTFOLIO"), A CORRESPONDING DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT
COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND INVESTS IN
THE PORTFOLIO THROUGH SIGNATURE FINANCIAL GROUP, INC.'S HUB AND SPOKE(R)
FINANCIAL SERVICES METHOD. THE HUB AND SPOKE(R) INVESTMENT FUND STRUCTURE
EMPLOYS A TWO-TIER MASTER FEEDER STRUCTURE AND IS A REGISTERED SERVICE MARK OF
SIGNATURE FINANCIAL GROUP, INC. SEE SPECIAL INFORMATION CONCERNING HUB AND
SPOKE(R) ON PAGE 3.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or "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 March 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, Signature Broker-Dealer Services, Inc., 6
St. James Avenue, Boston, Massachusetts 02116, Attention: The JPM Institutional
Funds, or by calling (800) 847-9487.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.
SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE
HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR. ALTHOUGH
THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, THERE
CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO CONTINUE TO DO SO.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MARCH 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund Is Designed.................................... 1
Financial Highlights....................................................... 3
Special Information Concerning Hub and Spoke(R)............................ 3
Investment Objective and Policies.......................................... 4
Additional Investment Information and Risk Factors......................... 5
Investment Restrictions.................................................... 6
Management of the Trust and the Portfolio.................................. 7
Shareholder Servicing...................................................... 10
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Purchase of Shares......................................................... 10
Redemption of Shares....................................................... 11
Exchange of Shares......................................................... 11
Dividends and Distributions................................................ 12
Net Asset Value............................................................ 12
Organization............................................................... 12
Taxes...................................................................... 13
Additional Information..................................................... 14
</TABLE>
<PAGE>
The JPM Institutional Treasury Money Market Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed to be an economical and convenient means of making sub-
stantial investments in money market instruments for investors who are inter-
ested in current income, preserving capital and maintaining liquidity. The Fund
seeks to achieve its investment objective by investing all of its investable
assets in The Treasury Money Market Portfolio, a diversified open-end manage-
ment investment company having the same investment objective as the Fund. Since
the investment characteristics and experience of the Fund will correspond di-
rectly with those of the Portfolio, the discussion in this Prospectus focuses
on the investments and investment policies of the Portfolio.
THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE
CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO CONTINUE TO DO SO.
The Fund requires 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 investment in the Fund to less than $10 million for more than 30
days, the investment will be subject to mandatory redemption. See Redemption of
Shares-Mandatory Redemption by the Fund.
This Prospectus describes the financial history, investment objective and poli-
cies, management and operation of the Fund to enable investors to decide if the
Fund suits their needs. The Fund operates through Signature Financial Group,
Inc.'s ("Signature") Hub and Spoke(R) financial services method. The Trustees
believe that the Fund may achieve economies of scale over time by investing
through the Hub and Spoke(R) 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 Sales on Reinvested Dividends................................... None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
1
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees............................................................. 0.20%
Rule 12b-1 Fees........................................................... None
Other Expenses (after expense reimbursement).............................. None
-----
Total Operating Expenses (after expense reimbursement).................... 0.20%
</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, Total Operating Expenses for the Fund would be equal on an
annual basis to 0.51% of such assets. Historical expenses without reimburse-
ment expressed as a ratio to historical average daily net assets were 0.51%
for the fiscal year ended October 31, 1995.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year...................................................................... $ 2
3 Years..................................................................... $ 6
5 Years..................................................................... $11
10 Years.................................................................... $26
</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 SBDS under the 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, including expense reimbursements, see Management of the Trust and
the Portfolio and Shareholder Servicing. In connection with the above example,
please note that $1,000 is less than the Fund's minimum investment requirement
and that there are no redemption or exchange fees of any kind. See Purchase of
Shares and Redemption of Shares. THE EXAMPLE IS HYPOTHETICAL; IT IS INCLUDED
SOLELY FOR ILLUSTRATIVE PURPOSES. IT SHOULD NOT BE CONSIDERED A REPRESENTATION
OF FUTURE PERFORMANCE; ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following selected data for a share outstanding for the indicated periods
have been audited by independent accountants. The Fund's annual report, which
is incorporated by reference into the Statement of Additional Information, in-
cludes 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.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL 1/4/93
YEAR ENDED (COMMENCEMENT
----------------- OF OPERATIONS) TO
10/31/95 10/31/94 10/31/93
-------- -------- -----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income From Investment Operations
Net Investment Income................. 0.0555 0.0354 0.0220
Net Realized Gain (Loss) on
Investment........................... 0.0003 (0.0000)(a) -0-(a)
-------- -------- --------
Total From Investment Operations....... 0.0558 0.0354 0.0220
-------- -------- --------
Less Distributions to Shareholders From
Net Investment Income................. (0.0555) (0.0354) (0.0220)
Net Realized Gain..................... -0- (0.0001) -0-
-------- -------- --------
Total Distributions to Shareholders.... (0.0555) (0.0355) (0.0220)
-------- -------- --------
Net Asset Value, End of Period......... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return........................... 5.69% 3.61% 2.23%(b)
Ratios and Supplemental Data
Net Assets at end of Period (In
Thousands)........................... $145,108 $ 80,146 $ 25,477
Ratio to Average Net Assets:
Expenses............................. 0.20% 0.20% 0.27%(c)
Net Investment Income................ 5.56% 3.81% 2.81%(c)
Decrease Reflected in Expense Ratio
due to Expense Reimbursement........ 0.31% 0.47% 0.76%(c)
</TABLE>
- -------
(a) Less than $0.0001 per share.
(b) Not annualized.
(c) Annualized.
SPECIAL INFORMATION CONCERNING HUB AND SPOKE(R)
The Trust and the Portfolio use certain proprietary rights, know-how and finan-
cial services referred to as Hub and Spoke(R). Hub and Spoke(R) is a registered
service mark of Signature. Signature Broker-Dealer Services, Inc. (the Trust's
and the Portfolio's Administrator and the Trust's Distributor) is a wholly
owned subsidiary of Signature.
Unlike other mutual funds which directly acquire and manage their own portfolio
of securities, the Fund is an open-end management investment company which
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio, a separate registered investment company with the same
investment objective as the Fund. The investment objective of the Fund or Port-
folio may be changed only with the approval of the holders of the outstanding
shares of the Fund and the Portfolio. The Hub and Spoke(R) investment fund
structure has been developed relatively recently, so shareholders should care-
fully consider this investment approach.
3
<PAGE>
In addition to selling a beneficial interest to the Fund, the Portfolio may
sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions
and will pay a proportionate share of the Portfolio's expenses. However, the
other investors investing in the Portfolio may sell shares of their own fund
using a different pricing structure than the Fund. Such different pricing
structures may result in differences in returns experienced by investors in
other funds that invest in the Portfolio. Such differences in returns are not
uncommon and are present in other mutual fund structures. Information concern-
ing other holders of interests in the Portfolio is available from the Adminis-
trator at (800) 847-9487.
The Trust may withdraw the investment of the Fund from the Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same invest-
ment objective and restrictions as the Fund or the retaining of an investment
adviser to manage the Fund's assets in accordance with the investment policies
described below with respect to the Portfolio.
Certain changes in the Portfolio's investment objective, policies or restric-
tions, or a failure by the Fund's shareholders to approve a change in the Port-
folio's investment objective or restrictions, may require withdrawal of the
Fund's interest in the Portfolio. Any such withdrawal could result in a distri-
bution in kind of portfolio securities (as opposed to a cash distribution) from
the Portfolio which may or may not be readily marketable. The distribution in
kind may result in the Fund having a less diversified portfolio of investments
or adversely affect the Fund's liquidity, and the Fund could incur brokerage,
tax or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in the Portfolio may be materially affected by the ac-
tions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns. Addition-
ally, because the Portfolio would become smaller, it may become less diversi-
fied, resulting in potentially increased portfolio risk (however, these possi-
bilities also exist for traditionally structured funds which have large or in-
stitutional investors who may withdraw from a fund). Also, funds with a greater
pro rata ownership in the Portfolio could have effective voting control of the
operations of the Portfolio. Whenever the Fund is requested to vote on matters
pertaining to the Portfolio (other than a vote by the Fund to continue the op-
eration of the Portfolio upon the withdrawal of another investor in the Portfo-
lio), the Trust will hold a meeting of shareholders of the Fund and will cast
all of its votes proportionately as instructed by the Fund's shareholders. The
Trust will vote the shares held by Fund shareholders who do not give voting in-
structions in the same proportion as the shares of Fund shareholders who do
give voting instructions. Shareholders of the Fund who do not vote will have no
effect on the outcome of such matters.
For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Additional Investment In-
formation and Risk Factors and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment Restric-
tions.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and the Portfolio is described below, 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.
4
<PAGE>
The Fund's investment objective is to provide current income, maintain a high
level of liquidity and preserve capital. The Fund attempts to achieve its in-
vestment objective by investing all of its investable assets in The Treasury
Money Market Portfolio, a diversified open-end management investment company
having the same investment objective as the Fund.
The Portfolio seeks to achieve its investment objective by investing in direct
obligations of the U.S. Treasury and, to a lesser extent, in obligations of the
U.S. Government agencies described below. The Portfolio maintains a dollar-
weighted average portfolio maturity of not more than 90 days and invests in the
following securities which have effective maturities of not more than thirteen
months.
TREASURY SECURITIES; CERTAIN U.S. GOVERNMENT AGENCY OBLIGATIONS. The Portfolio
will invest in 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 ("Treasury Securities"). Treasury Bills have initial maturities of one
year or less; Treasury Notes have initial maturities of one to ten years; and
Treasury Bonds generally have initial maturities of greater than ten years.
During ordinary market conditions at least 65% of the Portfolio's net assets
will be invested in Treasury Securities and repurchase agreements collateral-
ized by Treasury Securities. The balance of the Portfolio may be invested in
obligations issued by the following U.S. Government agencies where the Portfo-
lio must look to the issuing agency for ultimate repayment: the Federal Farm
Credit System and the Federal Home Loan Banks ("Permitted Agency Securities").
Each such obligation must have a remaining maturity of thirteen months or less
at the time of purchase by the Portfolio.
The market value of obligations in which the Portfolio invests is not guaran-
teed and may rise and fall in response to changes in interest rates. Neither
the shares of the Fund nor the interests in the Portfolio are guaranteed or in-
sured by the U.S. Government.
The Portfolio also may purchase Treasury Securities and Permitted Agency Secu-
rities on a when-issued or delayed delivery basis and may engage in repurchase
and reverse repurchase agreement transactions involving such securities. 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 securi-
ties 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 pur-
chase commitment. The value of these securities is subject to market fluctua-
tion during this period and no interest or income accrues to the Portfolio un-
til settlement. At the time of settlement a when-issued security may be valued
at less than its purchase price. The Portfolio maintains with the Custodian a
separate account with a segregated portfolio of securities in an amount at
least equal to these commitments. When entering into a when-issued or delayed
delivery transaction, the Portfolio will rely on the other party to consummate
the transaction; if the other party fails to do so, the Portfolio may be disad-
vantaged. It is the current policy of the Portfolio not to enter into when-is-
sued commitments exceeding in the aggregate 15% of the market value of the
Portfolio's total assets less liabilities other than the obligations created by
these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement trans-
actions with brokers, dealers or banks that meet the credit guidelines estab-
lished by the Portfolio's Trustees. In a repurchase agreement, the Portfolio
buys a security from a seller that has agreed to repurchase it at a mutually
agreed upon date and price, reflecting the interest rate effective for the term
of the agreement. The Portfolio only enters into repurchase agreements involv-
ing Treasury Securities and Permitted Agency Securities and under ordinary mar-
ket conditions does not expect to enter into repurchase agreements involving
more than 5% of its net assets. The term of these agreements is usually from
overnight to one week. A repurchase agreement may be viewed as a fully collat-
eralized loan of money by the Portfolio to the seller. The Portfolio always re-
ceives securities as collateral with a market value at least equal to the pur-
chase price plus
5
<PAGE>
accrued interest and this value is maintained during the term of the agree-
ment. If the seller defaults and the collateral value declines, the Portfolio
might incur a loss. If bankruptcy proceedings are commenced with respect to
the seller, the Portfolio's realization upon the disposition of collateral may
be delayed or limited. Investments in certain repurchase agreements and cer-
tain other investments which may be considered illiquid are limited. See Il-
liquid Investments; Privately Placed and other Unregistered Securities below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in an amount up to 33 1/3%
of the value of the Portfolio's net assets. The Portfolio may lend its securi-
ties if such loans are secured continuously by cash or equivalent collateral
or by a letter of credit in favor of the Portfolio at least equal at all times
to 100% of the market value of the securities loaned, plus accrued interest.
While such securities are on loan, the borrower will pay the Portfolio any in-
come accruing thereon. Loans will be subject to termination by the Portfolio
in the normal settlement time, generally three business days after notice, or
by the borrower on one day's notice. Borrowed securities must be returned when
the loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to the Portfolio
and its respective investors. The Portfolio may pay reasonable finders' and
custodial fees in connection with a loan. In addition, the Portfolio will con-
sider all facts and circumstances, including the creditworthiness of the bor-
rowing financial institution, and the Portfolio will not make any loans in ex-
cess of one year. The Portfolio will not lend its securities to any officer,
Trustee, Director, employee or other affiliate of the Portfolio, the Advisor
or the Distributor, unless otherwise permitted by applicable law.
REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into re-
verse repurchase agreements. In a reverse repurchase agreement, the Portfolio
sells a security and agrees to repurchase it at a mutually agreed upon date
and price, reflecting the interest rate effective for the term of the agree-
ment. For purposes of the Investment Company Act of 1940, as amended (the
"1940 Act"), it is considered a form of borrowing by the Portfolio and, there-
fore, 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 Information.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may not acquire any illiquid securities if, as a result thereof,
more than 10% of the market value of the Portfolio's net assets would be in
illiquid investments. Subject to this fundamental policy limitation, the Port-
folio 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.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio are
subject to the following fundamental limitations: (a) the Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except U.S. Government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one
6
<PAGE>
issuer. The Portfolio is subject to additional non-fundamental requirements
governing non-tax exempt money market funds. These non-fundamental requirements
generally prohibit the Portfolio from investing more than 5% of its total as-
sets in the securities of any single issuer, except obligations of the U.S.
Government and its agencies and instrumentalities.
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) enter into reverse repurchase agreements which to-
gether with any other borrowings exceed one-third of the market value of its
total assets, less certain liabilities, or (ii) borrow money (not including re-
verse 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
Portfolio's total assets, taken at cost at the time of borrowing (and provided
that such borrowings and reverse repurchase agreements do not exceed in the ag-
gregate one-third of the market value of the Portfolio's total assets less lia-
bilities other than the obligations represented by the bank borrowings and re-
verse repurchase agreements), or purchase securities while borrowings exceed 5%
of its total assets; or mortgage, pledge or hypothecate any assets except in
connection with any such borrowings in amounts up to 10% of the value of the
Portfolio's net assets at the time of borrowing, or (iii) make loans, except
through purchasing or holding debt obligations, repurchase agreements, or loans
of portfolio securities in accordance with the Portfolio's investment objective
and policies.
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>
<S> <C>
Frederick S. Addy................... Former Executive Vice President and Chief
Financial Officer, Amoco Corporation
William G. Burns.................... Former Vice Chairman of the Board and Chief
Financial Officer, NYNEX Corporation
Arthur C. Eschenlauer............... Former Senior Vice President, Morgan
Guaranty Trust Company of New York
Matthew Healey...................... Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi................. Senior Vice President, Capital Cities/ABC,
Inc., President, Broadcast Group
</TABLE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust, the Portfolio and
The Pierpont Funds, up to and including creating a separate board of trustees.
See Trustees and Officers in the Statement of Additional Information for more
information about the Trustees and Officers of the Fund and the Portfolio.
7
<PAGE>
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pier-
pont Group, Inc. in providing these services. Pierpont Group, Inc. was orga-
nized in 1989 at the request of the Trustees of The Pierpont Family of Funds
for the purpose of providing these services at cost to these funds. See Trust-
ees and Officers in the Statement of Additional Information. The principal of-
fices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New
York 10017.
ADVISOR. The Fund has not retained the services of an investment adviser be-
cause the Fund seeks to achieve its investment objective by investing all of
its investable assets in the Portfolio. The Portfolio has retained the serv-
ices of Morgan as Investment Advisor. Morgan, with principal offices at 60
Wall Street, New York, New York 10260, is a New York trust company which con-
ducts a general banking and trust business. Morgan is a wholly owned subsidi-
ary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"), a bank holding company
organized under the laws of Delaware. Through offices in New York City and
abroad, J.P. Morgan, through the Advisor and other subsidiaries, offers a wide
range of services to governmental, institutional, corporate and individual
customers and acts as investment adviser to individual and institutional cli-
ents with combined assets under management of over $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.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio (the inception date
of each person's responsibility for the Portfolio and his business experience
for the past five years is indicated parenthetically): James A. Hayes, Vice
President (since January 1993, employed by Morgan since prior to 1991) and
Robert R. Johnson, Vice President (since January 1993, 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 0.20% of the Portfolio's average daily net assets up to
$1 billion, and 0.10% of average daily net assets in excess of $1 billion.
Under separate agreements, Morgan also provides financial, fund accounting and
administrative services to the Fund and the Portfolio and shareholder services
to shareholders of the Fund. See Administrative Services Agent and Shareholder
Servicing below. 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.
ADMINISTRATOR AND DISTRIBUTOR. Under Administration Agreements with the Trust
and the Portfolio, Signature Broker-Dealer Services, Inc. ("SBDS") serves as
the Administrator for the Trust and the Portfolio. In this capacity, SBDS ad-
ministers and manages all aspects of the Fund's and the Portfolio's day-to-day
operations subject to the supervision of the Trustees, except as set forth un-
der Advisor, Administrative Services Agent, Custodian and Shareholder Servic-
ing. In connection with its responsibilities as Administrator, SBDS (i) fur-
nishes ordinary clerical and related services for day-to-day operations in-
cluding certain recordkeeping responsibilities; (ii) takes responsibility for
compliance with all applicable federal and state securities and other regula-
tory requirements; (iii) is responsible for the registration of sufficient
Fund shares under federal and state securities laws; (iv) takes responsibility
for monitoring the Fund's status as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"); and (v) performs such
administrative and managerial oversight of the activities of the Trust's and
the Portfolio's custodian and transfer agent as the Trustees may direct from
time to time.
8
<PAGE>
Under the Trust's and the Portfolio's Administration Agreements with SBDS,
each of the Fund and the Portfolio has agreed to pay SBDS a fee equal to its
proportionate share of an annual complex-wide charge. This charge is calcu-
lated 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. This charge is cal-
culated in accordance with the following annual schedule: 0.03% on the first
$7 billion of the Master Portfolios' aggregate average daily net assets, and
0.01% of the Master Portfolios' aggregate average daily net assets in excess
of $7 billion. The portion of this charge payable by the Fund or the Portfolio
is determined by the proportionate share that its net assets bear to the total
net assets of the Trust, The Pierpont Funds, The JPM Advisor Funds and the
Master Portfolios.
SBDS, a registered broker-dealer, also serves as the Distributor of shares of
the Fund and the exclusive placement agent for the Portfolio. SBDS is a wholly
owned subsidiary of Signature. Signature and its affiliates currently provide
administration and distribution services for a number of registered investment
companies through offices located in Boston, New York, London, Toronto and
George Town, Grand Cayman.
ADMINISTRATIVE SERVICES AGENT. Under Administrative Services Agreements with
the Trust and the Portfolio, Morgan is responsible for certain financial, fund
accounting and administrative services provided to the Fund and the Portfolio,
including services related to Portfolio and Fund tax returns, Portfolio and
Fund financial reports, computing Fund dividends and net asset value per share
and keeping the Fund's books of account. Under these agreements, each of the
Fund and the Portfolio has agreed to pay Morgan a fee equal to its proportion-
ate share of an annual complex-wide charge. This charge is calculated daily
based on the aggregate net assets of the Master Portfolios in accordance with
the following annual schedule: 0.06% on the first $7 billion of the Master
Portfolios' aggregate average daily net assets, and 0.03% of the Master Port-
folios' aggregate average daily net assets in excess of $7 billion. The por-
tion of this charge payable by the Fund or the Portfolio is determined by the
proportionate share that its net assets bear to the total 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. Under the terms of the agreements, Morgan may delegate one or more
of its responsibilities to other entities, at Morgan's expense.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02101, serves as the Fund's and the Portfolio's Custodian and
Transfer and Dividend Disbursing Agent.
EXPENSES. In addition to the fees payable to Morgan, SBDS and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor, Adminis-
trator 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 disbursing costs, the expenses of printing and mailing re-
ports, notices and proxy statements to Fund shareholders, and registration
fees under state securities laws. For the Portfolio, such expenses also in-
clude custodian fees and brokerage expenses.
Morgan has agreed that it will reimburse the Fund through at least February
28, 1997 to the extent necessary to maintain the Fund's total operating ex-
penses (which includes expenses of the Fund and the Portfolio) at the annual
rate of 0.20% of the Fund's average daily net assets. This limit does not
cover extraordinary expenses during the period. There is no assurance that
Morgan will continue this waiver beyond the specified period, except as re-
quired 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.
9
<PAGE>
SHAREHOLDER SERVICING
The Fund has entered into a Shareholder Servicing Agreement with Morgan pursu-
ant to which Morgan acts as shareholder servicing agent for its customers and
other Fund investors who are customers of an eligible institution which is a
customer of Morgan (an "Eligible Institution"). The Fund has agreed to pay Mor-
gan for these services at an annual rate (expressed as a percentage of the av-
erage daily net asset values of Fund shares owned by or for shareholders for
whom Morgan is acting as shareholder servicing agent) of 0.05% of the Fund's
average daily net assets. Under the terms of the Shareholder Servicing Agree-
ment with the Fund, Morgan may delegate one or more of its responsibilities to
other entities at Morgan's expense.
Shareholders should address all inquiries to J.P. Morgan Funds Services, Morgan
Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York 10036
or call (800) 766-7722.
The business days of the Fund and the Portfolio are the days the New York Stock
Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
as shareholder servicing agent and the Fund is authorized to accept any in-
structions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Fund's Dis-
tributor. Investors must be customers of Morgan or an Eligible Institution. In-
vestors 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 becom-
ing a Morgan customer for this purpose. Morgan reserves the right to determine
the customers that it will accept, and the Fund reserves the right to determine
the purchase orders that it will accept.
The Fund requires a minimum initial investment of $10 million and a minimum
subsequent investment of $25,000. These minimum investment requirements may be
waived for investors for certain retirement plans. For purposes of minimum in-
vestment requirements, the Fund may aggregate investments by related sharehold-
ers.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value per share next determined after
receipt of an order. Prospective investors may purchase shares with the assis-
tance of an Eligible Institution that may establish its own terms, conditions
and charges.
To purchase shares in the Fund, investors should request their Morgan represen-
tative (or a representative of their Eligible Institution) to assist them in
placing a purchase order with the Fund's Distributor and to transfer immedi-
ately available funds to the Fund's Distributor on the same day. Any share-
holder may also call J.P. Morgan Funds Services at (800) 766-7722 for assis-
tance in placing an order for Fund shares. Immediately available funds must be
received by 12:00 noon New York time on a business day for the purchase to be
effective and dividends to be earned on the same day. The Fund does not accept
orders after the indicated time. If funds are received after 12:00 noon New
York time for any reason, including that the day is a Federal Reserve holiday,
the purchase is not effective and dividends are not earned until the next busi-
ness day.
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
sub- accounting, 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,
10
<PAGE>
transmitting proxy statements, periodic reports, updated prospectuses and
other communications to shareholders and, with respect to meetings of share-
holders, collecting, tabulating and forwarding executed proxies and obtaining
such other information and performing such other services as Morgan or the El-
igible Institution's clients may reasonably request and agree upon with the
Eligible Institution. Eligible Institutions may separately establish their own
terms, conditions and charges for providing the aforementioned services and
for providing other services.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
Morgan or his 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 Number 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 on a business day prior to 12:00 noon New York
time is effective on that day. A redemption request received after that time
becomes effective on the next day. Proceeds of an effective redemption are
generally deposited the same day in immediately available funds to the share-
holder's account at Morgan or at his Eligible Institution or, in the case of
certain Morgan customers, are mailed by check or wire transferred in accor-
dance with the customer's instructions. If a redemption request becomes effec-
tive on a day when the New York Stock Exchange is open but which is a Federal
Reserve holiday, the proceeds are paid the next business day. See Further Re-
demption Information.
MANDATORY REDEMPTION BY THE FUND. If the value of a shareholder's holdings in
the Fund falls below the Fund's initial investment amount of $10 million for
more than 30 days because of a redemption of shares, the shareholder's remain-
ing shares may be redeemed by the Fund 60 days after written notice to the
shareholder unless the account is increased to the Fund's minimum investment
amount or more.
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions
from the Fund may not be processed if a redemption request is not submitted in
proper form. To be in proper form, the Fund must have received the sharehold-
er's taxpayer identification number and address. As discussed under Taxes be-
low, the Fund may be required to impose "back-up" withholding of federal in-
come tax on dividends, distributions and redemption proceeds when
non-corporate investors have not provided a certified taxpayer identification
number. In addition, if a shareholder sends a check for the purchase of Fund
shares and shares are purchased before the check has cleared, the transmittal
of redemption proceeds from the shares will occur upon clearance of the check
which may take up to 15 days.
The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other
periods as the 1940 Act or the Securities and Exchange Commission may permit.
See Redemption of Shares in the Statement of Additional Information.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other JPM Institutional
Fund or Pierpont Fund without charge. An exchange may be made so long as after
the exchange the investor has shares, in each fund in which he or she remains
an investor, with a value of at least each of those fund's minimum investment
amounts. See Method of Purchase in the prospectuses for the other JPM Institu-
tional Funds and The Pierpont Funds for the minimum investment amount for each
of those funds. Shares are exchanged on the basis of relative net asset value
per share. Exchanges are in effect redemptions from one fund and purchases of
another fund and the usual purchase and redemption procedures and requirements
are applicable to exchanges. See Purchase of Shares and Redemption of Shares
in this Prospectus and in the pro-
11
<PAGE>
spectuses for the other JPM Institutional Funds and The Pierpont Funds. See
also Additional Information below for an explanation of the telephone exchange
policy of The JPM Institutional Funds.
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income
tax purposes. The Fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state securi-
ties laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
All of the Fund's net investment income is declared as a dividend daily and
paid monthly. If an investor's shares are redeemed during a month, accrued but
unpaid dividends are paid with the redemption proceeds. The net investment in-
come of the Fund for dividend purposes consists of its pro rata share of the
net income of the Portfolio less the Fund's expenses. Dividends and distribu-
tions are payable to shareholders of record at the time of declaration. The net
investment income of the Fund for each business day is determined immediately
prior to the determination of net asset value. Net investment income for other
days is determined at the time net asset value is determined on the prior busi-
ness day. Shares of the Fund earn dividends on the business day their purchase
is effective, but not on the business day their redemption is effective. See
Purchase of Shares and Redemption of Shares.
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. The Portfo-
lio values all portfolio securities by the amortized cost method. This method
attempts to maintain for the Fund a constant net asset value per share of
$1.00. No assurances can be given that this goal can be attained. See Net Asset
Value in the Statement of Additional Information for more information on valua-
tion of portfolio securities for the Portfolio.
The Fund computes its net asset value once daily at 4:00 P.M. New York time on
Monday through Friday, except that the net asset value is not computed on the
holidays listed under Net Asset Value in the Statement of Additional Informa-
tion.
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 "Massachusetts
business trust". The Declaration of Trust permits the Trustees to issue an un-
limited number of full and fractional shares ($0.001 par value) of one or more
series. To date sixteen series of shares
12
<PAGE>
have been authorized and are available 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 non- assessable by the Fund. The Trust does not intend to hold meetings of
shareholders annually. As of January 31, 1996, the following technically met
the definition of a control person of the Fund: Quintiles Transnational Corpo-
ration. The Trustees may call meetings of shareholders for action by share-
holder vote as may be required by either the 1940 Act or the Declaration of
Trust. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of ten percent of
Trust shares and will assist shareholders in communicating with each other as
prescribed in Section 16(c) of the 1940 Act. For further organization informa-
tion, including certain shareholder rights, see Description of Shares in the
Statement of Additional Information.
The Portfolio in which all of the assets of the Fund are invested is organized
as a trust under the laws of the State of New York. The Portfolio's Declara-
tion of Trust provides that the Fund and other entities investing in the Port-
folio (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 neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in
the Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are sub-
ject to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to fed-
eral taxes and with respect to the applicability of state or local taxes. See
Taxes in the Statement of Additional Information. Annual statements as to the
current federal tax status of distributions, if applicable, are mailed to
shareholders after the end of the taxable year for the Fund.
The Trust intends to qualify the Fund as a separate regulated investment com-
pany under Subchapter M of the Code. As a regulated investment company, the
Fund should not be subject to federal income taxes or federal excise taxes if
all of its net investment income and capital gains less any available capital
loss carryforwards are distributed to shareholders within allowable time lim-
its. The Portfolio intends to qualify as an association treated as a partner-
ship 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 depen-
dent on, among other things, the Portfolio's continued qualification as a
partnership for federal income tax purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certainexemptions, to withhold 31% of certain
payments made or distributions declared to non-corporate shareholders.
Distributions of net investment income and realized net short-term capital
gains in excess of net long-term capital losses are taxable as ordinary income
to shareholders of the Fund whether such distributions are taken in cash or
reinvested in additional shares. Distributions of net long-term capital gains
in excess of net short-term capital losses are taxable to
13
<PAGE>
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 dividends-received deduction.
The Fund does not expect to realize long-term capital gains and thus does not
contemplate paying distributions taxable to shareholders who are subject to tax
as long-term capital gains.
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.
Shareholders should consult their tax advisors to assess the consequences of
investing in the Fund under state and local laws. Interest income derived from
Treasury Securities is generally not subject to state and local personal income
taxation. Most states allow a pass-through to the individual shareholders of
the Fund of the tax-exempt character of this income, subject to certain re-
strictions, for purposes of those states' personal income taxes.
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The finan-
cial statements appearing in annual reports are audited by independent accoun-
tants. Shareholders also will be sent confirmations of each purchase and re-
demption and monthly statements, reflecting all other account activity, includ-
ing dividends and any distributions reinvested in additional shares or credited
as cash.
All shareholders are given the privilege to initiate transactions automatically
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 requiring in-
vestors to give their Personal Identification Number and tape recording of tel-
ephone instructions, to confirm that instructions communicated from investors
by telephone are genuine; if it does not, the Fund, the Shareholder Servicing
Agent or a shareholder's Eligible Institution may be liable for any losses due
to unauthorized or fraudulent instructions.
The Fund may make historical performance information available and may compare
its performance to other investments or relevant indexes, including data from
Lipper Analytical Services, Inc., the Donoghue averages, Micropal Inc., Morn-
ingstar Inc., Ibbotson Associates and other industry publications. The Fund may
advertise "yield" and "effective yield". Yield refers to the net income gener-
ated by an investment in the Fund over a stated seven-day period. This income
is then annualized -- i.e., the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. Effective yield is calculated simi-
larly to the yield, but, when annualized, the income earned by an investment in
the Fund is assumed to be reinvested; the effective yield will be slightly
higher than the yield because of the compounding effect of this assumed rein-
vestment.
The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of oper-
ations, if less) assuming that all distributions and dividends by the Fund were
reinvested on the reinvestment dates during the period and less all recurring
fees. These methods of calculating yield and total return are required by regu-
lations of the Securities and Exchange Commission. Yield and total return data
similarly calculated, unless otherwise indicated, over other specified periods
of time may also be used. See Performance Data in the Statement of Additional
Information. All performance figures are based on historical earnings and are
not intended to indicate future performance. Performance information may be ob-
tained by calling the Fund's Distributor at (800) 847-9487.
14
<PAGE>
---------------------------------------
The JPM
Institutional
Treasury Money
Market 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.
PROSPECTUS
March 1, 1996
<PAGE>
PROSPECTUS
The JPM Institutional Bond Fund
6 St. James Avenue
Boston, Massachusetts 02116
For information call (800) 766-7722
The JPM Institutional Bond Fund (the "Fund") seeks to provide a high total
return consistent with moderate risk of capital and maintenance of liquidity.
It is designed for investors who seek a total return over time that is higher
than that generally available from a portfolio of short-term obligations while
recognizing the greater price fluctuation of longer term instruments.
The Fund is a diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The JPM
Institutional Funds, an open-end management investment company organized as a
Massachusetts 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 U.S. FIXED INCOME PORTFOLIO (THE
"PORTFOLIO"), A CORRESPONDING DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT
COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND INVESTS IN
THE PORTFOLIO THROUGH SIGNATURE FINANCIAL GROUP, INC.'S HUB AND SPOKE(R)
FINANCIAL SERVICES METHOD. THE HUB AND SPOKE(R) INVESTMENT FUND STRUCTURE
EMPLOYS A TWO-TIER MASTER FEEDER STRUCTURE AND IS A REGISTERED SERVICE MARK OF
SIGNATURE FINANCIAL GROUP, INC. SEE SPECIAL INFORMATION CONCERNING HUB AND
SPOKE(R) ON PAGE 3.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or "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 March 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, Signature Broker-Dealer Services, Inc., 6
St. James Avenue, Boston, Massachusetts 02116, Attention: The JPM Institutional
Funds, or by calling (800) 847-9487.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.
SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE
HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MARCH 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund is Designed.................................... 1
Financial Highlights....................................................... 3
Special Information Concerning Hub and Spoke(R)............................ 3
Investment Objective and Policies.......................................... 4
Additional Investment Information and Risk Factors......................... 7
Investment Restrictions.................................................... 9
Management of the Trust and the Portfolio.................................. 9
Shareholder Servicing...................................................... 12
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Purchase of Shares......................................................... 12
Redemption of Shares....................................................... 13
Exchange of Shares......................................................... 14
Dividends and Distributions................................................ 14
Net Asset Value............................................................ 14
Organization............................................................... 15
Taxes...................................................................... 15
Additional Information..................................................... 16
Appendix................................................................... A-1
</TABLE>
<PAGE>
The JPM Institutional Bond Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed for investors seeking a higher total return over time than
that generally available from a portfolio of short-term obligations in exchange
for some risk of capital. The Fund seeks to achieve its investment objective by
investing all of its investable assets in The U.S. Fixed Income Portfolio, a
diversified open-end management investment company having the same investment
objective as the Fund. Since the investment characteristics and experience of
the Fund will correspond directly with those of the Portfolio, the discussion
in this Prospectus focuses on the investments and investment policies of the
Portfolio. The net asset value of shares in the Fund fluctuates with changes in
the value of the investments in the Portfolio.
The Portfolio may make various types of investments in seeking its objective.
Among the permissible investments and investment techniques for the Portfolio
are futures contracts and options and certain privately placed securities. For
further information about these investments and investment techniques, see In-
vestment Objective and Policies discussed below.
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 investment in the Fund to less than the applicable minimum initial
investment amount for more than 30 days, the investment will be subject to man-
datory redemption. See Redemption of Shares-Mandatory Redemption by the Fund.
This Prospectus describes the financial history, investment objective and poli-
cies, management and operation of the Fund to enable investors to decide if the
Fund suits their needs. The Fund operates through Signature Financial Group,
Inc.'s ("Signature") Hub and Spoke(R) financial services method. The Trustees
believe that the Fund may achieve economies of scale over time by investing
through the Hub and Spoke(R) 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>
<S> <C>
Advisory Fees............................................................. 0.30%
Rule 12b-1 Fees........................................................... None
Other Expenses (after expense reimbursement).............................. 0.20%
-----
Total Operating Expenses (after expense reimbursement).................... 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, Total Operating Expenses for the Fund would be equal on an
annual basis to 0.67% of such assets. Historical expenses without reimburse-
ment expressed as a ratio to historical average daily net assets were 0.52%
for the fiscal year ended October 31, 1995.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year...................................................................... $ 5
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 SBDS under the 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, including expense reimbursements, see Management of the Trust and
the Portfolio and Shareholder Servicing. In connection with the above example,
please note that $1,000 is less than the Fund's minimum investment requirement
and that there are no redemption or exchange fees of any kind. See Purchase of
Shares and Redemption of Shares. THE EXAMPLE IS HYPOTHETICAL; IT IS INCLUDED
SOLELY FOR ILLUSTRATIVE PURPOSES. IT SHOULD NOT BE CONSIDERED A REPRESENTATION
OF FUTURE PERFORMANCE; ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following selected data for a share outstanding for the indicated periods
have been audited by independent accountants. The Fund's annual report, which
is incorporated by reference into the Statement of Additional Information, in-
cludes 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.
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL YEAR ENDED JULY 12, 1993
OCTOBER 31, (COMMENCEMENT OF
-------------------------- OPERATIONS) THROUGH
1995 1994 OCTOBER 31, 1993
------------ ------------ -------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ 9.23 $ 10.14 $ 10.00
------------ ------------ -------
Income From Investment
Operations
Net Investment Income......... 0.63 0.55 0.15
Net Realized and Unrealized
Gain (Loss) on Investment.... 0.75 (0.88) 0.14
------------ ------------ -------
Total From Investment
Operations.................... 1.38 (0.33) 0.29
------------ ------------ -------
Less Distributions to
Shareholders From
Net Investment Income......... (0.63) (0.55) (0.15)
Net Realized Gain............. -0- (0.03) -0-
------------ ------------ -------
Total Distributions to
Shareholders.................. (0.63) (0.58) (0.15)
------------ ------------ -------
Net Asset Value, End of Period. $ 9.98 $ 9.23 $ 10.14
============ ============ =======
Total Return................... 15.50% (3.33)% 2.90%(a)
Ratios and Supplemental Data
Net Assets, End of Period (In
Thousands)................... $ 438,610 $253,174 $43,711
Ratios to Average Net Assets:
Expenses..................... 0.47% 0.50% 0.50%(b)
Net Investment Income........ 6.62% 6.00% 4.83%(b)
Decrease Reflected in Expense
Ratio due to Expense
Reimbursement............... 0.05% 0.19% 0.39%(b)
</TABLE>
- -------
(a) Not annualized.
(b) Annualized.
SPECIAL INFORMATION CONCERNING HUB AND SPOKE(R)
The Trust and the Portfolio use certain proprietary rights, know-how and finan-
cial services referred to as Hub and Spoke(R). Hub and Spoke(R) is a registered
service mark of Signature. Signature Broker-Dealer Services, Inc. (the Trust's
and the Portfolio's Administrator and the Trust's Distributor) is a wholly
owned subsidiary of Signature.
Unlike other mutual funds which directly acquire and manage their own portfolio
of securities, the Fund is an open-end management investment company which
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio, a separate registered investment company with the same
investment objective as the Fund. The investment objective of the Fund or Port-
folio may be changed only with the approval of the holders of the outstanding
shares of the Fund and the Portfolio. The Hub and Spoke(R) investment fund
structure has been developed relatively recently, so shareholders should care-
fully 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 pay a propor-
3
<PAGE>
tionate share of the Portfolio's expenses. However, the other investors invest-
ing in the Portfolio may sell shares of their own fund using a different pric-
ing structure than the Fund. Such different pricing structures may result in
differences in returns experienced by investors in other funds that invest in
the Portfolio. Such differences in returns are not uncommon and are present in
other mutual fund structures. Information concerning other holders of interests
in the Portfolio is available from the Administrator at (800) 847-9487.
The Trust may withdraw the investment of the Fund from the Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same invest-
ment objective and restrictions as the Fund or the retaining of an investment
adviser to manage the Fund's assets in accordance with the investment policies
described below with respect to the Portfolio.
Certain changes in the Portfolio's investment objective, policies or restric-
tions, or a failure by the Fund's shareholders to approve a change in the Port-
folio's investment objective or restrictions, may require withdrawal of the
Fund's interest in the Portfolio. Any such withdrawal could result in a distri-
bution in kind of portfolio securities (as opposed to a cash distribution) from
the Portfolio which may or may not be readily marketable. The distribution in
kind may result in the Fund having a less diversified portfolio of investments
or adversely affect the Fund's liquidity, and the Fund could incur brokerage,
tax or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in the Portfolio may be materially affected by the ac-
tions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns. Addition-
ally, because the Portfolio would become smaller, it may become less diversi-
fied, resulting in potentially increased portfolio risk (however, these possi-
bilities also exist for traditionally structured funds which have large or in-
stitutional investors who may withdraw from a fund). Also, funds with a greater
pro rata ownership in the Portfolio could have effective voting control of the
operations of the Portfolio. Whenever the Fund is requested to vote on matters
pertaining to the Portfolio (other than a vote by the Fund to continue the op-
eration of the Portfolio upon the withdrawal of another investor in the Portfo-
lio), the Trust will hold a meeting of shareholders of the Fund and will cast
all of its votes proportionately as instructed by the Fund's shareholders. The
Trust will vote the shares held by Fund shareholders who do not give voting in-
structions in the same proportion as the shares of Fund shareholders who do
give voting instructions. Shareholders of the Fund who do not vote will have no
effect on the outcome of such matters.
For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Additional Investment In-
formation and Risk Factors and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment Restric-
tions.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and the Portfolio is described below, 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 total return consistent
with moderate risk of capital and maintenance of liquidity. Total return will
consist of income plus realized and unrealized capital gains and losses. Al-
though the
4
<PAGE>
net asset value of the Fund will fluctuate, the Fund attempts to preserve the
value of its investments to the extent consistent with its objective. The Fund
attempts to achieve its objective by investing all of its investable assets in
The U.S. Fixed Income Portfolio, a diversified open-end management investment
company having the same investment objective as the Fund.
The Fund is designed for investors who seek a total return over time that is
higher than that generally available from a portfolio of shorter-term obliga-
tions while recognizing the greater price fluctuation of longer-term instru-
ments. It may also be a convenient way to add fixed income exposure to diver-
sify an existing portfolio.
Morgan actively manages the Portfolio's duration, the allocation of securities
across market sectors, and the selection of specific securities within sectors.
Based on fundamental, economic and capital markets research, Morgan adjusts the
duration of the Portfolio in light of market conditions and Morgan's interest
rate outlook. For example, if interest rates are expected to fall, the duration
may be lengthened to take advantage of the expected associated increase in bond
prices. Morgan also actively allocates the Portfolio's assets among the broad
sectors of the fixed income market including, but not limited to, U.S. Govern-
ment and agency securities, corporate securities, private placements, asset-
backed and mortgage-related securities. Specific securities which Morgan be-
lieves are undervalued are selected for purchase within the 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. Under normal circumstances, Morgan intends to keep the Portfolio es-
sentially fully invested with at least 65% of the Portfolio's assets invested
in bonds.
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 Portfolio's
market value to changes in interest rates. Generally, the longer the duration
of the Portfolio, the more sensitive its market value will be to changes in in-
terest rates. Under normal market conditions the Portfolio's duration will
range between one year shorter and one year longer than the duration of the
U.S. investment grade fixed income universe, as represented by Salomon Brothers
Broad Investment Grade Bond Index, the Portfolio's benchmark. Currently, the
benchmark's duration is approximately 4.5 years. The maturities of the individ-
ual securities in the Portfolio may vary widely, however.
The Portfolio intends to manage its portfolio actively in pursuit of its in-
vestment 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 also engage in short-term
trading consistent with its objective. To the extent the Portfolio engages in
short-term trading, it may incur increased transaction costs. See Taxes below.
CORPORATE BONDS, ETC. The Portfolio may invest in a broad range of debt securi-
ties of domestic and foreign issuers. These include debt securities of various
types and maturities, e.g., debentures, notes, mortgage securities, equipment
trust certificates and other collateralized securities and zero coupon securi-
ties. Collateralized securities are backed by a pool of assets such as loans or
receivables which generate cash flow to cover the payments due on the securi-
ties. Collateralized securities are subject to certain risks, including a de-
cline in the value of the collateral backing the security, failure of the col-
lateral to generate the anticipated cash flow or in certain cases more rapid
prepayment because of events affecting the collateral, such as accelerated pre-
payment of mortgages or other loans backing these securities or destruction of
equipment subject to equipment trust certificates. In the event of any such
prepayment the Portfolio will be required to reinvest the proceeds of prepay-
ments at interest rates prevailing at the time of reinvestment, which may be
lower. In addition, the value of zero coupon securities which do not pay inter-
est is more volatile than that of interest bearing debt securities with the
same maturity. The Portfolio does not intend to invest in common stock but may
invest to a limited extent in convertible debt or preferred stock. The Portfo-
lio may invest in debt securities of foreign issuers only if such securities
are denominated in the U.S. dollar. The Portfolio does not expect to invest
more than 25% of its assets in securities of foreign issuers. See Additional
Investment Information and Risk Factors for further information on foreign in-
vestments and convertible securities.
5
<PAGE>
GOVERNMENT OBLIGATIONS, ETC. The Portfolio may invest in obligations issued or
guaranteed by the U.S. Government and backed by the full faith and credit of
the United States. These securities include Treasury securities, obligations
of the Government National Mortgage Association ("GNMA Certificates"), the
Farmers Home Administration and the Export Import Bank. GNMA Certificates are
mortgage-backed securities which evidence an undivided interest in mortgage
pools. These securities are subject to more rapid repayment than their stated
maturity would indicate because prepayments of principal on mortgages in the
pool are passed through to the holder of the securities. During periods of de-
clining interest rates, prepayments of mortgages in the pool can be expected
to increase. The pass-through of these prepayments would have the effect of
reducing the Portfolio's positions in these securities and requiring the Port-
folio to reinvest the prepayments at interest rates prevailing at the time of
reinvestment. The Portfolio may also invest in obligations issued or guaran-
teed by U.S. Government agencies or instrumentalities where the Portfolio must
look principally to the issuing or guaranteeing agency for ultimate repayment;
some examples of agencies or instrumentalities issuing these obligations are
the Federal Farm Credit System, the Federal Home Loan Banks and the Federal
National Mortgage Association. Although these governmental issuers are respon-
sible for payments on their obligations, they do not guarantee their market
value. The Portfolio may also invest in municipal obligations which may be
general obligations of the issuer or payable only from specific revenue sourc-
es. However, the Portfolio will invest only in municipal obligations that have
been issued on a taxable basis or have an attractive yield excluding tax con-
siderations. In addition, the Portfolio may invest in debt securities of for-
eign governments and governmental entities. See Additional Investment Informa-
tion and Risk Factors for further information on foreign investments.
MONEY MARKET INSTRUMENTS. The Portfolio may purchase money market instruments
to invest temporary cash balances or to maintain liquidity to meet withdraw-
als. However, the Portfolio may also invest in money market instruments as a
temporary defensive measure taken during, or in anticipation of, adverse mar-
ket conditions. The money market investments permitted for the Portfolio in-
clude obligations of the U.S. Government and its agencies and instrumentali-
ties, other debt securities, commercial paper, bank obligations and repurchase
agreements. For more detailed information about these money market invest-
ments, see Investment Objectives and Policies in the Statement of Additional
Information.
QUALITY INFORMATION. It is a current policy of the Portfolio that under normal
circumstances at least 65% of its total assets will consist of securities that
are rated at least A by Moody's or Standard & Poor's or that are unrated and
in Morgan's opinion are of comparable quality. In the case of 30% of the Port-
folio's investments, the Portfolio may purchase debt securities that are rated
Baa or better by Moody's or BBB or better by Standard & Poor's or are unrated
and in Morgan's opinion are of comparable quality. The remaining 5% of the
Portfolio's assets may be invested in debt securities that are rated Ba or
better by Moody's or BB or better by Standard & Poor's or are unrated and in
Morgan's opinion are of comparable quality. Securities rated Baa by Moody's or
BBB by Standard & Poor's are considered investment grade, but have some specu-
lative characteristics. Securities rated Ba by Moody's or BB by Standard &
Poor's are below investment grade and considered to be speculative with regard
to payment of interest and principal. These standards must be satisfied 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.
The Portfolio may also purchase obligations on a when-issued or delayed deliv-
ery basis, enter into repurchase and reverse repurchase agreements, loan its
portfolio securities, purchase certain privately placed securities and enter
into certain hedging transactions that may involve options on securities and
securities indexes, futures contracts and options on futures contracts. For a
discussion of these investments and investment techniques, see Additional In-
vestment Information and Risk Factors.
6
<PAGE>
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
CONVERTIBLE SECURITIES. The Portfolio may invest in convertible securities of
domestic and, subject to the Portfolio's investment restrictions, foreign is-
suers. The convertible securities in which the Portfolio may invest include
any debt securities or preferred stock which may be converted into common
stock or which carry the right to purchase common stock. Convertible securi-
ties 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.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase secu-
rities on a when-issued or delayed delivery basis. Delivery of and payment for
these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market fluc-
tuation during this period and for fixed income investments no interest ac-
crues to the Portfolio until settlement. At the time of settlement a when-is-
sued security may be valued at less than its purchase price. The Portfolio
maintains with the Custodian a separate account with a segregated portfolio of
securities in an amount at least equal to these commitments. When entering
into a when-issued or delayed delivery transaction, the Portfolio will rely on
the other party to consummate the transaction; if the other party fails to do
so, the Portfolio may be disadvantaged. It is the current policy of the Port-
folio not to enter into when-issued commitments exceeding in the aggregate 15%
of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement trans-
actions with brokers, dealers or banks that meet the credit guidelines estab-
lished by the Portfolio's Trustees. In a repurchase agreement, the Portfolio
buys a security from a seller that has agreed to repurchase it at a mutually
agreed upon date and price, reflecting the interest rate effective for the
term of the agreement. The term of these agreements is usually from overnight
to one week. A repurchase agreement may be viewed as a fully collateralized
loan of money by the Portfolio to the seller. The Portfolio always receives
securities as collateral with a market value at least equal to the purchase
price plus accrued interest and this value is maintained during the term of
the agreement. If the seller defaults and the collateral value declines, the
Portfolio might incur a loss. If bankruptcy proceedings are commenced with re-
spect to the seller, the Portfolio's realization upon the disposition of col-
lateral may be delayed or limited. Investments in certain repurchase agree-
ments and certain other investments which may be considered illiquid are lim-
ited. See Illiquid Investments; Privately Placed and other Unregistered Secu-
rities below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in an amount up to 33 1/3%
of the value of the Portfolio's net assets. The Portfolio may lend its securi-
ties if such loans are secured continuously by cash or equivalent collateral
or by a letter of credit in favor of the Portfolio at least equal at all times
to 100% of the market value of the securities loaned, plus accrued interest.
While such securities are on loan, the borrower will pay the Portfolio any in-
come accruing thereon. Loans will be subject to termination by the Portfolio
in the normal settlement time, generally three business days after notice, or
by the borrower on one day's notice. Borrowed securities must be returned when
the loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to the Portfolio
and its respective investors. The Portfolio may pay reasonable finders' and
custodial fees in connection with a loan. In addition, the Portfolio will con-
sider all facts and circumstances, including the creditworthiness of the bor-
rowing financial institution, and the Portfolio will not make any loans in ex-
cess of one year. The Portfolio will not lend its securities to any officer,
Trustee, Director, employee or other affiliate of the Portfolio, the Advisor
or the Distributor, unless otherwise permitted by applicable law.
REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into re-
verse repurchase agreements. In a reverse repurchase agreement, the Portfolio
sells a security and agrees to repurchase it at a mutually agreed upon date
and price, reflecting the interest rate effective for the term of the agree-
ment. For purposes of the Investment Company Act of 1940, as amended (the
"1940 Act"), it is considered a form of borrowing by the Portfolio and, there-
fore, is a form of leverage.
7
<PAGE>
Leverage may cause any gains or losses of the Portfolio to be magnified. For
more information, see Investment Objectives and Policies in the Statement of
Additional Information.
FOREIGN INVESTMENT INFORMATION. The Portfolio may invest in certain U.S. dol-
lar-denominated securities of foreign issuers. Investment in securities of
foreign issuers and in obligations of foreign branches of domestic banks in-
volves somewhat different investment risks from those affecting securities of
U.S. domestic issuers. There may be limited publicly available information
with respect to foreign issuers, and foreign issuers are not generally subject
to uniform accounting, auditing and financial standards and requirements com-
parable to those applicable to domestic companies. Dividends and interest paid
by foreign issuers may be subject to withholding and other foreign taxes which
may decrease the net return on foreign investments as compared to dividends
and interest paid to the Portfolio by domestic companies.
Investors should realize that the value of the Portfolio's investments in for-
eign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation, na-
tionalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or depre-
ciation of portfolio securities and could favorably or unfavorably affect the
Portfolio's operations. Furthermore, the economies of individual foreign na-
tions may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital re-
investment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign is-
suer. Any foreign investments made by the Portfolio must be made in compliance
with U.S. and foreign currency restrictions and tax laws restricting the
amounts and types of foreign investments.
The Portfolio may invest in securities of foreign issuers directly or in the
form of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") or other similar securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities they
represent. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying foreign securities. Certain such insti-
tutions issuing ADRs may not be sponsored by the issuer of the underlying for-
eign securities. A non-sponsored depository may not provide the same share-
holder information that a sponsored depository is required to provide under
its contractual arrangements with the issuer of the underlying foreign securi-
ties. EDRs are receipts issued by a European financial institution evidencing
a similar arrangement. Generally, ADRs, in registered form, are designed for
use in the U.S. securities markets, and EDRs, in bearer form, are designed for
use in European securities markets.
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 hedging purposes.
8
<PAGE>
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio are
subject to the following fundamental limitations: (a) the Portfolio may not in-
vest more than 5% of its total assets in the securities of any one issuer, ex-
cept U.S. Government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer.
The investment objective of the Fund and the Portfolio, together with the in-
vestment restrictions described below and in the Statement of Additional Infor-
mation, except as noted, are deemed fundamental policies, i.e., they may be
changed only with the approval of the holders of a majority of the outstanding
voting securities of the Fund and the Portfolio. The Fund has the same invest-
ment restrictions as the Portfolio, except that the Fund may invest all of its
investable assets in another open-end investment company with the same invest-
ment objective and restrictions (such as the Portfolio). References below to
the Portfolio's investment restrictions also include the Fund's investment re-
strictions.
The Portfolio may not (i) purchase securities or other obligations of issuers
conducting their principal business activity in the same industry if its in-
vestments in such industry would exceed 25% of the value of the Portfolio's to-
tal assets, except this limitation shall not apply to investments in U.S. Gov-
ernment securities; (ii) enter into reverse repurchase agreements and other
permitted borrowings which constitute senior securities under the 1940 Act, ex-
ceeding in the aggregate one-third of the market value of the Portfolio's total
assets, less certain liabilities; or (iii) borrow money, except from banks for
extraordinary or emergency purposes and then only in amounts up to 30% of the
value of the Portfolio's total assets taken at cost at the time of borrowing
and except in connection with reverse repurchase agreements, or purchase secu-
rities while borrowings, including reverse repurchase agreements, exceed 5% of
its total assets; or mortgage, pledge or hypothecate any assets except in con-
nection with any such borrowing in amounts up to 30% of the value of the Port-
folio's net assets at the time of borrowing.
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>
<S> <C>
Frederick S. Addy................... Former Executive Vice President and Chief
Financial Officer, Amoco Corporation
William G. Burns.................... Former Vice Chairman of the Board and Chief
Financial Officer, NYNEX Corporation
Arthur C. Eschenlauer............... Former Senior Vice President, Morgan
Guaranty Trust Company of New York
Matthew Healey...................... Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi................. Senior Vice President, Capital Cities/ABC,
Inc., President, Broadcast Group
</TABLE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust, the Portfolio and
The Pierpont Funds, up to and including creating a separate board of trustees.
See Trustees and Officers in the Statement of Additional Information for more
information about the Trustees and Officers of the Fund and the Portfolio.
9
<PAGE>
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pier-
pont Group, Inc. in providing these services. Pierpont Group, Inc. was orga-
nized in 1989 at the request of the Trustees of The Pierpont Family of Funds
for the purpose of providing these services at cost to these funds. See Trust-
ees and Officers in the Statement of Additional Information. The principal of-
fices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New
York 10017.
ADVISOR. The Fund has not retained the services of an investment adviser be-
cause the Fund seeks to achieve its investment objective by investing all of
its investable assets in the Portfolio. The Portfolio has retained the serv-
ices of Morgan as Investment Advisor. Morgan, with principal offices at 60
Wall Street, New York, New York 10260, is a New York trust company which con-
ducts a general banking and trust business. Morgan is a wholly owned subsidi-
ary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"), a bank holding company
organized under the laws of Delaware. Through offices in New York City and
abroad, J.P. Morgan, through the Advisor and other subsidiaries, offers a wide
range of services to governmental, institutional, corporate and individual
customers and acts as investment adviser to individual and institutional cli-
ents with combined assets under management of over $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 fifty 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): William G.
Tennille, Vice President (since January, 1994, employed by Morgan since March,
1992, previously Managing Director, Manufacturers Hanover Trust Company) and
Connie J. Plaehn, Vice President (since January, 1994, 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 financial, fund accounting and
administrative services to the Fund and the Portfolio and shareholder services
to shareholders of the Fund. See Administrative Services Agent and Shareholder
Servicing below. 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.
ADMINISTRATOR AND DISTRIBUTOR. Under Administration Agreements with the Trust
and the Portfolio, Signature Broker-Dealer Services, Inc. ("SBDS") serves as
the Administrator for the Trust and the Portfolio. In this capacity, SBDS ad-
ministers and manages all aspects of the Fund's and the Portfolio's day-to-day
operations subject to the supervision of the Trustees, except as set forth un-
der Advisor, Administrative Services Agent, Custodian and Shareholder Servic-
ing. In connection with its responsibilities as Administrator, SBDS (i) fur-
nishes ordinary clerical and related services for day-to-day operations in-
cluding certain recordkeeping responsibilities; (ii) takes responsibility for
compliance with all applicable federal and state securities and other regula-
tory requirements; (iii) is responsible for the registration of sufficient
Fund
10
<PAGE>
shares under federal and state securities laws; (iv) takes responsibility for
monitoring the Fund's status as a regulated investment company under the Inter-
nal Revenue Code of 1986, as amended (the "Code"); and (v) performs such admin-
istrative and managerial oversight of the activities of the Trust's and the
Portfolio's custodian and transfer agent as the Trustees may direct from time
to time.
Under the Trust's and the Portfolio's Administration Agreements with SBDS, each
of the Fund and the Portfolio has agreed to pay SBDS a fee equal to its propor-
tionate 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 Pier-
pont Funds or The JPM Advisor Funds invest. This charge is calculated in accor-
dance with the following annual schedule: 0.03% on the first $7 billion of the
Master Portfolios' aggregate average daily net assets, and 0.01% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion. The
portion of this charge payable by the Fund or the Portfolio is determined by
the proportionate share that its net assets bear to the total net assets of the
Trust, The Pierpont Funds, The JPM Advisor Funds and the Master Portfolios.
SBDS, a registered broker-dealer, also serves as the Distributor of shares of
the Fund and exclusive placement agent for the Portfolio. SBDS is a wholly
owned subsidiary of Signature. Signature and its affiliates currently provide
administration and distribution services for a number of registered investment
companies through offices located in Boston, New York, London and George Town,
Grand Cayman.
ADMINISTRATIVE SERVICES AGENT. Under Administrative Services Agreements with
the Trust and the Portfolio, Morgan is responsible for certain financial, fund
accounting and administrative services provided to the Fund and the Portfolio,
including services related to Portfolio and Fund tax returns, Portfolio and
Fund financial reports, computing Fund dividends and net asset value per share
and keeping the Fund's books of account. Under these agreements, each of the
Fund and the Portfolio has agreed to pay Morgan a fee equal to its proportion-
ate share of an annual complex-wide charge. This charge is calculated daily
based on the aggregate net assets of the Master Portfolios in accordance with
the following annual schedule: 0.06% on the first $7 billion of the Master
Portfolios' aggregate average daily net assets, and 0.03% of the Master Portfo-
lios' aggregate average daily net assets in excess of $7 billion. The portion
of this charge payable by the Fund or the Portfolio is determined by the pro-
portionate share that its net assets bear to the total net assets of the Trust,
The Pierpont Funds, The JPM Advisor Funds, the Master Portfolios and other in-
vestors in the Master Portfolios for which Morgan provides similar services.
Under the terms of the agreements, Morgan may delegate one or more of its re-
sponsibilities to other entities, at Morgan's expense.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02101, serves as the Fund's and the Portfolio's Custodian and
Transfer and Dividend Disbursing Agent.
EXPENSES. In addition to the fees payable to Morgan, SBDS and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor, Adminis-
trator and Distributor, and Administrative Services Agent above and Shareholder
Servicing below, the Fund and the Portfolio are responsible for usual and cus-
tomary expenses associated with their respective operations. Such expenses in-
clude organization expenses, legal fees, accounting expenses, insurance costs,
the compensation and expenses of the Trustees, registration fees under federal
securities laws, and extraordinary expenses applicable to the Fund or the Port-
folio. For the Fund, such expenses also include transfer, registrar and divi-
dend 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 registration
fees under foreign securities laws, custodian fees and brokerage expenses.
Morgan has agreed that it will reimburse the Fund through at least February 28,
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
11
<PAGE>
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 an-
nual limits are currently 2.5% of the first $30 million of average net assets,
2% of the next $70 million of such net assets and 1.5% of such net assets in
excess of $100 million for any fiscal year.
SHAREHOLDER SERVICING
The Fund has entered into a Shareholder Servicing Agreement with Morgan pursu-
ant to which Morgan acts as shareholder servicing agent for its customers and
other Fund investors who are customers of an eligible institution which is a
customer of Morgan (an "Eligible Institution"). The Fund has agreed to pay Mor-
gan for these services at an annual rate (expressed as a percentage of the av-
erage daily net asset values of Fund shares owned by or for shareholders for
whom Morgan is acting as shareholder servicing agent) of 0.075% of the Fund's
average daily net assets. Under the terms of the Shareholder Servicing Agree-
ment with the Fund, Morgan may delegate one or more of its responsibilities to
other entities at Morgan's expense.
Shareholders should address all inquiries to J.P. Morgan Funds Services, Morgan
Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York 10036
or call (800) 766-7722.
The business days of the Fund and the Portfolio are the days the New York Stock
Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
as shareholder servicing agent and the Fund is authorized to accept any in-
structions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Fund's Dis-
tributor. Investors must be customers of Morgan or an Eligible Institution. In-
vestors 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 becom-
ing a Morgan customer for this purpose. Morgan reserves the right to determine
the customers that it will accept, and the Fund reserves the right to determine
the purchase orders that it will accept.
The Fund requires a minimum initial investment of $5 million and a minimum sub-
sequent 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 mil-
lion 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-sponsored
retirement plan opening an account in the Fund will be required to attain the
$10 million minimum balance within thirteen months of opening the account.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value per share next determined after
receipt of an order. Prospective investors may purchase shares with the assis-
tance of an Eligible Institution that may establish its own terms, conditions
and charges.
To purchase shares in the Fund, investors should request their Morgan represen-
tative (or a representative of their Eligible Institution) to assist them in
placing a purchase order with the Fund's Distributor. Any shareholder may also
12
<PAGE>
call J.P. Morgan Funds Services at (800) 766-7722 for assistance with placing
an order for Fund shares. If the Fund receives a purchase order prior to 4:00
P.M. New York time on any business day, the purchase of Fund shares is effec-
tive and is made at the net asset value determined that day. If the Fund re-
ceives a purchase order after 4:00 P.M. New York time, the purchase is effec-
tive 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 re-
ceive the daily dividends on the settlement date. See Dividends and Distribu-
tions.
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
sub- accounting, answering client inquiries regarding the Trust, assisting
clients in changing dividend options, account designations and addresses, pro-
viding periodic statements showing the client's account balance and integrat-
ing these statements with those of other transactions and balances in the cli-
ent's other accounts serviced by the Eligible Institution, transmitting proxy
statements, periodic reports, updated prospectuses and other communications to
shareholders and, with respect to meetings of shareholders, collecting, tabu-
lating and forwarding executed proxies and obtaining such other information
and performing such other services as Morgan or the Eligible Institution's
clients may reasonably request and agree upon with the Eligible Institution.
Eligible Institutions may separately establish their own terms, conditions and
charges for providing the aforementioned services and for providing other
services.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
Morgan or his 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 Number 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 prior to 4:00 P.M. New York time is
effective on that day. A redemption request received after that time becomes
effective on the next business day. Proceeds of an effective redemption are
deposited on settlement date in immediately available funds to the sharehold-
er's account at Morgan or at his or her Eligible Institution or, in the case
of certain Morgan customers, are mailed by check or wire transferred in accor-
dance with the customer's instructions. The redeemer will continue to receive
dividends on these shares through the day before the settlement date. Settle-
ment date is generally the next business day after a redemption is effective
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 initial investment amount for more
than 30 days because of a redemption of shares, the shareholder's remaining
shares may be redeemed by the Fund 60 days after written notice to the share-
holder unless the account is increased to the Fund's minimum investment amount
or more.
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions
from the Fund may not be processed if a redemption request is not submitted in
proper form. To be in proper form, the Fund must have received the sharehold-
er's taxpayer identification number and address. As discussed under Taxes be-
low, the Fund may be required to impose "back-up" withholding of federal in-
come tax on dividends, distributions and redemption proceeds when non-
corporate investors have not provided a certified taxpayer identification num-
ber. In addition, if a shareholder sends a
13
<PAGE>
check for the purchase of Fund shares and shares are purchased before the
check has cleared, the transmittal of redemption proceeds from the shares will
occur upon clearance of the check which may take up to 15 days.
The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other
periods as the 1940 Act or the Securities and Exchange Commission may permit.
See Redemption of Shares in the Statement of Additional Information.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other JPM Institutional
Fund or Pierpont Fund without charge. An exchange may be made so long as after
the exchange the investor has shares, in each fund in which he or she remains
an investor, with a value of at least each of those fund's minimum investment
amounts. See Method of Purchase in the prospectuses for the other JPM Institu-
tional Funds and The Pierpont Funds for the minimum investment amount for each
of those funds. Shares are exchanged on the basis of relative net asset value
per share. Exchanges are in effect redemptions from one fund and purchases of
another fund and the usual purchase and redemption procedures and requirements
are applicable to exchanges. See Purchase of Shares and Redemption of Shares
in this Prospectus and in the prospectuses for the other JPM Institutional
Funds and The Pierpont Funds. See Additional Information below for an explana-
tion of the telephone redemption policy of The JPM Institutional Funds.
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income
tax purposes. The Fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state securi-
ties laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute substantially all of its net investment income.
The net investment income of the Fund is declared as a dividend daily 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 of the Fund are declared and
paid on an annual basis, except that an additional capital gains distribution
may be made in a given year to the extent necessary to avoid the imposition of
federal excise tax on the Fund.
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.
14
<PAGE>
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 on the
holidays listed under Net Asset Value in the Statement of Additional Informa-
tion.
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 "Massachusetts
business trust". The Declaration of Trust permits the Trustees to issue an un-
limited number of full and fractional shares ($0.001 par value) of one or more
series. To date, sixteen 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 ap-
propriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and non- assessable by the Fund. The Trust does not intend to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for ac-
tion by shareholder vote as may be required by either the 1940 Act or the Dec-
laration of Trust. The Trustees will call a meeting of shareholders to vote on
removal of a Trustee upon the written request of the record holders of ten per-
cent of Trust shares and will assist shareholders in communicating with each
other as prescribed in Section 16(c) of the 1940 Act. For further organization
information, including certain shareholder rights, see Description of Shares in
the Statement of Additional Information.
The Portfolio in which all of the assets of the Fund are invested 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 com-
mon 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. According-
ly, the Trustees of the Trust believe that neither the Fund nor its sharehold-
ers will be adversely affected by reason of the Fund's investing in the Portfo-
lio.
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 federal
taxes and with respect to the applicability of state or local taxes. See Taxes
in the Statement of Additional Information. Annual statements as to the current
federal tax status of distributions, if applicable, are mailed to shareholders
after the end of the taxable year for the Fund.
The Trust intends to qualify the Fund as a separate regulated investment com-
pany under Subchapter M of the Code. As a regulated investment company, the
Fund should not be subject to federal income taxes or federal excise taxes if
all of its net investment income and capital gains less any available capital
loss carryforwards are distributed to shareholders within allowable time lim-
its. The Portfolio intends to qualify as an association treated as a partner-
ship for federal income tax purposes. As such, the Portfolio should not be sub-
ject to tax. The Fund's status as a regulated investment company is dependent
on, among other things, the Portfolio's continued qualification as a partner-
ship for federal income tax purposes.
15
<PAGE>
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 non-corporate shareholders.
Distributions of net investment income and realized net short-term capital
gains in excess of net long-term capital losses are taxable as ordinary income
to shareholders of the Fund whether such distributions are taken in cash or
reinvested in additional shares. Distributions of this type to corporate
shareholders of the Fund are not eligible for the dividends- received deduc-
tion.
Distributions of net long-term capital gains in excess of net short-term capi-
tal losses are taxable to shareholders of the Fund as long-term capital gains
regardless of how long a shareholder has held shares in the Fund and regard-
less of whether taken in cash or reinvested in additional shares. Long-term
capital gains distributions to corporate shareholders are not eligible for the
dividends-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
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of
any long-term capital gain distributions received by the shareholder with re-
spect to such shares.
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 and other industry publications. The Fund may advertise "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 in-
come 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.
16
<PAGE>
The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of oper-
ations, if less) assuming that all distributions and dividends by the Fund were
reinvested on the reinvestment dates during the period and less all recurring
fees. These methods of calculating yield and total return are required by regu-
lations of the Securities and Exchange Commission. Yield and total return data
similarly calculated, unless otherwise indicated, over other specified periods
of time may also be used. See Performance Data in the Statement of Additional
Information. All performance figures are based on historical earnings and are
not intended to indicate future performance. Performance information may be ob-
tained by calling the Fund's Distributor at (800) 847-9487.
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 put and call op-
tions on futures contracts on fixed income securities and indexes of fixed in-
come securities.
The Portfolio may use futures contracts and options for hedging purposes. The
Portfolio may not use futures contracts and options for speculation.
The Portfolio may utilize options and futures contracts to manage its exposure
to changing interest rates and/or security prices. Some options and futures
strategies, including selling futures contracts and buying puts, tend to hedge
the Portfolio's investments against price fluctuations. Other strategies, 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.
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio ob-
tains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays
the current market price for the option (known as the option premium). Options
have various types of underlying instruments, including specific securities,
indexes of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by al-
lowing it to expire or by exercising the option. The Portfolio may also close
out a put option position by entering into an offsetting transaction, if a liq-
uid market exists. If the option is allowed to expire, the Portfolio will lose
the entire premium it paid. If the Portfolio exercises a put option on a secu-
rity, it will sell the instrument underlying the option at the strike price. If
the Portfolio exercises an option on an index, settlement is in cash and does
not involve the actual sale of securities. If an option is American style, it
may be exercised on any day up to its expiration date. A European style option
may be exercised only on its expiration date.
A-1
<PAGE>
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 (write) put and call
options on any securities index based on securities in which the Portfolio may
invest. Options on securities indexes are similar to options on securities, ex-
cept that the exercise of securities index options is settled by cash payment
and does not involve the actual purchase or sale of securities. In addition,
these options are designed to reflect price fluctuations in a group of securi-
ties or segment of the securities market rather than price fluctuations in a
single security. The Portfolio, in purchasing or selling index options, is sub-
ject to the risk that the value of its portfolio securities may not change as
much as an index because the Portfolio's investments generally will not match
the composition of an index.
For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Portfolio may incur additional
losses if the counterparty is unable to perform.
A-2
<PAGE>
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, high quality assets in connection with its
use of options and futures contracts to the extent required by the staff of the
Securities and Exchange Commission. Securities held in a segregated account
cannot be sold while the futures contract or option is outstanding, unless they
are replaced with other suitable assets. As a result, there is a possibility
that segregation of a large percentage of the Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
For further information about the Portfolio's use of futures and options and a
more detailed discussion of associated risks, see Investment Objectives and
Policies in the Statement of Additional Information.
A-3
<PAGE>
---------------------------------------
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied
upon as having been authorized by the Trust or the Distributor. This Prospectus
does not constitute an offer by the Trust or by the Distributor to sell or a
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Trust or the
Distributor to make such offer in such jurisdiction.
The JPM Institutional Bond Fund
PROSPECTUS
March 1, 1996
<PAGE>
PROSPECTUS
The JPM Institutional Short Term Bond Fund
6 St. James Avenue
Boston, Massachusetts 02116
For information call (800) 766-7722
The JPM Institutional Short Term Bond Fund (the "Fund") seeks to provide a high
total return while attempting to limit the likelihood of negative quarterly
returns. It is designed for investors who do not require the stable net asset
value typical of a money market fund but who seek less price fluctuation than
is typical of a longer-term bond fund.
The Fund is a diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The JPM
Institutional Funds, an open-end management investment company organized as a
Massachusetts 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 SHORT TERM BOND PORTFOLIO (THE
"PORTFOLIO"), A CORRESPONDING DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT
COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND INVESTS IN
THE PORTFOLIO THROUGH SIGNATURE FINANCIAL GROUP, INC.'S HUB AND SPOKE(R)
FINANCIAL SERVICES METHOD. THE HUB AND SPOKE(R) INVESTMENT FUND STRUCTURE
EMPLOYS A TWO-TIER MASTER FEEDER STRUCTURE AND IS A REGISTERED SERVICE MARK OF
SIGNATURE FINANCIAL GROUP, INC. SEE SPECIAL INFORMATION CONCERNING HUB AND
SPOKE(R) ON PAGE 3.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or "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 March 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, Signature Broker-Dealer Services, Inc., 6
St. James Avenue, Boston, Massachusetts 02116, Attention: The JPM Institutional
Funds, or by calling (800) 847-9487.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.
SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE
HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MARCH 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund Is Designed.................................... 1
Financial Highlights....................................................... 3
Special Information Concerning Hub and Spoke(R)............................ 3
Investment Objective and Policies.......................................... 4
Additional Investment Information and Risk Factors......................... 6
Investment Restrictions.................................................... 8
Management of the Trust and the Portfolio.................................. 9
Shareholder Servicing...................................................... 11
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Purchase of Shares......................................................... 12
Redemption of Shares....................................................... 13
Exchange of Shares......................................................... 13
Dividends and Distributions................................................ 14
Net Assets Value........................................................... 14
Organization............................................................... 14
Taxes...................................................................... 15
Additional Information..................................................... 16
Appendix................................................................... A-1
</TABLE>
<PAGE>
The JPM Institutional Short Term Bond Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The 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
and 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 do want less price fluctuation than is typical of a longer-term bond fund.
The Fund seeks to achieve its investment objective by investing all of its
investable assets in The Short Term Bond Portfolio, a diversified open-end man-
agement 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 invest-
ments in the Portfolio.
The Portfolio may make various types of investments in seeking its objective.
Among the permissible investments and investment techniques for the Portfolio
are futures contracts and options and certain privately placed securities. For
further information about these investments and investment techniques, see In-
vestment Objective and Policies discussed below.
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 investment in the Fund to less than the applicable minimum initial
investment amount for more than 30 days, the investment will be subject to man-
datory redemption. See Redemption of Shares--Mandatory Redemption by the Fund.
This Prospectus describes the financial history, investment objective and poli-
cies, management and operation of the Fund to enable investors to decide if the
Fund suits their needs. The Fund operates through Signature Financial Group,
Inc.'s ("Signature") Hub and Spoke(R) financial services method. The Trustees
believe that the Fund may achieve economies of scale over time by investing
through the Hub and Spoke(R) 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.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases............................................ None
Sales Load Imposed on Reinvested Dividends................................. None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
1
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees............................................................. 0.25%
Rule 12b-1 Fees........................................................... None
Other Expenses (after expense reimbursement).............................. 0.20%
-----
Total Operating Expenses (after expense reimbursement).................... 0.45%
</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, Total Operating Expenses for the Fund would be equal on an
annual basis to 1.29% of such assets. Historical expenses without reimburse-
ment expressed as a ratio to historical average daily net assets were 0.67%
for the fiscal year ended October 31, 1995.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year...................................................................... $ 5
3 Years..................................................................... $14
5 Years..................................................................... $25
10 Years.................................................................... $57
</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 SBDS under the 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, including expense reimbursements, see Management of the Trust and
the Portfolio and Shareholder Servicing. In connection with the above example,
please note that $1,000 is less than the Fund's minimum investment requirement
and that there are no redemption or exchange fees of any kind. See Purchase of
Shares and Redemption of Shares. THE EXAMPLE IS HYPOTHETICAL; IT IS INCLUDED
SOLELY FOR ILLUSTRATIVE PURPOSES. IT SHOULD NOT BE CONSIDERED A REPRESENTATION
OF FUTURE PERFORMANCE; ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following selected data for a share outstanding for the indicated periods
have been audited by independent accountants. The Fund's annual report, which
is incorporated by reference into the Statement of Additional Information, in-
cludes 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.
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 8, 1993
FOR THE FISCAL YEAR ENDED (COMMENCEMENT OF
--------------------------------- OPERATIONS) THROUGH
OCTOBER 31, 1995 OCTOBER 31, 1994 OCTOBER 31, 1993
---------------- ---------------- -------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $ 9.60 $ 9.99 $ 10.00
------- ------- -------
Income from Investment
Operations
Net Investment Income... 0.58 0.47 0.11
Net Realized and
Unrealized Gain (Loss)
on Investment.......... 0.24 (0.39) (0.01)
------- ------- -------
Total From Investment
Operations.............. 0.82 0.08 0.10
------- ------- -------
Less Distributions to
Shareholders From
Net Investment Income... (0.59) (0.47) (0.11)
------- ------- -------
Net Asset Value, End of
Period.................. $ 9.83 $ 9.60 $ 9.99
======= ======= =======
Total Return............. 8.81% 0.87% 1.01%(a)
Ratios and Supplemental
Data
Net Assets, End of
Period (In Thousands).. $18,916 $47,679 $27,605
Ratio to Average Net
Assets:
Expenses............... 0.45% 0.45% 0.46%(b)
Net Investment Income.. 6.09% 4.96% 3.92%(b)
Decrease Reflected in
Expense Ratio due to
Reimbursement......... 0.22% 0.33% 0.84%(b)
</TABLE>
- -------
(a) Not annualized.
(b) Annualized.
SPECIAL INFORMATION CONCERNING HUB AND SPOKE(R)
The Trust and the Portfolio use certain proprietary rights, know-how and finan-
cial services referred to as Hub and Spoke(R). Hub and Spoke(R) is a registered
service mark of Signature. Signature Broker-Dealer Services, Inc. (the Trust's
and the Portfolio's Administrator and the Trust's Distributor) is a wholly
owned subsidiary of Signature.
Unlike other mutual funds which directly acquire and manage their own portfolio
of securities, the Fund is an open-end management investment company which
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio, a separate registered investment company with the same
investment objective as the Fund. The investment objective of the Fund or Port-
folio may be changed only with the approval of the holders of the outstanding
shares of the Fund and the Portfolio. The Hub and Spoke(R) investment fund
structure has been developed relatively recently, so shareholders should care-
fully 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 pay a proportionate share of the Portfolio's expenses. However, the
other investors investing in the Portfolio may sell shares of their own fund
using a different pricing structure than the Fund. Such different pricing
structures may result in differences in returns experienced by investors in
other funds that invest in the Portfolio. Such differences in returns are not
uncommon and are present in other mutual fund structures. Information concern-
ing other holders of interests in the Portfolio is available from the Adminis-
trator at (800) 847-9487.
3
<PAGE>
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 total return while at-
tempting to limit the likelihood of negative quarterly returns. Total return
will consist of income plus realized and unrealized capital gains and losses.
The Fund seeks to achieve this high total return to the extent consistent with
modest risk of capital and the maintenance of liquidity. The Fund attempts to
achieve its investment objective by investing all of its investable assets in
The Short Term Bond Portfolio, a diversified open-end management investment
company having the same investment objective as the Fund.
4
<PAGE>
The 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
and 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 do want less price fluctuation than is typical of a longer-term bond fund.
Morgan actively manages the Portfolio's duration, the allocation of securities
across market sectors and the selection of securities within sectors. Based on
fundamental, economic and capital markets research, Morgan adjusts the duration
of the Portfolio in accordance with its outlook for interest rates. Morgan also
actively allocates the Portfolio's assets among the broad sectors of the fixed
income market including, but not limited to, U.S. Government and agency securi-
ties, corporate securities, private placements, asset-backed and mortgage-re-
lated securities. Specific securities which Morgan believes are undervalued are
selected for purchase within the sectors using advanced quantitative tools,
analysis of credit risk, the expertise of a dedicated trading desk, and the
judgment of fixed income portfolio managers and analysts.
Morgan also seeks to limit the likelihood of negative quarterly returns by bal-
ancing the Portfolio's level of income with the possibility of capital losses.
This balancing effort helps determine the Portfolio's duration.
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 Portfolio's
market value to changes in interest rates. Generally, the longer the duration
of the Portfolio, the more sensitive its market value will be to changes in in-
terest rates. Under normal market conditions, the Portfolio's duration will
range between one and three years. The maturities of the individual securities
in the Portfolio may vary widely, however.
The Portfolio intends to manage its portfolio actively in pursuit of its in-
vestment 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 also engage in short-term
trading consistent with its objective. To the extent the Portfolio engages in
short-term trading, it may incur increased transaction costs. See Taxes below.
CORPORATE BONDS, ETC. The Portfolio may invest in a broad range of debt securi-
ties of domestic and foreign issuers. These include debt securities of various
types and maturities, e.g., debentures, notes, mortgage securities, equipment
trust certificates and other collateralized securities and zero coupon securi-
ties. Collateralized securities are backed by a pool of assets such as loans or
receivables which generate cash flow to cover the payments due on the securi-
ties. Collateralized securities are subject to certain risks, including a de-
cline in the value of the collateral backing the security, failure of the col-
lateral to generate the anticipated cash flow or in certain cases more rapid
prepayment because of events affecting the collateral, such as accelerated pre-
payment of mortgages or other loans backing these securities or destruction of
equipment subject to equipment trust certificates. In the event of any such
prepayment the Portfolio will be required to reinvest the proceeds of prepay-
ments at interest rates prevailing at the time of reinvestment, which may be
lower. In addition, the value of zero coupon securities which do not pay inter-
est is more volatile than that of interest bearing debt securities with the
same maturity. The Portfolio does not intend to invest in common stock but may
invest to a limited extent in convertible debt or preferred stock. The Portfo-
lio may invest in debt securities of foreign issuers only if such securities
are denominated in the U.S. dollar. The Portfolio does not expect to invest
more than 25% of its assets in securities of foreign issuers. See Additional
Investment Information and Risk Factors for further information on foreign in-
vestments and convertible securities.
GOVERNMENT OBLIGATIONS, ETC. The Portfolio may invest in obligations issued or
guaranteed by the U.S. Government and backed by the full faith and credit of
the United States. These securities include Treasury securities, obligations of
the Government National Mortgage Association ("GNMA Certificates"), the Farmers
Home Administration and the Export Import Bank. GNMA Certificates are mortgage-
backed securities which evidence an undivided interest in mortgage pools. These
securities are subject to more rapid repayment than their stated maturity would
indicate because prepayments of principal on mortgages in the pool are passed
through to the holder of the securities. During periods of declin-
5
<PAGE>
ing interest rates, prepayments of mortgages in the pool can be expected to
increase. The pass-through of these prepayments would have the effect of re-
ducing the Portfolio's positions in these securities and requiring the Portfo-
lio to reinvest the prepayments at interest rates prevailing at the time of
reinvestment. The Portfolio may also invest in obligations issued or guaran-
teed by U.S. Government agencies or instrumentalities where the Portfolio must
look principally to the issuing or guaranteeing agency for ultimate repayment;
some examples of agencies or instrumentalities issuing these obligations are
the Federal Farm Credit System, the Federal Home Loan Banks and the Federal
National Mortgage Association. Although these governmental issuers are respon-
sible for payments on their obligations, they do not guarantee their market
value. The Portfolio may also invest in municipal obligations which may be
general obligations of the issuer or payable only from specific revenue sourc-
es. However, the Portfolio will invest only in municipal obligations that have
been issued on a taxable basis or have an attractive yield excluding tax con-
siderations. In addition, the Portfolio may invest in debt securities of for-
eign governments and governmental entities. See Additional Investment Informa-
tion and Risk Factors for further information on foreign investments.
MONEY MARKET INVESTMENTS. The Portfolio may purchase money market instruments
to invest temporary cash balances or to maintain liquidity to meet withdraw-
als. However, the Portfolio may also invest in money market instruments as a
temporary defensive measure taken during, or in anticipation of, adverse mar-
ket conditions. The money market investments permitted for the Portfolio in-
clude obligations of the U.S. Government and its agencies and instrumentali-
ties, other debt securities, commercial paper, bank obligations and repurchase
agreements. For more detailed information about these money market invest-
ments, see Investment Objectives and Policies in the Statement of Additional
Information.
QUALITY INFORMATION. Under normal market circumstances at least 80% of the
Portfolio's total assets will consist of debt securities that are rated at
least A by Moody's or Standard & Poor's or that are unrated and in Morgan's
opinion are of comparable quality. In the case of the remaining 20% of the
Portfolio's investments, the Portfolio may purchase debt securities that are
rated Baa or better by Moody's or BBB or better by Standard & Poor's or are
unrated and in Morgan's opinion are 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 satisfied
at the time an investment is made. If the quality of the investment later de-
clines, the Portfolio may continue to hold the investment. See Appendix A in
the Statement of Additional Information for more detailed information on these
ratings.
The Portfolio may also purchase obligations on a when-issued or delayed deliv-
ery basis, enter into repurchase and reverse repurchase agreements, loan its
portfolio securities, purchase certain privately placed securities and enter
into certain hedging transactions that may involve options on securities and
securities indexes, futures contracts and options on futures contracts. For a
discussion of these investments and investment techniques, see Additional In-
vestment Information and Risk Factors.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
CONVERTIBLE SECURITIES. The Portfolio may invest in convertible securities of
domestic and, subject to the Portfolio's investment restrictions, foreign is-
suers. The convertible securities in which the Portfolio may invest include
any debt securities or preferred stock which may be converted into common
stock or which carry the right to purchase common stock. Convertible securi-
ties 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.
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 val-
ued at less
6
<PAGE>
than its purchase price. The Portfolio maintains with the Custodian a separate
account with a segregated portfolio of securities in an amount at least equal
to these commitments. When entering into a when-issued or delayed delivery
transaction, the Portfolio will rely on the other party to consummate the
transaction; if the other party fails to do so, the Portfolio may be disadvan-
taged. 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 Portfo-
lio's total assets less liabilities other than the obligations created by
these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement trans-
actions with brokers, dealers or banks that meet the credit guidelines estab-
lished by the Portfolio's Trustees. In a repurchase agreement, the Portfolio
buys a security from a seller that has agreed to repurchase it at a mutually
agreed upon date and price, reflecting the interest rate effective for the
term of the agreement. The term of these agreements is usually from overnight
to one week. A repurchase agreement may be viewed as a fully collateralized
loan of money by the Portfolio to the seller. The Portfolio always receives
securities as collateral with a market value at least equal to the purchase
price plus accrued interest and this value is maintained during the term of
the agreement. If the seller defaults and the collateral value declines, the
Portfolio might incur a loss. If bankruptcy proceedings are commenced with re-
spect to the seller, the Portfolio's realization upon the disposition of col-
lateral may be delayed or limited. Investments in certain repurchase agree-
ments and certain other investments which may be considered illiquid are lim-
ited. See Illiquid Investments; Privately Placed and other Unregistered Secu-
rities below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in an amount up to 33 1/3%
of the value of the Portfolio's net assets. The Portfolio may lend its securi-
ties if such loans are secured continuously by cash or equivalent collateral
or by a letter of credit in favor of the Portfolio at least equal at all times
to 100% of the market value of the securities loaned, plus accrued interest.
While such securities are on loan, the borrower will pay the Portfolio any in-
come accruing thereon. Loans will be subject to termination by the Portfolio
in the normal settlement time, generally three business days after notice, or
by the borrower on one day's notice. Borrowed securities must be returned when
the loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to the Portfolio
and its respective investors. The Portfolio may pay reasonable finders' and
custodial fees in connection with a loan. In addition, the Portfolio will con-
sider all facts and circumstances, including the creditworthiness of the bor-
rowing financial institution, and the Portfolio will not make any loans in ex-
cess of one year. The Portfolio will not lend its securities to any officer,
Trustee, Director, employee or other affiliate of the Portfolio, the Advisor
or the Distributor, unless otherwise permitted by applicable law.
REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into re-
verse repurchase agreements. In a reverse repurchase agreement, the Portfolio
sells a security and agrees to repurchase it at a mutually agreed upon date
and price, reflecting the interest rate effective for the term of the agree-
ment. For purposes of the Investment Company Act of 1940, as amended (the
"1940 Act"), it is considered a form of borrowing by the Portfolio and, there-
fore, is a form of leverage. Leverage may cause any gains or losses of the
Portfolio to be magnified. For more information, see Investment Objective and
Policies in the Statement of Additional Information.
FOREIGN INVESTMENT INFORMATION. The Portfolio may invest in certain U.S. dol-
lar-denominated securities of foreign issuers. Investment in securities of
foreign issuers and in obligations of foreign branches of domestic banks in-
volves somewhat different investment risks from those affecting securities of
U.S. domestic issuers. There may be limited publicly available information
with respect to foreign issuers, and foreign issuers are not generally subject
to uniform accounting, auditing and financial standards and requirements com-
parable to those applicable to domestic companies. Dividends and interest paid
by foreign issuers may be subject to withholding and other foreign taxes which
may decrease the net return on foreign investments as compared to dividends
and interest paid to the Portfolio by domestic companies.
Investors should realize that the value of the Portfolio's investments in for-
eign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation, na-
tionalization, limita-
7
<PAGE>
tion on the removal of funds or assets, or imposition of (or change in) ex-
change control or tax regulations in those foreign countries. In addition,
changes in government administrations or economic or monetary policies in the
United States or abroad could result in appreciation or depreciation of port-
folio securities and could favorably or unfavorably affect the Portfolio's op-
erations. Furthermore, the economies of individual foreign nations may differ
from the U.S. economy, whether favorably or unfavorably, in areas such as
growth of gross national product, rate of inflation, capital reinvestment, re-
source self-sufficiency and balance of payments position; it may also be more
difficult to obtain and enforce a judgment against a foreign issuer. Any for-
eign investments made by the Portfolio must be made in compliance with U.S.
and foreign currency restrictions and tax laws restricting the amounts and
types of foreign investments.
The Portfolio may invest in securities of foreign issuers directly or in the
form of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") or other similar securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities they
represent. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying foreign securities. Certain such insti-
tutions issuing ADRs may not be sponsored by the issuer of the underlying for-
eign securities. A non-sponsored depository may not provide the same share-
holder information that a sponsored depository is required to provide under
its contractual arrangements with the issuer of the underlying foreign securi-
ties. EDRs are receipts issued by a European financial institution evidencing
a similar arrangement. Generally, ADRs, in registered form, are designed for
use in the U.S. securities markets, and EDRs, in bearer form, are designed for
use in European securities markets.
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 hedging purposes.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio are
subject to the following fundamental limitations: (a) the Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except U.S. Government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer.
The investment objective of the Fund and the Portfolio, together with the in-
vestment restrictions described below and in the Statement of Additional In-
formation, except as noted, are deemed fundamental policies, i.e., they may be
changed only with the approval of the holders of a majority of the outstanding
voting securities of the Fund and the Portfolio. The Fund has the same invest-
ment restrictions as the Portfolio, except that the Fund may invest all of its
investable assets in another open-end investment company with the same invest-
ment objective and restrictions (such as the Portfolio). References below to
the Portfolio's investment restrictions also include the Fund's investment re-
strictions.
8
<PAGE>
The Portfolio may not (i) purchase securities or other obligations of issuers
conducting their principal business activity in the same industry if its in-
vestments in such industry would exceed 25% of the value of the Portfolio's to-
tal assets, except this limitation shall not apply to investments in U.S. Gov-
ernment securities; (ii) borrow money (not including reverse repurchase agree-
ments), except from banks for temporary or extraordinary or emergency purposes
and then only in amounts up to 30% of the value of its total assets, taken at
cost at the time of borrowing (and provided that such borrowings and reverse
repurchase agreements do not exceed in the aggregate one-third of the market
value of the Portfolio's total assets less liabilities other than the obliga-
tions represented by the bank borrowings and reverse repurchase agreements), or
purchase securities while borrowings exceed 5% of its total assets; or mort-
gage, pledge or hypothecate any assets except in connection with any such
borrowings in amounts not to exceed 30% of the value of the Portfolio's net as-
sets at the time of borrowing; or (iii) enter into reverse repurchase agree-
ments and other permitted borrowings which constitute senior securities under
the 1940 Act, exceeding in the aggregate one-third of the market value of the
Portfolio's total assets, less certain liabilities.
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>
<S> <C>
Frederick S. Addy................... Former Executive Vice President and Chief
Financial Officer, Amoco Corporation
William G. Burns.................... Former Vice Chairman of the Board and Chief
Financial Officer, NYNEX Corporation
Arthur C. Eschenlauer............... Former Senior Vice President, Morgan
Guaranty Trust Company of New York
Matthew Healey...................... Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi................. Senior Vice President, Capital Cities/ABC,
Inc., President, Broadcast Group
</TABLE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust, the Portfolio and
The Pierpont Funds, up to and including creating a separate board of trustees.
See Trustees and Officers in the Statement of Additional Information for more
information about the Trustees and Officers of the Fund and the Portfolio.
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pier-
pont Group, Inc. in providing these services. Pierpont Group, Inc. was orga-
nized in 1989 at the request of the Trustees of The Pierpont Family of Funds
for the purpose of providing these services at cost to these funds. See Trust-
ees and Officers in the Statement of Additional Information. The principal of-
fices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New
York 10017.
ADVISOR. The Fund has not retained the services of an investment adviser be-
cause the Fund seeks to achieve its investment objective by investing all of
its investable assets in the Portfolio. The Portfolio has retained the services
of Morgan
9
<PAGE>
as Investment Advisor. Morgan, with principal offices 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 a wholly-owned subsidiary of J.P. Morgan
& Co. Incorporated ("J.P. Morgan"), a bank holding company organized under the
laws of Delaware. Through offices in New York City and abroad, J.P. Morgan,
through the Advisor and other subsidiaries, offers a wide range of services to
governmental, institutional, corporate and individual customers and acts as
investment adviser to individual and institutional clients with combined as-
sets under management of over $179 billion (of which the Advisor advises over
$28 billion). Morgan provides investment advice and portfolio management serv-
ices to the Portfolio. Subject to the supervision of the Portfolio's Trustees,
Morgan makes the Portfolio's day-to-day investment decisions, arranges for the
execution of portfolio transactions and generally manages the Portfolio's in-
vestments. 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
quantitive and credit analysis. Morgan has managed portfolios of domestic
fixed income securities on behalf of its clients for over fifty years. The
portfolio managers making investments in domestic fixed income securities work
in conjunction with fixed income, credit, capital market and economic research
analysts, as well as traders and administrative officers.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio (the inception date
of each person's responsibility for the Portfolio and her or his business ex-
perience for the past five years is indicated parenthetically): Connie J.
Plaehn, Vice President (since July, 1993, employed by Morgan since prior to
1991), and William G. Tennille, Vice President (since January 1994, employed
by Morgan since March, 1992, previously Managing Director, Manufacturers Hano-
ver Trust Company).
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 0.25% of the Portfolio's average daily net assets.
Under separate agreements, Morgan also provides financial, fund accounting and
administrative services to the Fund and the Portfolio and shareholder services
to shareholders of the Fund. See Administrative Services Agent and Shareholder
Servicing below. 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.
ADMINISTRATOR AND DISTRIBUTOR. Under Administration Agreements with the Trust
and the Portfolio, Signature Broker-Dealer Services, Inc. ("SBDS") serves as
the Administrator for the Trust and the Portfolio. In this capacity, SBDS ad-
ministers and manages all aspects of the Fund's and the Portfolio's day-to-day
operations subject to the supervision of the Trustees, except as set forth un-
der Advisor, Administrative Services Agent, Custodian and Shareholder Servic-
ing. In connection with its responsibilities as Administrator, SBDS (i) fur-
nishes ordinary clerical and related services for day-to-day operations in-
cluding certain recordkeeping responsibilities; (ii) takes responsibility for
compliance with all applicable federal and state securities and other regula-
tory requirements; (iii) is responsible for the registration of sufficient
Fund shares under federal and state securities laws; (iv) takes responsibility
for monitoring the Fund's status as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"); and (v) performs such
administrative and managerial oversight of the activities of the Trust's and
the Portfolio's custodian and transfer agent as the Trustees may direct from
time to time.
Under the Trust's and the Portfolio's Administration Agreements with SBDS,
each of the Fund and the Portfolio has agreed to pay SBDS a fee equal to its
proportionate share of an annual complex-wide charge. This charge is calcu-
lated 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. This charge is cal-
culated in accordance
10
<PAGE>
with the following annual schedule: 0.03% on the first $7 billion of the Master
Portfolios' aggregate average daily net assets, and 0.01% of the Master Portfo-
lios' aggregate average daily net assets in excess of $7 billion. The portion
of this charge payable by the Fund or the Portfolio is determined by the pro-
portionate share that its net assets bear to the total net assets of the Trust,
The Pierpont Funds, The JPM Advisor Funds and the Master Portfolios.
SBDS, a registered broker-dealer, also serves as the Distributor of shares of
the Fund and exclusive placement agent for the Portfolio. SBDS is a wholly
owned subsidiary of Signature. Signature and its affiliates currently provide
administration and distribution services for a number of registered investment
companies through offices located in Boston, New York, London, Toronto and
George Town, Grand Cayman.
ADMINISTRATIVE SERVICES AGENT. Under Administrative Services Agreements with
the Trust and the Portfolio, Morgan is responsible for certain financial, fund
accounting and administrative services provided to the Fund and the Portfolio,
including services related to Portfolio and Fund tax returns, Portfolio and
Fund financial reports, computing Fund dividends and net asset value per share
and keeping the Fund's books of account. Under these agreements, each of the
Fund and the Portfolio has agreed to pay Morgan a fee equal to its proportion-
ate share of an annual complex-wide charge. This charge is calculated daily
based on the aggregate net assets of the Master Portfolios in accordance with
the following annual schedule; 0.06% on the first $7 billion of the Master
Portfolios' aggregate average daily net assets, and 0.03% of the Master Portfo-
lios' aggregate average daily net assets in excess of $7 billion. The portion
of this charge payable by the Fund or the Portfolio is determined by the pro-
portionate share that its net assets bear to the total net assets of the Trust,
The Pierpont Funds, The JPM Advisor Funds, the Master Portfolios and other in-
vestors in the Master Portfolios for which Morgan provides similar services.
Under the terms of the agreements, Morgan may delegate one or more of its re-
sponsibilities to other entities, at Morgan's expense.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02101, serves as the Fund's and the Portfolio's Custodian and
Transfer and Dividend Disbursing Agent.
EXPENSES. In addition to the fees payable to Morgan, SBDS and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor, Adminis-
trator and Distributor and Administrative Services Agent above and Shareholder
Servicing below, the Fund and the Portfolio are responsible for usual and cus-
tomary expenses associated with their respective operations. Such expenses in-
clude organization expenses, legal fees, accounting expenses, insurance costs,
the compensation and expenses of the Trustees, registration fees under federal
securities laws, and extraordinary expenses applicable to the Fund or the Port-
folio. For the Fund, such expenses also include transfer, registrar and divi-
dend 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 registration
fees under foreign securities laws, custodian fees and brokerage expenses.
Morgan has agreed that it will reimburse the Fund through at least February 28,
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
0.45% 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 fis-
cal year the sum of the Fund's expenses exceeds the limits set by applicable
regulations of state securities commissions. Such annual limits are currently
2.5% of the first $30 million of average net assets, 2% of the next $70 million
of such net assets and 1.5% of such net assets in excess of $100 million for
any fiscal year.
SHAREHOLDER SERVICING
The Fund has entered into a Shareholder Servicing Agreement with Morgan pursu-
ant to which Morgan acts as shareholder servicing agent for its customers and
other Fund investors who are customers of an eligible institution which is a
11
<PAGE>
customer of Morgan (an "Eligible Institution"). The Fund has agreed to pay Mor-
gan for these services at an annual rate (expressed as a percentage of the av-
erage daily net asset values of Fund shares owned by or for shareholders for
whom Morgan is acting as shareholder servicing agent) of 0.075% of the Fund's
average daily net assets. Under the terms of the Shareholder Servicing Agree-
ment with the Fund, Morgan may delegate one or more of its responsibilities to
other entities at Morgan's expense.
Shareholders should address all inquiries to J.P. Morgan Funds Services, Morgan
Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York 10036
or call (800) 766-7722.
The business days of the Fund and the Portfolio are the days the New York Stock
Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
as shareholder servicing agent and the Fund is authorized to accept any in-
structions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Fund's Dis-
tributor. Investors must be customers of Morgan or an Eligible Institution. In-
vestors 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 becom-
ing a Morgan customer for this purpose. Morgan reserves the right to determine
the customers that it will accept, and the Fund reserves the right to determine
the purchase orders that it will accept.
The Fund requires a minimum initial investment of $5 million and a minimum sub-
sequent 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 mil-
lion 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-sponsored
retirement plan opening an account in the Fund will be required to attain the
$10 million minimum balance within thirteen months of opening the account.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value per share next determined after
receipt of an order. Prospective investors may purchase shares with the assis-
tance of an Eligible Institution that may establish its own terms, conditions
and charges.
To purchase shares in the Fund, investors should request their Morgan represen-
tative (or a representative of their Eligible Institution) to assist them in
placing a purchase order with the Fund's Distributor. Any shareholder may also
call J.P. Morgan Funds Services at (800) 766-7722 for assistance with placing
an order for Fund shares. If the Fund receives a purchase order prior to 4:00
P.M. New York time on any business day, the purchase of Fund shares is effec-
tive and is made at the net asset value determined that day. If the Fund re-
ceives a purchase order after 4:00 P.M. New York time, the purchase is effec-
tive 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 re-
ceive the daily dividends on the settlement date. See Dividends and
Distributions.
12
<PAGE>
ELIGIBLE INSTITUTIONS. The services provided by Eligible Institutions may in-
clude establishing and maintaining shareholder accounts, processing purchase
and redemption transactions, arranging for bank wires, performing shareholder
sub- accounting, answering client inquiries regarding the Trust, assisting
clients in changing dividend options, account designations and addresses, pro-
viding periodic statements showing the client's account balance and integrat-
ing these statements with those of other transactions and balances in the cli-
ent's other accounts serviced by the Eligible Institution, transmitting proxy
statements, periodic reports, updated prospectuses and other communications to
shareholders and, with respect to meetings of shareholders, collecting, tabu-
lating and forwarding executed proxies and obtaining such other information
and performing such other services as Morgan or the Eligible Institution's
clients may reasonably request and agree upon with the Eligible Institution.
Eligible Institutions may separately establish their own terms, conditions and
charges for providing the aforementioned services and for providing other
services.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
Morgan or his 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 Number 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 prior to 4:00 P.M. New York time is
effective on that day. A redemption request received after that time becomes
effective on the next business day. Proceeds of an effective redemption are
deposited on settlement date in immediately available funds to the sharehold-
er's account at Morgan or at his or her Eligible Institution or, in the case
of certain Morgan customers, are mailed by check or wire transferred in accor-
dance with the customer's instructions. The redeemer will continue to receive
dividends on these shares through the day before the settlement date. Settle-
ment date is generally the next business day after a redemption is effective
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 initial investment amount for more
than 30 days because of a redemption of shares, the shareholder's remaining
shares may be redeemed by the Fund 60 days after written notice to the share-
holder unless the account is increased to the Fund's minimum investment amount
or more.
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions
from the Fund may not be processed if a redemption request is not submitted in
proper form. To be in proper form, the Fund must have received the sharehold-
er's taxpayer identification number and address. As discussed under Taxes be-
low, the Fund may be required to impose "back-up" withholding of federal in-
come tax on dividends, distributions and redemption of proceeds when
non-corporate investors have not provided a certified taxpayer identification
number. In addition, if a shareholder sends a check for the purchase of Fund
shares and shares are purchased before the check has cleared, the transmittal
of redemption proceeds from the shares will occur upon clearance of the check
which may take up to 15 days.
The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other
periods as the 1940 Act or the Securities and Exchange Commission may permit.
See Redemption of Shares in the Statement of Additional Information.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other JPM Institutional
Funds or Pierpont Fund without charge. An exchange may be made so long as af-
ter the exchange the investor has shares, in each fund in which he or she
13
<PAGE>
remains an investor, with a value of at least each of those fund's minimum in-
vestment amounts. See Method of Purchase in the prospectuses for the other JPM
Institutional Funds and The Pierpont Funds for the minimum investment amount
for each of those funds. Shares are exchanged on the basis of relative net as-
set 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 Redemp-
tion of Shares in this Prospectus and in the prospectuses for the other JPM
Institutional Funds and The Pierpont Funds. See also Additional Information
below for an explanation of the telephone exchange policy of The JPM Institu-
tional Funds.
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income
tax purposes. The Fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state securi-
ties laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute substantially all of its net investment income.
The net investment income of the Fund is declared as a dividend daily 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 of the Fund are declared and
paid on an annual basis, except that an additional capital gains distribution
may be made in a given year to the extent necessary to avoid the imposition of
federal excise tax on the Fund.
NET ASSETS 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 on the
holidays listed under Net Asset Value in the Statement of Additional
Information.
ORGANIZATION
The Trust was organized on November 4, 1992 as an unincorporated business
trust under Massachusetts law and is an entity commonly known as a "Massachu-
setts business trust". The Declaration of Trust permits the Trustees to issue
an unlimited number of full and fractional shares ($0.001 par value) of one or
more series. To date, sixteen series of shares have been authorized and are
available 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.
14
<PAGE>
The Declaration of Trust for the Trust provides that no Trustee, shareholder,
officer, employee, or agent of the Fund shall be held to any personal liabili-
ty, nor shall resort be had to their private property for the satisfaction of
any obligation or claim or otherwise in connection with the affairs of the
Fund, but that the Trust property only shall be liable.
Shareholders of the Fund are entitled to one vote for each share and to the ap-
propriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and non- assessable by the Fund. The Trust does not intend to hold meetings of
shareholders annually. As of January 31, 1996, the following technically met
the definition of a control person of the Fund: United Gaming, Inc. The Trust-
ees may call meetings of shareholders for action by shareholder vote as may be
required by either the 1940 Act or the Declaration of Trust. The Trustees will
call a meeting of shareholders to vote on removal of a Trustee upon the written
request of the record holders of ten percent of Trust shares and will assist
shareholders in communicating with each other as prescribed in Section 16(c) of
the 1940 Act. For further organization information, including certain share-
holder rights, see Description of Shares in the Statement of Additional Infor-
mation.
The Portfolio in which all of the assets of the Fund are invested 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 com-
mon 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. According-
ly, the Trustees of the Trust believe that neither the Fund nor its sharehold-
ers will be adversely affected by reason of the Fund's investing in the Portfo-
lio.
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 federal
taxes and with respect to the applicability of state or local taxes. See Taxes
in the Statement of Additional Information. Annual statements as to the current
federal tax status of distributions, if applicable, are mailed to shareholders
after the end of the taxable year for the Fund.
The Trust intends to qualify the Fund as a separate regulated investment com-
pany under Subchapter M of the Code. As a regulated investment company, the
Fund should not be subject to federal income taxes or federal excise taxes if
all of its net investment income and capital gains less any available capital
loss carryforwards are distributed to shareholders within allowable time lim-
its. The Portfolio intends to qualify as an association treated as a partner-
ship for federal income tax purposes. As such, the Portfolio should not be sub-
ject to tax. The Fund's status as a regulated investment company is dependent
on, among other things, the Portfolio's continued qualification as a partner-
ship 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 non-corporate shareholders.
Distributions of net investment income and realized net short-term capital
gains in excess of net long-term capital losses are taxable as ordinary income
to shareholders of the Fund whether such distributions are taken in cash or re-
invested in additional shares. Distributions of this type to corporate share-
holders of the Fund 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.
15
<PAGE>
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
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of
any long-term capital gain distributions received by the shareholder with re-
spect to such shares.
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 and other industry publications. The Fund may advertise "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 Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of op-
erations, if less) assuming that all distributions and dividends by the Fund
were reinvested on the reinvestment dates during the period and less all re-
curring fees. These methods of calculating yield and total return are required
by regulations of the Securities and Exchange Commission. Yield and total re-
turn data similarly calculated, unless otherwise indicated, over other speci-
fied periods of time may also be used. See Performance Data in the Statement
of Additional Information. All performance figures are based on historical
earnings and are not intended to indicate future performance. Performance in-
formation may be obtained by calling the Fund's Distributor at (800) 847-9487.
16
<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 purposes. The
Portfolio may not use futures contracts and options for speculation.
The Portfolio may utilize options and futures contracts to manage its exposure
to changing interest rates and/or security prices. Some options and futures
strategies, including selling futures contracts and buying puts, tend to hedge
the Portfolio's investments against price fluctuations. Other strategies, 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.
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio ob-
tains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays
the current market price for the option (known as the option premium). Options
have various types of underlying instruments, including specific securities,
indexes of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by al-
lowing it to expire or by exercising the option. The Portfolio may also close
out a put option position by entering into an offsetting transaction, if a liq-
uid market exists. If the option is allowed to expire, the Portfolio will lose
the entire premium it paid. If the Portfolio exercises a put option on a secu-
rity, it will sell the instrument underlying the option at the strike price. If
the Portfolio exercises an option on an index, settlement is in cash and does
not involve the actual sale of securities. If an option is American style, it
may be exercised on any day up to its expiration date. A European style option
may be exercised only on its expiration date.
A-1
<PAGE>
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 (write) put and call
options on any securities index based on securities in which the Portfolio may
invest. Options on securities indexes are similar to options on securities, ex-
cept that the exercise of securities index options is settled by cash payment
and does not involve the actual purchase or sale of securities. In addition,
these options are designed to reflect price fluctuations in a group of securi-
ties or segment of the securities market rather than price fluctuations in a
single security. The Portfolio, in purchasing or selling index options, is sub-
ject to the risk that the value of its portfolio securities may not change as
much as an index because the Portfolio's investments generally will not match
the composition of an index.
For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Portfolio may incur additional
losses if the counterparty is unable to perform.
A-2
<PAGE>
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, high quality assets in connection with its
use of options and futures contracts to the extent required by the staff of the
Securities and Exchange Commission. Securities held in a segregated account
cannot be sold while the futures contract or option is outstanding, unless they
are replaced with other suitable assets. As a result, there is a possibility
that segregation of a large percentage of the Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
For further information about the Portfolio's use of futures and options and a
more detailed discussion of associated risks, see Investment Objectives and
Policies in the Statement of Additional Information.
A-3
<PAGE>
---------------------------------------
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied
upon as having been authorized by the Trust or the Distributor. This Prospectus
does not constitute an offer by the Trust or by the Distributor to sell or a
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Trust or the
Distributor to make such offer in such jurisdiction.
The JPM Institutional Short Term Bond Fund
PROSPECTUS
March 1, 1996
<PAGE>
PROSPECTUS
The JPM Institutional International Equity Fund
6 St. James Avenue
Boston, Massachusetts 02116
For information call (800) 766-7722
The JPM Institutional International Equity Fund (the "Fund") seeks to provide a
high total return from a portfolio of equity securities of foreign
corporations. It is designed for investors with a long-term investment horizon
who want to diversify their investments by investing in an actively managed
portfolio of non-U.S. securities that seeks to outperform the Morgan Stanley
Capital International Europe, Australia and Far East Index.
The Fund is a diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The JPM
Institutional Funds, an open-end management investment company organized as a
Massachusetts 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 NON-U.S. EQUITY PORTFOLIO (THE
"PORTFOLIO"), A CORRESPONDING DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT
COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND INVESTS IN
THE PORTFOLIO THROUGH SIGNATURE FINANCIAL GROUP, INC.'S HUB AND SPOKE(R)
FINANCIAL SERVICES METHOD. THE HUB AND SPOKE(R) INVESTMENT FUND STRUCTURE
EMPLOYS A TWO-TIER MASTER FEEDER STRUCTURE AND IS A REGISTERED SERVICE MARK OF
SIGNATURE FINANCIAL GROUP, INC. SEE SPECIAL INFORMATION CONCERNING HUB AND
SPOKE(R) ON PAGE 3.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or "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 March 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, Signature Broker-Dealer Services, Inc., 6
St. James Avenue, Boston, Massachusetts 02116, Attention: The JPM Institutional
Funds, or by calling (800) 847-9487.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.
SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE
HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MARCH 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund Is Designed.................................... 1
Financial Highlights....................................................... 3
Special Information Concerning Hub and Spoke(R)............................ 3
Investment Objective and Policies.......................................... 4
Additional Investment Information and Risk Factors......................... 6
Investment Restrictions.................................................... 9
Management of the Trust and the Portfolio.................................. 10
Shareholder Servicing...................................................... 13
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Purchase of Shares......................................................... 13
Redemption of Shares....................................................... 14
Exchange of Shares......................................................... 14
Dividends and Distributions................................................ 15
Net Asset Value............................................................ 15
Organization............................................................... 15
Taxes...................................................................... 16
Additional Information..................................................... 17
Appendix................................................................... A-1
</TABLE>
<PAGE>
The JPM Institutional International Equity Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed for investors who seek to diversify their investments by
adding international equities. The Fund seeks to achieve its investment objec-
tive by investing all of its investable assets in The Non-U.S. Equity Portfo-
lio, a diversified open-end management investment company having the same in-
vestment objective as the Fund. Since the investment characteristics and expe-
rience of the Fund will correspond directly with those of the Portfolio, the
discussion in this Prospectus focuses on the investments and investment poli-
cies of the Portfolio. The net asset value of shares in the Fund fluctuates
with changes in the value of the investments in the Portfolio.
The Portfolio may make various types of investments in seeking its objective.
Among the permissible investments and investment techniques for the Portfolio
are futures contracts, options, forward contracts on foreign currencies and
certain privately placed securities. The Portfolio's investments in securities
of foreign issuers, including issuers in emerging markets, involve foreign in-
vestment risks and may be more volatile and less liquid than domestic securi-
ties. For further information about these investments and investment tech-
niques, see Investment Objective and Policies discussed below.
The Fund requires a minimum initial investment of $1 million. Certain omnibus
accounts require a minimum initial investment of $2 million. The minimum subse-
quent investment is $25,000. See Purchase of Shares. If a shareholder reduces
his or her investment in the Fund to less than the applicable minimum initial
investment amount for more than 30 days, the investment will be subject to man-
datory redemption. See Redemption of Shares--Mandatory Redemption by the Fund.
This Prospectus describes the financial history, investment objective and poli-
cies, management and operation of The JPM Institutional International Equity
Fund to enable investors to decide if the Fund suits their needs. The Fund op-
erates through Signature Financial Group, Inc.'s ("Signature") Hub and Spoke(R)
financial services method. The Trustees believe that the Fund may achieve econ-
omies of scale over time by investing through the Hub and Spoke(R) 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>
<S> <C>
Advisory Fees............................................................. 0.60%
Rule 12b-1 Fees........................................................... None
Other Expenses (after expense reimbursement).............................. 0.40%
-----
Total Operating Expenses (after expense reimbursement).................... 1.00%
</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 Portfo-
lio. If the above expense table reflected these expenses without current reim-
bursements, Total Operating Expenses for the Fund would be equal on an annual
basis to 1.05% of such assets. Historical expenses without reimbursement ex-
pressed as a ratio to historical average daily net assets were 0.94% for the
fiscal year ended October 31, 1995.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year..................................................................... $ 10
3 Years.................................................................... $ 32
5 Years.................................................................... $ 55
10 Years................................................................... $122
</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 SBDS under the 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, including expense reimbursements, see Management of the Trust and
the Portfolio and Shareholder Servicing. In connection with the above example,
please note that $1,000 is less than the Fund's minimum investment requirement
and that there are no redemption or exchange fees of any kind. See Purchase of
Shares and Redemption of Shares. THE EXAMPLE IS HYPOTHETICAL; IT IS INCLUDED
SOLELY FOR ILLUSTRATIVE PURPOSES. IT SHOULD NOT BE CONSIDERED A REPRESENTATION
OF FUTURE PERFORMANCE; ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following selected data for a share outstanding for the indicated periods
have been audited by independent accountants. The Fund's annual report, which
is incorporated by reference into the Statement of Additional Information, in-
cludes 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.
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 4, 1993
FOR THE FISCAL FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED YEAR ENDED OPERATIONS) THROUGH
OCTOBER 31, 1995 OCTOBER 31, 1994 OCTOBER 31, 1993
---------------- ---------------- -------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $ 10.83 $ 10.20 $10.00
-------- -------- ------
Income From Investment
Operations
Net Investment Income.. 0.06 0.06 --
Net Realized and
Unrealized Gain (Loss)
on Investment and
Foreign Currency
Allocated from
Portfolio............. (0.33) 0.57 0.20
-------- -------- ------
Total From Investment
Operations.............. (0.27) 0.63 0.20
-------- -------- ------
Distributions to
Shareholders From
Net Realized Gain...... (0.12) -- --
-------- -------- ------
Net Asset Value, End of
Period.................. $ 10.44 $ 10.83 $10.20
======== ======== ======
Total Return............. (2.46)% 6.18% 2.00%(a)
Ratios and Supplemental
Data
Net Assets, End of
Period (In Thousands). $467,511 $213,119 $ -- (b)
Ratio to Average Net
Assets:
Expenses............. 0.92% 1.00% 0.00%(c)
Net Investment
Income.............. 1.24% 0.95% 0.00%(c)
Decrease Reflected in
Expense Ratio due to
Expense
Reimbursement....... 0.02% 0.16% 2.50%(c)
</TABLE>
- -------
(a) Not Annualized.
(b) Net assets at October 31, 1993 were $204.
(c) Annualized.
SPECIAL INFORMATION CONCERNING HUB AND SPOKE(R)
The Trust and the Portfolio use certain proprietary rights, know-how and finan-
cial services referred to as Hub and Spoke(R). Hub and Spoke(R) is a registered
service mark of Signature. Signature Broker-Dealer Services, Inc. (the Trust's
and the Portfolio's Administrator and the Trust's Distributor) is a wholly
owned subsidiary of Signature.
Unlike other mutual funds which directly acquire and manage their own portfolio
of securities, the Fund is an open-end management investment company which
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio, a separate registered investment company with the same
investment objective as the Fund. The investment objective of the Fund or Port-
folio may be changed only with the approval of the holders of the outstanding
shares of the Fund and the Portfolio. The Hub and Spoke(R) investment fund
structure has been developed relatively recently, so shareholders should care-
fully consider this investment approach.
3
<PAGE>
In addition to selling a beneficial interest to the Fund, the Portfolio may
sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions
and will pay a proportionate share of the Portfolio's expenses. However, the
other investors investing in the Portfolio may sell shares of their own fund
using a different pricing structure than the Fund. Such different pricing
structures may result in differences in returns experienced by investors in
other funds that invest in the Portfolio. Such differences in returns are not
uncommon and are present in other mutual fund structures. Information concern-
ing other holders of interests in the Portfolio is available from the Adminis-
trator at (800) 847-9487.
The Trust may withdraw the investment of the Fund from the Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same invest-
ment objective and restrictions as the Fund or the retaining of an investment
adviser to manage the Fund's assets in accordance with the investment policies
described below with respect to the Portfolio.
Certain changes in the Portfolio's investment objective, policies or restric-
tions, or a failure by the Fund's shareholders to approve a change in the Port-
folio's investment objective or restrictions, may require withdrawal of the
Fund's interest in the Portfolio. Any such withdrawal could result in a distri-
bution in kind of portfolio securities (as opposed to a cash distribution) from
the Portfolio which may or may not be readily marketable. The distribution in
kind may result in the Fund having a less diversified portfolio of investments
or adversely affect the Fund's liquidity, and the Fund could incur brokerage,
tax or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in the Portfolio may be materially affected by the ac-
tions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns. Addition-
ally, because the Portfolio would become smaller, it may become less diversi-
fied, resulting in potentially increased portfolio risk (however, these possi-
bilities also exist for traditionally structured funds which have large or in-
stitutional investors who may withdraw from a fund). Also, funds with a greater
pro rata ownership in the Portfolio could have effective voting control of the
operations of the Portfolio. Whenever the Fund is requested to vote on matters
pertaining to the Portfolio (other than a vote by the Fund to continue the op-
eration of the Portfolio upon the withdrawal of another investor in the Portfo-
lio), the Trust will hold a meeting of shareholders of the Fund and will cast
all of its votes proportionately as instructed by the Fund's shareholders. The
Trust will vote the shares held by Fund shareholders who do not give voting in-
structions in the same proportion as the shares of Fund shareholders who do
give voting instructions. Shareholders of the Fund who do not vote will have no
effect on the outcome of such matters.
For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Additional Investment In-
formation and Risk Factors and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment Restric-
tions.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and the Portfolio is described below, 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.
4
<PAGE>
The Fund's investment objective is to provide a high total return from a port-
folio of equity securities of foreign corporations. Total return will consist
of realized and unrealized capital gains and losses plus income. The Fund at-
tempts to achieve its investment objective by investing all of its investable
assets in The Non-U.S. Equity Portfolio, a diversified open-end management in-
vestment company having the same investment objective as the Fund.
The Fund is designed for investors with a long-term investment horizon who
want to diversify their portfolios by investing in an actively managed portfo-
lio of non-U.S. securities that seeks to outperform the Morgan Stanley Capital
International Europe, Australia and Far East Index (the "EAFE Index").
The Portfolio seeks to achieve its investment objective through country allo-
cation, stock selection and management of currency exposure. Morgan uses a
disciplined portfolio construction process to seek to enhance returns and re-
duce volatility in the market value of the Portfolio relative to that of the
EAFE Index.
Based on fundamental research, quantitative valuation techniques, and experi-
enced judgment, Morgan uses a structured decision-making process to allocate
the Portfolio primarily across the developed countries of the world outside
the United States by under- or over-weighting selected countries in the EAFE
Index. Currently, Japan has the heaviest weighting in the EAFE Index and in
the Portfolio. At November 30, 1995, the approximate Japan weighting was 41%
in the EAFE Index and 45% in the Portfolio.
Using a dividend discount model and based on analysts' industry expertise, se-
curities within each country are ranked within economic sectors according to
their relative value. Based on this valuation, Morgan selects the securities
which appear the most attractive for the Portfolio. Morgan believes that under
normal market conditions, economic sector weightings generally will be similar
to those of the EAFE Index.
Finally, Morgan actively manages currency exposure, in conjunction with coun-
try and stock allocation, in an attempt to protect and possibly enhance the
Portfolio's market value. Through the use of forward foreign currency exchange
contracts, Morgan will adjust the Portfolio's foreign currency weightings to
reduce its exposure to currencies deemed unattractive and, in certain circum-
stances, increase exposure to currencies deemed attractive, as market condi-
tions warrant, based on fundamental research, technical factors, and the judg-
ment of a team of experienced currency managers. For further information on
foreign currency exchange transactions, see Additional Investment Information
and Risk Factors.
The Portfolio intends to manage its portfolio actively in pursuit of its in-
vestment objective. The Portfolio does not expect to trade in securities for
short-term profits; however, when circumstances warrant, securities may be
sold without regard to the length of time held. To the extent the Portfolio
engages in short-term trading, it may incur increased transaction costs. See
Taxes below.
EQUITY INVESTMENTS. In normal circumstances, Morgan intends to keep the Port-
folio essentially fully invested with at least 65% of the value of its total
assets in equity securities of foreign issuers consisting of common stocks and
other securities with equity characteristics comprised of preferred stock,
warrants, rights, convertible securities, trust certificates, limited partner-
ship interests and equity participations. The Portfolio's primary equity in-
vestments are the common stock of established companies based in developed
countries outside the United States. Such investments will be made in at least
three foreign countries. The common stock in which the Portfolio may invest
includes the common stock of any class or series or any similar equity inter-
est, such as trust or limited partnership interests. These equity investments
may or may not pay dividends and may or may not carry voting rights. The Port-
folio may also invest in securities of issuers located in developing coun-
tries. See Additional Investment Information and Risk Factors. The Portfolio
invests in securities listed on foreign or domestic securities exchanges and
securities traded in foreign or domestic over-the-counter markets, and may in-
vest in certain restricted or unlisted securities.
5
<PAGE>
The Portfolio may also invest in money market instruments denominated in U.S.
dollars and other currencies, securities on a when-issued or delayed delivery
basis, enter into repurchase and reverse repurchase agreements, loan its port-
folio securities, purchase certain privately placed securities, enter into
forward contracts on foreign currencies and enter into certain hedging trans-
actions that may involve options on securities and securities indexes, futures
contracts and options on futures contracts. For a discussion of these invest-
ments and investment techniques, see Additional Investment Information and
Risk Factors.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
CONVERTIBLE SECURITIES. The Portfolio may invest in convertible securities of
domestic and, subject to the Portfolio's investment restrictions, foreign is-
suers. The convertible securities in which the Portfolio may invest include
any debt securities or preferred stock which may be converted into common
stock or which carry the right to purchase common stock. Convertible securi-
ties 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.
COMMON STOCK WARRANTS. The Portfolio 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 fluctu-
ations. As a result, warrants may be more volatile investments than the under-
lying 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.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase secu-
rities on a when-issued or delayed delivery basis. Delivery of and payment for
these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market fluc-
tuation during this period and for fixed income investments no interest ac-
crues to the Portfolio until settlement. At the time of settlement a when-is-
sued security may be valued at less than its purchase price. The Portfolio
maintains with the Custodian a separate account with a segregated portfolio of
securities in an amount at least equal to these commitments. When entering
into a when-issued or delayed delivery transaction, the Portfolio will rely on
the other party to consummate the transaction; if the other party fails to do
so, the Portfolio may be disadvantaged. It is the current policy of the Port-
folio not to enter into when-issued commitments exceeding in the aggregate 15%
of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement trans-
actions with brokers, dealers or banks that meet the credit guidelines estab-
lished by the Portfolio's Trustees. In a repurchase agreement, the Portfolio
buys a security from a seller that has agreed to repurchase it at a mutually
agreed upon date and price, reflecting the interest rate effective for the
term of the agreement. The term of these agreements is usually from overnight
to one week. A repurchase agreement may be viewed as a fully collateralized
loan of money by the Portfolio to the seller. The Portfolio always receives
securities as collateral with a market value at least equal to the purchase
price plus accrued interest and this value is maintained during the term of
the agreement. If the seller defaults and the collateral value declines, the
Portfolio might incur a loss. If bankruptcy proceedings are commenced with re-
spect to the seller, the Portfolio's realization upon the disposition of col-
lateral may be delayed or limited. Investments in certain repurchase agree-
ments and certain other investments which may be considered illiquid are lim-
ited. See Illiquid Investments; Privately Placed and other Unregistered Secu-
rities below.
6
<PAGE>
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.
FOREIGN INVESTMENT INFORMATION. The Portfolio invests primarily in foreign se-
curities. Investment in securities of foreign issuers and in obligations of
foreign branches of domestic banks involves somewhat different investment
risks from those affecting securities of U.S. domestic issuers. There may be
limited publicly available information with respect to foreign issuers, and
foreign issuers are not generally subject to uniform accounting, auditing and
financial standards and requirements comparable to those applicable to domes-
tic companies. Dividends and interest paid by foreign issuers may be subject
to withholding and other foreign taxes which may decrease the net return on
foreign investments as compared to dividends and interest paid to the Portfo-
lio by domestic companies.
Investors should realize that the value of the Portfolio's investments in for-
eign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation, na-
tionalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or depre-
ciation of portfolio securities and could favorably or unfavorably affect the
Portfolio's operations. Furthermore, the economies of individual foreign na-
tions may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital re-
investment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign is-
suer. Any foreign investments made by the Portfolio must be made in compliance
with U.S. and foreign currency restrictions and tax laws restricting the
amounts and types of foreign investments.
In addition, while the volume of transactions effected on foreign stock ex-
changes has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, the Portfolio's for-
eign investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settle-
ment periods for foreign securities, which are often longer than those for se-
curities of U.S. issuers, may affect portfolio liquidity. In buying and sell-
ing securities on foreign exchanges, purchasers normally pay fixed commissions
that are generally higher than the negotiated commissions charged in the
United States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.
Although the Portfolio invests primarily in securities of established issuers
based in developed foreign countries, it may also invest in securities of is-
suers in emerging markets countries. Investments in securities of issuers in
emerging markets countries may involve a high degree of risk and many may be
considered speculative. These investments carry all of the risks of investing
in securities of foreign issuers outlined in this section to a heightened de-
gree. These heightened risks include (i) greater risks of expropriation, con-
fiscatory taxation, nationalization, and less social, political and economic
stability; (ii) the small current size of the markets for securities of emerg-
ing markets issuers and the currently low or non-
7
<PAGE>
existent volume of trading, resulting in lack of liquidity and in price vola-
tility; (iii) certain national policies which may restrict the Portfolio's in-
vestment opportunities including restrictions on investing in issuers or in-
dustries deemed sensitive to relevant national interests; and (iv) the absence
of developed legal structures governing private or foreign investment and pri-
vate property.
The Portfolio may invest in securities of foreign issuers directly or in the
form of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") or other similar securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities they
represent. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying foreign securities. Certain such insti-
tutions issuing ADRs may not be sponsored by the issuer of the underlying for-
eign securities. A non-sponsored depository may not provide the same share-
holder information that a sponsored depository is required to provide under
its contractual arrangements with the issuer of the underlying foreign securi-
ties. EDRs are receipts issued by a European financial institution evidencing
a similar arrangement. Generally, ADRs, in registered form, are designed for
use in the U.S. securities markets, and EDRs, in bearer form, are designed for
use in European securities markets.
Since the Portfolio's investments in foreign securities involve foreign cur-
rencies, the value of its assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. See Foreign Currency Exchange Trans-
actions.
For a discussion of investment risks associated with the general economic and
political conditions in Japan, see Investment Objectives and Policies in the
Statement of Additional Information.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and sells
securities and receives interest and dividends in currencies other than the
U.S. dollar, the Portfolio may enter from time to time into foreign currency
exchange transactions. The Portfolio either enters into these transactions on
a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or uses forward contracts to purchase or sell foreign curren-
cies. The cost of the Portfolio's spot currency exchange transactions is gen-
erally the difference between the bid and offer spot rate of the currency be-
ing purchased or sold.
A forward foreign currency exchange contract is an obligation by the Portfolio
to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These con-
tracts are entered into in the interbank market directly between currency
traders (usually large commercial banks) and their customers. A forward for-
eign currency exchange contract generally has no deposit requirement, and is
traded at a net price without commission. The Portfolio will not enter into
forward contracts for speculative purposes. Neither spot transactions nor for-
ward foreign currency exchange contracts eliminate fluctuations in the prices
of the Portfolio's securities or in foreign exchange rates, or prevent loss if
the prices of these securities should decline.
The Portfolio may enter into foreign currency exchange transactions in an at-
tempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or antici-
pated securities transactions. The Portfolio may also enter into forward con-
tracts to hedge against a change in foreign currency exchange rates that would
cause a decline in the value of existing investments denominated or princi-
pally traded in a foreign currency. To do this, the Portfolio would enter into
a forward contract to sell the foreign currency in which the investment is de-
nominated or principally traded in exchange for U.S. dollars or in exchange
for another foreign currency. The Portfolio will only enter into forward con-
tracts to sell a foreign currency in exchange for another foreign currency if
the Advisor expects the foreign currency purchased to appreciate against the
U.S. dollar.
8
<PAGE>
Although these transactions are intended to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time they limit any
potential gain that might be realized should the value of the hedged currency
increase. In addition, forward contracts that convert a foreign currency into
another foreign currency will cause the Portfolio to assume the risk of fluc-
tuations in the value of the currency purchased vis a vis the hedged currency
and the U.S. dollar. The precise matching of the forward contract amounts and
the value of the securities involved will not generally be possible because
the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The projec-
tion of currency market movements is extremely difficult, and the successful
execution of a hedging strategy is highly uncertain.
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 purposes of the Investment Company Act of 1940, as amended (the
"1940 Act"), it is considered a form of borrowing by the Portfolio and, there-
fore, 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 Information.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may not acquire any illiquid securities if, as a result thereof,
more than 15% of the market value of the Portfolio's net assets would be in-
vested in illiquid investments. Subject to this non-fundamental policy limita-
tion, 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 approxi-
mately the amount at which it is valued by the Portfolio. The price the Port-
folio pays for illiquid securities or receives upon resale may be lower than
the price paid or received for similar securities with a more liquid market.
Accordingly the valuation of these securities will reflect any limitations on
their liquidity.
The Portfolio may also purchase Rule 144A securities sold to institutional in-
vestors without registration under the 1933 Act. These securities may be 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 hedging purposes.
MONEY MARKET INSTRUMENTS. The Portfolio is permitted to invest in money market
instruments although it intends to stay invested in equity securities to the
extent practical in light of its objectives and long-term investment perspec-
tive. The Portfolio may make money market investments pending other investment
or settlement, for liquidity or in adverse market conditions. The money market
investments permitted for these Portfolios include obligations of the U.S.
Government and its agencies and instrumentalities, other debt securities, com-
mercial paper, bank obligations and repurchase agreements. The Portfolio may
also invest in short-term obligations of sovereign foreign governments, their
agencies, instrumentalities and political subdivisions. For more detailed in-
formation about these money market investments, see Investment Objectives and
Policies in the Statement of Additional information.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio are
subject to the following fundamental limitations: (a) the Portfolio's may not
invest more than 5% of its total assets in the securities of any one issuer,
except U.S. Government securities, and (b) the Portfolio's may not own more
than 10% of the outstanding voting securities of any one issuer.
9
<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) purchase securities or other obligations of issuers
conducting their principal business activity in the same industry if its in-
vestments in such industry would exceed 25% of the value of the Portfolio's to-
tal assets, except this limitation shall not apply to investments in U.S. Gov-
ernment securities; (ii) enter into reverse repurchase agreements and other
permitted borrowings which constitute senior securities under the 1940 Act, ex-
ceeding in the aggregate one-third of the market value of the Portfolio's total
assets, less certain liabilities; or (iii) borrow money, except from banks for
extraordinary or emergency purposes and then only in amounts up to 30% of the
value of the Portfolio's net assets at the time of borrowing, and except in
connection with reverse repurchase agreements and then only in amounts up to 33
1/3% of the value of the Portfolio's net assets; or purchase securities while
borrowings, including reverse repurchase agreements, exceed 5% of its total as-
sets; or 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 Portfo-
lio's net assets at the time of such borrowing.
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>
<S> <C>
Frederick S. Addy................... Former Executive Vice President and Chief
Financial Officer, Amoco Corporation
William G. Burns.................... Former Vice Chairman of the Board and Chief
Financial Officer, NYNEX Corporation
Arthur C. Eschenlauer............... Former Senior Vice President, Morgan
Guaranty Trust Company of New York
Matthew Healey...................... Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi................. Senior Vice President, Capital Cities/ABC,
Inc., President, Broadcast Group
</TABLE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust, the Portfolio and
The JPM Institutional Funds, up to and including creating a separate board of
trustees. See Trustees and Officers in the Statement of Additional Information
for more information about the Trustees and Officers of the Fund and the Port-
folio.
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pier-
pont Group, Inc. in providing these services. Pierpont Group, Inc. was orga-
nized in 1989 at the request of the Trustees of The Pierpont Family of Funds
for the purpose of
10
<PAGE>
providing these services as cost to these 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 equity portfolios, this process utilizes research, sys-
tematic stock selection, disciplined portfolio construction and, in the case
of foreign equities, country exposure and currency management. Morgan has man-
aged portfolios of international equity securities on behalf of its clients
since 1974. The portfolio managers making investments in international equity
securities work in conjunction with Morgan's international equity analysts, as
well as capital market, credit and economic research analysts, traders and ad-
ministrative officers. The international equity analysts, located in London,
Tokyo, Singapore and Melbourne, each cover a different industry, monitoring a
universe of nearly 1,000 non-U.S. companies.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio (the inception date
of each person's responsibility for the Portfolio and his business experience
for the past 5 years is indicated parenthetically): Paul A. Quinsee, Vice
President (since April, 1993, employed by Morgan since February, 1992, previ-
ously Vice President, Citibank) and Thomas P. Madsen, Managing Director (since
April, 1993, 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 0.60% of the Portfolio's average daily net assets.
Under separate agreements, Morgan also provides financial, fund accounting and
administrative services to the Fund and the Portfolio and shareholder services
to shareholders of the Fund. See Administrative Services Agent and Shareholder
Servicing below. 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.
ADMINISTRATOR AND DISTRIBUTOR. Under Administration Agreements with the Trust
and the Portfolio, Signature Broker-Dealer Services, Inc. ("SBDS") serves as
the Administrator for the Trust and the Portfolio. In this capacity, SBDS ad-
ministers and manages all aspects of the Fund's and the Portfolio's day-to-day
operations subject to the supervision of the Trustees, except as set forth un-
der Advisor, Administrative Services Agent, Custodian and Shareholder Servic-
ing. In connection with its responsibilities as Administrator, SBDS (i) fur-
nishes ordinary clerical and related services for day-to-day operations in-
cluding certain recordkeeping responsibilities; (ii) takes responsibility for
compliance with all applicable federal and state securities and other regula-
tory requirements; (iii) is responsible for the registration of sufficient
Fund shares under federal and state securities laws; (iv) takes responsibility
for monitoring the Fund's status as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code") ; and (v) performs such
administrative and managerial oversight of the activities of the Trust's and
the Portfolio's custodian and transfer agent as the Trustees may direct from
time to time.
11
<PAGE>
Under the Trust's and the Portfolio's Administration Agreements with SBDS, each
of the Fund and the Portfolio has agreed to pay SBDS a fee equal to its propor-
tionate 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 Pier-
pont Funds or The JPM Advisor Funds invest. This charge is calculated in accor-
dance with the following annual schedule: 0.03% on the first $7 billion of the
Master Portfolios' aggregate average daily net assets, and 0.01% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion. The
portion of this
charge payable by the Fund or the Portfolio is determined by the proportionate
share that its net assets bear to the total net assets of the Trust, The Pier-
pont Funds, The JPM Advisor Funds and the Master Portfolios.
SBDS, a registered broker-dealer, also serves as the Distributor of shares of
the Fund and exclusive placement agent for the Portfolio. SBDS is a wholly
owned subsidiary of Signature. Signature and its affiliates currently provide
administration and distribution services for a number of registered investment
companies through offices located in Boston, New York, London, Toronto and
George Town, Grand Cayman.
ADMINISTRATIVE SERVICES AGENT. Under Administrative Services Agreements with
the Trust and the Portfolio, Morgan is responsible for certain financial, fund
accounting and administrative services provided to the Fund and the Portfolio,
including services related to Portfolio and Fund tax returns, Portfolio and
Fund financial reports, computing Fund dividends and net asset value per share
and keeping the Fund's books of account. Under these agreements, each of the
Fund and the Portfolio has agreed to pay Morgan a fee equal to its proportion-
ate share of an annual complex-wide charge. This charge is calculated daily
based on the aggregate net assets of the Master Portfolios in accordance with
the following annual schedule: 0.06% on the first $7 billion of the Master
Portfolios' aggregate average daily net assets, and 0.03% of the Master Portfo-
lios' aggregate average daily net assets in excess of $7 billion. The portion
of this charge payable by the Fund or the Portfolio is determined by the pro-
portionate share that its net assets bear to the total net assets of the Trust,
The Pierpont Funds, The JPM Advisor Funds, the Master Portfolios and other in-
vestors in the Master Portfolios for which Morgan provides similar services.
Under the terms of the agreements, Morgan may delegate one or more of its re-
sponsibilities to other entities, at Morgan's expense.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02101, serves as the Fund's and the Portfolio's Custodian and
Transfer and Dividend Disbursing Agent.
EXPENSES. In addition to the fees payable to Morgan, SBDS and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor, Adminis-
trator and Distributor, and Administrative Services Agent above and Shareholder
Servicing below, the Fund and the Portfolio are responsible for usual and cus-
tomary expenses associated with their respective operations. Such expenses in-
clude organization expenses, legal fees, accounting expenses, insurance costs,
the compensation and expenses of the Trustees, registration fees under federal
securities laws, and extraordinary expenses applicable to the Fund or the Port-
folio. For the Fund, such expenses also include transfer, registrar and divi-
dend 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 registration
fees under foreign securities laws, custodian fees and brokerage expenses.
Morgan has agreed that it will reimburse the Fund through at least February 28,
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
1.00% of the Fund's average daily net assets. This limit does not cover ex-
traordinary increases 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 fis-
cal 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.
12
<PAGE>
SHAREHOLDER SERVICING
The Fund has entered into a Shareholder Servicing Agreement with Morgan pursu-
ant to which Morgan acts as shareholder servicing agent for its customers and
other Fund investors who are customers of an eligible institution which is a
customer of Morgan (an "Eligible Institution"). The Fund has agreed to pay Mor-
gan for these services at an annual rate (expressed as a percentage of the av-
erage daily net asset values of Fund shares owned by or for shareholders for
whom Morgan is acting as shareholder servicing agent) of 0.10% of the Fund's
average daily net assets. Under the terms of the Shareholder Servicing Agree-
ment with the Fund, Morgan may delegate one or more of its responsibilities to
other entities at Morgan's expense.
Shareholders should address all inquiries to J.P. Morgan Funds Services, Morgan
Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York 10036
or call (800) 766-7722.
The business days of the Fund and the Portfolio are the days the New York Stock
Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
as shareholder servicing agent and the Fund is authorized to accept any in-
structions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Fund's Dis-
tributor. Investors must be customers of Morgan or an Eligible Institution. In-
vestors 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 becom-
ing a Morgan customer for this purpose. Morgan reserves the right to determine
the customers that it will accept, and the Fund reserves the right to determine
the purchase orders that it will accept.
The Fund requires a minimum initial investment of $1 million and a minimum sub-
sequent investment of $25,000. These minimum investment requirements may be
waived for 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) $1 million if the account is opened for one client or (ii) $2 mil-
lion 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 $2
million minimum investment within a reasonable period of time that will be no
longer than thirteen months after opening its account. An employer-sponsored
retirement plan opening an account in the Fund will be required to attain the
$2 million minimum balance within thirteen months of opening the account.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value per share next determined after
receipt of an order. Prospective investors may purchase shares with the assis-
tance of an Eligible Institution that may establish its own terms, conditions
and charges.
To purchase shares in the Fund, investors should request their Morgan represen-
tative (or a representative of their Eligible Institution) to assist them in
placing a purchase order with the Fund's Distributor and to transfer immedi-
ately available funds to the Fund's Distributor on the next business day. Any
shareholder may also call J.P. Morgan Funds Services at (800) 766-7722 for as-
sistance in placing an order for Fund shares. If the Fund receives a purchase
order prior to 4:00 P.M. New York time on any business day, the purchase of
Fund shares is effective and is made at the net asset value determined that
day, and the purchaser generally becomes a holder of record on the next busi-
ness day upon the Fund's receipt of payment. If the Fund receives a purchase
order after 4:00 P.M. New York time, the purchase is effective and is made at
the net asset value determined on the next business day, and the purchaser be-
comes a holder of record on the following business day upon the Fund's receipt
of payment.
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
sub- accounting, answering client inquiries regarding the Trust, assisting cli-
ents in changing dividend options, account
13
<PAGE>
designations and addresses, providing periodic statements showing the client's
account balance and integrating these statements with those of other transac-
tions and balances in the client's other accounts serviced by the Eligible In-
stitution, transmitting proxy statements, periodic reports, updated prospec-
tuses and other communications to shareholders and, with respect to meetings
of shareholders, collecting, tabulating 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 serv-
ices and for providing other services.
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 Number 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 prior to 4:00 P.M. New York time is
effective on that day. A redemption request received after that time becomes
effective on the next business day. Proceeds of an effective redemption are
generally deposited the next business day in immediately available funds to
the shareholder's account at Morgan or at his Eligible Institution or, in the
case of certain Morgan customers, are mailed by check or wire transferred in
accordance with the customer's instructions, and, subject to Further Redemp-
tion Information below, in any event are paid within seven days.
MANDATORY REDEMPTION BY THE FUND. If the value of a shareholder's holdings in
the Fund falls below the applicable minimum initial investment amount for more
than 30 days because of a redemption of shares, the shareholder's remaining
shares may be redeemed by the Fund 60 days after written notice to the share-
holder unless the account is increased to the Fund's minimum investment amount
or more.
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions
from the Fund may not be processed if a redemption request is not submitted in
proper form. To be in proper form, the Fund must have received the sharehold-
er's taxpayer identification number and address. As discussed under Taxes be-
low, the Fund may be required to impose "back-up" withholding of federal in-
come tax on dividends, distributions and redemption proceeds when non-
corporate investors have not provided a certified taxpayer identification num-
ber. In addition, if a shareholder sends a check for the purchase of Fund
shares and shares are purchased before the check has cleared, the transmittal
of redemption proceeds from the shares will occur upon clearance of the check
which may take up to 15 days.
The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other
periods as the 1940 Act or the Securities and Exchange Commission may permit.
See Redemption of Shares in the Statement of Additional Information.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other JPM Institutional
Fund or Pierpont Fund without charge. An exchange may be made so long as after
the exchange the investor has shares, in each fund in which he or she remains
an investor, with a value of at least each of those fund's minimum investment
amounts. See Method of Purchase in the prospectuses for the other JPM Institu-
tional Funds and The Pierpont Funds for the minimum investment amount for each
of those funds. Shares are exchanged on the basis of relative net asset value
per share. Exchanges are in effect
14
<PAGE>
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 pro-
spectuses for the other JPM Institutional Funds and The Pierpont Funds. See
also Additional Information below for an explanation of the telephone exchange
policy of The JPM Institutional Funds.
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income
tax purposes. The Fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state securi-
ties laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
Dividends consisting of substantially all of the Fund's net investment income
if any, are declared and paid annually. The Fund may also declare an addi-
tional dividend of net investment income in a given year to the extent neces-
sary to avoid the imposition of federal excise tax on the Fund.
Substantially all the realized net capital gains, if any, of the Fund are de-
clared and paid on an annual basis, except that an additional capital gains
distribution may be made in a given year to the extent necessary to avoid the
imposition of federal excise tax on the Fund. Declared dividends and distribu-
tions are payable to shareholders of record on the record date.
Dividends and capital gains distributions paid by the Fund are automatically
reinvested in additional shares of the Fund unless the shareholder has elected
to have them paid in cash. Dividends and distributions to be paid in cash are
credited to the shareholder's account at Morgan or at his Eligible Institution
or, in the case of certain Morgan customers, are mailed by check in accordance
with the customer's instructions. The Fund reserves the right to discontinue,
alter or limit the automatic reinvestment privilege at any time.
NET ASSET VALUE
Net asset value per share for the Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in the
Portfolio and other assets) the amount of its liabilities and dividing the re-
mainder by the number of its outstanding shares, rounded to the nearest cent.
Expenses, including the fees payable to Morgan, are accrued daily. See Net As-
set Value in the Statement of Additional Information for information on valua-
tion of portfolio securities for the Portfolio.
The Fund computes its net asset value once daily at 4:00 P.M. New York time on
Monday through Friday, except that the net asset value is not computed on the
holidays listed under Net Asset Value in the Statement of Additional Informa-
tion.
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, sixteen series of shares have been authorized and are
available 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.
15
<PAGE>
Shareholders of the Fund are entitled to one vote for each share and to the ap-
propriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and non-assessable by the Fund. The Trust does not intend to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for ac-
tion by shareholder vote as may be required by either the 1940 Act or the Dec-
laration of Trust. The Trustees will call a meeting of shareholders to vote on
removal of a Trustee upon the written request of the record holders of ten per-
cent of Trust shares and will assist shareholders in communicating with each
other as prescribed in Section 16(c) of the 1940 Act. For further organization
information, including certain shareholder rights, see Description of Shares in
the Statement of Additional Information.
The Portfolio in which all of the assets of the Fund are invested 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 com-
mon 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. According-
ly, the Trustees of the Trust believe that neither the Fund nor its sharehold-
ers will be adversely affected by reason of the Fund's investing in the Portfo-
lio.
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 federal
taxes and with respect to the applicability of state or local taxes. See Taxes
in the Statement of Additional Information. Annual statements as to the current
federal tax status of distributions, if applicable, are mailed to shareholders
after the end of the taxable year for the Fund.
The Trust intends to qualify the Fund as a separate regulated investment com-
pany under Subchapter M of the Code. As a regulated investment company, the
Fund should not be subject to federal income taxes or federal excise taxes if
all of its net investment income and capital gains less any available capital
loss carryforwards are distributed to shareholders within allowable time lim-
its. The Portfolio intends to qualify as an association treated as a partner-
ship for federal income tax purposes. As such, the Portfolio should not be sub-
ject to tax. The Fund's status as a regulated investment company is dependent
on, among other things, the Portfolio's continued qualification as a partner-
ship 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 non-corporate shareholders.
Distributions of net investment income and realized net short-term capital
gains in excess of net long-term capital losses are taxable as ordinary income
to shareholders of the Fund whether such distributions are taken in cash or re-
invested in additional shares. Distributions of this type to corporate share-
holders of the Fund will not qualify for the dividends- received deduction be-
cause the income of the Fund will not consist of dividends paid by United
States corporations.
Distributions of net long-term capital gains in excess of net short-term capi-
tal losses are taxable to shareholders of the Fund as long-term capital gains
regardless of how long a shareholder has held shares in the Fund and regardless
of whether taken in cash or reinvested in additional shares. Long-term capital
gains distributions to corporate shareholders are not eligible for the divi-
dends-received deduction.
Any distribution of net investment income or capital gains will have the effect
of reducing the net asset value of Fund shares held by a shareholder by the
same amount as the distribution. If the net asset value of the shares is re-
duced below
16
<PAGE>
a shareholder's cost as a result of such a distribution, the distribution, al-
though constituting a return of capital to the shareholder, will be taxable as
described above.
Any gain or loss realized on the redemption or exchange of the Fund's shares
by a shareholder who is not a dealer in securities will be treated as long-
term capital gain or loss if the shares have been held for more than one year,
and otherwise as short-term capital gain or loss. However, any loss realized
by a shareholder upon the redemption or exchange of shares in the Fund held
for six months or less will be treated as a long-term capital loss to the ex-
tent of any long-term capital gain distributions received by the shareholder
with respect to such shares.
The Fund is subject to foreign withholding taxes with respect to income re-
ceived from sources within certain foreign countries. So long as more than 50%
of the value of the Fund's total assets at the close of any taxable year con-
sists of stock or securities of foreign corporations, the Fund may elect to
treat any such foreign income taxes paid by it as paid directly by its share-
holders. The Fund will make such an election only if it deems it to be in the
best interests of its shareholders and will notify shareholders in writing
each year if it makes the election and of the amount of foreign income taxes,
if any, to be treated as paid by the shareholders. If the Fund makes the elec-
tion, each shareholder will be required to include in income his proportionate
share of the amount of foreign income taxes paid by the Fund and will be enti-
tled to claim either a credit (which is subject to certain limitations), or,
if the shareholder itemizes deductions, a deduction for his share of the for-
eign income taxes in computing his federal income tax liability. (No deduction
will be permitted to individuals in computing their alternative minimum tax
liability.)
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
Average, the Frank Russell Indexes, the EAFE Index, the Financial Time World
Stock Index and other industry publications.
The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of op-
erations, if less) assuming that all distributions and dividends by the Fund
were reinvested on the reinvestment dates during the period and less all re-
curring fees. This method of calculating total return is required by regula-
tions of the Securities and Exchange Commission. Yield and total return data
similarly calculated, unless otherwise indicated, over other specified periods
of time may also be used. See Performance Data in the Statement of Additional
Information. All performance figures are based on historical earnings and are
not intended to indicate future performance. Performance information may be
obtained by calling the Fund's Distributor at (800) 847-9487.
17
<PAGE>
APPENDIX
The Portfolio may (a) purchase exchange traded and over-the-counter (OTC) put
and call options on equity securities or indexes of equity securities, (b) pur-
chase and sell futures contracts on indexes of equity securities, and (c) pur-
chase put and call options on futures contracts on indexes of equity securi-
ties.
The Portfolio may use futures contracts and options for hedging purposes. The
Portfolio may not use futures contracts and options for speculation.
The Portfolio may utilize options and futures contracts to manage its exposure
to changing interest rates and/or security prices. Some options and futures
strategies, including selling futures contracts and buying puts, tend to hedge
the Portfolio's investments against price fluctuations. Other strategies, 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 or thereon held at any time do not exceed 5% of the
Portfolio's total assets.
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio ob-
tains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays
the current market price for the option (known as the option premium). Options
have various types of underlying instruments, including specific securities,
indexes of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by al-
lowing it to expire or by exercising the option. The Portfolio may also close
out a put option position by entering into an offsetting transaction, if a liq-
uid market exists. If the option is allowed to expire, the Portfolio will lose
the entire premium it paid. If the Portfolio exercises a put option on a secu-
rity, it will sell the instrument underlying the option at the strike price. If
the Portfolio exercises an option on an index, settlement is in cash and does
not involve the actual sale of securities. If an option is American style, it
may be exercised on any day up to its expiration date. A European style option
may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the in-
strument underlying the option does not fall enough to offset the cost of pur-
chasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
A-1
<PAGE>
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 permitted to enter into options transactions
may purchase 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 se-
curities. 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 purchasing or selling in-
dex 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 gener-
ally will not match the composition of an index.
For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Portfolio may incur additional
losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When the Portfolio purchases a futures contract, it agrees to purchase a speci-
fied quantity of an underlying instrument at a specified future date or to make
a cash payment based on the value of a securities index. When the Portfolio
sells a futures contract, it agrees to sell a specified quantity of the under-
lying instrument at a specified future date or to receive a
A-2
<PAGE>
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 Portfolios'
investment restrictions. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.
The Portfolio will segregate liquid, high quality assets in connection with its
use of options and futures contracts to the extent required by the staff of the
Securities and Exchange Commission. Securities held in a segregated account
cannot be sold while the futures contract or option is outstanding, unless they
are replaced with other suitable assets. As a result, there is a possibility
that segregation of a large percentage of the Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
For further information about the Portfolios' 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
International
Equity Fund
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied
upon as having been authorized by the Trust or the Distributor. This Prospectus
does not constitute an offer by the Trust or by the Distributor to sell or a
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Trust or the
Distributor to make such offer in such jurisdiction.
PROSPECTUS
March 1, 1996
<PAGE>
PROSPECTUS
The JPM Institutional Emerging Markets Equity Fund
6 St. James Avenue
Boston, Massachusetts 02116
For information call (800) 766-7722
The JPM Institutional Emerging Markets Equity Fund (the "Fund") seeks to
provide a high total return from a portfolio of equity securities of companies
in emerging markets. It is designed for long-term investors who want to
diversify their investments by adding exposure to the rapidly growing emerging
markets.
The Fund is a diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The JPM
Institutional Funds, an open-end management investment company organized as a
Massachusetts 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 EMERGING MARKETS EQUITY PORTFOLIO (THE
"PORTFOLIO"), A CORRESPONDING DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT COM-
PANY HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND INVESTS IN THE
PORTFOLIO THROUGH SIGNATURE FINANCIAL GROUP, INC.'S HUB AND SPOKE(R) FINANCIAL
SERVICES METHOD. THE HUB AND SPOKE(R) INVESTMENT FUND STRUCTURE EMPLOYS A TWO-
TIER MASTER FEEDER STRUCTURE AND IS A REGISTERED SERVICE MARK OF SIGNATURE FI-
NANCIAL GROUP, INC. SEE SPECIAL INFORMATION CONCERNING HUB AND SPOKE(R) ON PAGE
3.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or "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 March 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, Signature Broker-Dealer Services, Inc., 6
St. James Avenue, Boston, Massachusetts 02116, Attention: The JPM Institutional
Funds, or by calling (800) 847-9487.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.
SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE 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 MARCH 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund Is Designed.................................... 1
Financial Highlights....................................................... 3
Special Information Concerning Hub and Spoke(R)............................ 3
Investment Objective and Policies.......................................... 4
Additional Investment Information and Risk
Factors................................................................... 6
Investment Restrictions.................................................... 10
Management of the Trust and the Portfolio.................................. 10
Shareholder Servicing...................................................... 13
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Purchase of Shares......................................................... 13
Redemption of Shares....................................................... 14
Exchange of Shares......................................................... 15
Dividends and Distributions................................................ 15
Net Asset Value............................................................ 15
Organization............................................................... 16
Taxes...................................................................... 16
Additional Information..................................................... 17
Appendix................................................................... A-1
</TABLE>
<PAGE>
The JPM Institutional Emerging Markets Equity Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed for long term investors who want to diversify their in-
vestments by adding exposure to the rapidly growing emerging markets. The Fund
seeks to achieve its investment objective by investing all of its investable
assets in The Emerging Markets Equity Portfolio, a diversified management in-
vestment company having the same investment objective as the Fund. Since the
investment characteristics and experience of the Fund will correspond directly
with those of the Portfolio, the discussion in this Prospectus focuses on the
investments and investment policies of the Portfolio. The net asset value of
shares in the Fund fluctuates with changes in the value of the investments in
the Portfolio.
The Portfolio may make various types of investments in seeking its objective.
Among the permissible investments and investment techniques for the Portfolio
are futures contracts, options, forward contracts on foreign currencies and
certain privately placed securities. The Portfolio's investments in securities
of issuers in emerging markets, involve foreign investment risks and may be
more volatile and less liquid than domestic securities. For further information
about these investments and investment techniques, see Investment Objective and
Policies discussed below.
The Fund requires a minimum initial investment of $500,000. Certain omnibus ac-
counts require a minimum initial investment of $1 million. The minimum subse-
quent investment is $25,000. See Purchase of Shares. If a shareholder reduces
his or her investment in the Fund to less than the applicable minimum initial
investment amount for more than 30 days, the investment will be subject to man-
datory redemption. See Redemption of Shares--Mandatory Redemption by the Fund.
This Prospectus describes the investment objective and policies, management and
operation of the Fund to enable investors to decide if the Fund suits their
needs. The Fund operates through Signature Financial Group, Inc.'s ("Signa-
ture") Hub and Spoke(R) financial services method. The Trustees believe that
the Fund may achieve economies of scale over time by investing through the Hub
and Spoke(R) 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 Portfolio and Shareholder Ser-
vicing.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases............................................ None
Sales Load Imposed on Reinvested Dividends................................. None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
1
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees............................................................. 1.00%
Rule 12b-1 Fees........................................................... None
Other Expenses............................................................ 0.51%
-----
Total Operating Expenses.................................................. 1.51%
=====
</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 and re-
flect the fact that no expense reimbursements are currently applicable. See
Management of the Trust and the Portfolio. Historical expenses without reim-
bursement expressed as a ratio to historical average daily net assets were
1.44% for the fiscal year ended October 31, 1995.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year..................................................................... $ 15
3 Years.................................................................... $ 48
5 Years.................................................................... $ 82
10 Years................................................................... $180
</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 Servicing
Agreement, organizational expenses, the fees paid to Pierpont Group, Inc. under
the Fund Services Agreements, the fees paid to SBDS under the Administration
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 arrangements, see
Management of the Trust and the Portfolio and Shareholder Servicing. In connec-
tion with the above example, please note that $1,000 is less than the Fund's
minimum investment requirement and that there are no redemption or exchange
fees of any kind. See Purchase of Shares and Redemption of Shares. THE EXAMPLE
IS HYPOTHETICAL; IT IS INCLUDED SOLELY FOR ILLUSTRATIVE PURPOSES. IT SHOULD NOT
BE CONSIDERED A REPRESENTATION OF FUTURE PERFORMANCE; ACTUAL 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 , which
is incorporated by reference into the Statement of Additional Information, in-
cludes 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.
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 15, 1993
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
OCTOBER 31, 1995 OCTOBER 31, 1994
---------------- -------------------
<S> <C> <C>
Net Asset Value, Beginning of Period...... $ 12.47 $ 10.00
-------- --------
Income From Investment Operations:
Net Investment Income................... 0.08 0.04
Net Realized and Unrealized Gain (Loss)
on Investment and Foreign Currency
Allocated.............................. (2.66) 2.43
-------- --------
Total From Investment Operations.......... (2.58) 2.47
-------- --------
Distributions to Shareholders From
Net Investment Income................... (0.05) --
Net Realized Gain....................... (0.13) --
-------- --------
Total Distributions to Shareholders....... (0.18) --
-------- --------
Net Asset Value, End of Period............ $ 9.71 $ 12.47
======== ========
Total Return.............................. (20.81)% 24.70%(a)
Ratios and Supplemental Data:
Net Assets at end of Period (In
Thousands)............................. $186,023 $146,667
Ratios to Average Net Assets:
Expenses.............................. 1.43% 1.46%(b)
Net Investment Income................. 0.96% 0.61%(b)
Decrease Reflected in Expense Ratio
due to Expense Reimbursement......... 0.01% 0.16%(b)
</TABLE>
- -------
(a) Not Annualized.
(b) Annualized.
SPECIAL INFORMATION CONCERNING HUB AND SPOKE(R)
The Trust and the Portfolio use certain proprietary rights, know-how and finan-
cial services referred to as Hub and Spoke(R). Hub and Spoke(R) is a registered
service mark of Signature. Signature Broker-Dealer Services, Inc. (the Trust's
and the Portfolio's Administrator and the Trust's Distributor) is a wholly
owned subsidiary of Signature.
Unlike other mutual funds which directly acquire and manage their own portfolio
of securities, the Fund is an open-end management investment company which
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio, a separate registered investment company with the same
investment objective as the Fund. The investment objective of the Fund or Port-
folio may be changed only with the approval of the holders of the outstanding
shares of the Fund and the Portfolio. The Hub and Spoke(R) investment fund
structure has been developed relatively recently, so shareholders should care-
fully 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 pay a propor-
3
<PAGE>
tionate share of the Portfolio's expenses. However, the other investors invest-
ing in the Portfolio may sell shares of their own fund using a different pric-
ing structure than the Fund. Such different pricing structures may result in
differences in returns experienced by investors in other funds that invest in
the Portfolio. Such differences in returns are not uncommon and are present in
other mutual fund structures. Information concerning other holders of interests
in the Portfolio is available from the Administrator at (800) 847-9487.
The Trust may withdraw the investment of the Fund from the Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same invest-
ment objective and restrictions as the Fund or the retaining of an investment
adviser to manage the Fund's assets in accordance with the investment policies
described below with respect to the Portfolio.
Certain changes in the Portfolio's investment objective, policies or restric-
tions, or a failure by the Fund's shareholders to approve a change in the Port-
folio's investment objective or restrictions, may require withdrawal of the
Fund's interest in the Portfolio. Any such withdrawal could result in a distri-
bution in kind of portfolio securities (as opposed to a cash distribution) from
the Portfolio which may or may not be readily marketable. The distribution in
kind may result in the Fund having a less diversified portfolio of investments
or adversely affect the Fund's liquidity, and the Fund could incur brokerage,
tax or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in the Portfolio may be materially affected by the ac-
tions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns. Addition-
ally, because the Portfolio would become smaller, it may become less diversi-
fied, resulting in potentially increased portfolio risk (however, these possi-
bilities also exist for traditionally structured funds which have large or in-
stitutional investors who may withdraw from a fund). Also, funds with a greater
pro rata ownership in the Portfolio could have effective voting control of the
operations of the Portfolio. Whenever the Fund is requested to vote on matters
pertaining to the Portfolio (other than a vote by the Fund to continue the op-
eration of the Portfolio upon the withdrawal of another investor in the Portfo-
lio), the Trust will hold a meeting of shareholders of the Fund and will cast
all of its votes proportionately as instructed by the Fund's shareholders. The
Trust will vote the shares held by Fund shareholders who do not give voting in-
structions in the same proportion as the shares of Fund shareholders who do
give voting instructions. Shareholders of the Fund who do not vote will have no
effect on the outcome of such matters.
For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Additional Investment In-
formation and Risk Factors and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment Restric-
tions.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and the Portfolio is described below, 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 achieve a high total return from a port-
folio of equity securities of companies in emerging markets. Total return will
consist of realized and unrealized capital gains and losses plus income. The
Fund
4
<PAGE>
attempts to achieve its investment objective by investing all its investable
assets in The Emerging Markets Equity Portfolio, a diversified open-end manage-
ment investment company having the same investment objective as the Fund.
The Fund is designed for long-term investors who want exposure to the rapidly
growing emerging markets. THE FUND DOES NOT REPRESENT A COMPLETE INVESTMENT
PROGRAM NOR IS THE FUND SUITABLE FOR ALL INVESTORS. Many investments in emerg-
ing markets can be considered speculative, and therefore may offer higher po-
tential for gains and losses and may be more volatile than investments in the
developed markets of the world. See Additional Investment Information and Risk
Factors.
The Advisor considers "emerging markets" to be any country which is generally
considered to be an emerging or developing country by the World Bank, the In-
ternational Finance Corporation, the United Nations or its authorities. These
countries generally include every country in the world except Australia, Aus-
tria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Ja-
pan, Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, United King-
dom and United States. The Portfolio will focus its investments in those emerg-
ing markets countries which it believes have strongly developing economies and
in which the markets are becoming more sophisticated.
A company in an emerging market is one that: (i) has its principal securities
trading market in an emerging market country; (ii) is organized under the laws
of an emerging market; (iii) derives 50% or more of its total revenue from ei-
ther goods produced, sales made or services performed in emerging market; or
(iv) has at least 50% of its assets located in emerging markets.
The Advisor seeks to achieve the Portfolio's investment objective by a disci-
plined process of country allocation and company selection. Based on fundamen-
tal research, quantitative analysis, and experienced judgment, the Advisor
identifies those countries where economic and political factors, including cur-
rency movements, are likely to produce above-average returns. Based on their
relative value, the Advisor then selects those companies in each country's ma-
jor industry sectors which it believes are best positioned and managed to take
advantage of these economic and political factors.
The Portfolio's investments are primarily denominated in foreign currencies but
it may also invest in securities denominated in the U.S. dollar or multina-
tional currency units such as the ECU. The Advisor will not routinely attempt
to hedge the Portfolio's foreign currency exposure. However, the Advisor may
from time to time engage in foreign currency exchange transactions if, based on
fundamental research, technical factors, and the judgment of experienced cur-
rency managers, it believes the transactions would be in the Portfolio's best
interest. For further information on foreign currency exchange transactions,
see Additional Investment Information and Risk Factors.
The Portfolio intends to manage its portfolio actively in pursuit of its in-
vestment objective. The Portfolio does not expect to trade in securities for
short-term profits; however, when circumstances warrant, securities may be sold
without regard to the length of time held. To the extent the Portfolio engages
in short-term trading, it may incur increased transaction costs. See Taxes be-
low.
EQUITY INVESTMENTS. In normal circumstances, the Advisor intends to keep the
Portfolio essentially fully invested with at least 65% of the value of its to-
tal assets in equity securities of companies in emerging markets consisting of
common stocks and other securities with equity characteristics comprised of
preferred stock, warrants, rights, convertible securities, trust certificates,
limited partnership interests and equity participations. The Portfolio's pri-
mary equity investments are the common stock of established companies in the
emerging markets countries the Advisor has identified as attractive. The assets
of the Portfolio ordinarily will be invested in the securities of issuers in at
least three different countries considered to be emerging markets. The common
stock in which the Portfolio may invest includes the common stock of any class
or series or any similar equity interest, such as trust or limited partnership
interests. These equity investments may or may not pay dividends and may or may
not carry voting rights. The Portfolio invests in securities listed on foreign
or domes
5
<PAGE>
tic securities exchanges and securities traded in foreign or domestic over-the-
counter markets, and may invest in certain restricted or unlisted securities.
Certain emerging markets are closed in whole or in part to equity investments
by foreigners except through specifically authorized investment funds. Securi-
ties of other investment companies may be acquired by the Portfolio to the ex-
tent permitted under the Investment Company Act of 1940, as amended (the "1940
Act")--that is, the Portfolio may invest up to 10% of its total assets in secu-
rities of other investment companies so long as not more than 3% of the out-
standing voting stock of any one investment company is held by the Portfolio.
In addition, not more than 5% of the Portfolio's total assets may be invested
in the securities of any one investment company. As a shareholder in an invest-
ment fund, the Portfolio would bear its share of that investment fund's ex-
penses, including its advisory and administration fees. At the same time the
Portfolio and the Fund would continue to pay their own operating expenses.
The Portfolio may also invest in money market instruments denominated in U.S.
dollars and other currencies, purchase securities on a when-issued or delayed
delivery basis, enter into repurchase and reverse repurchase agreements, loan
its portfolio securities, purchase certain privately placed securities and en-
ter into forward foreign currency exchange contracts. In addition, the Portfo-
lio may use options on securities and securities indexes, futures contracts and
options on futures contracts for hedging and risk management purposes. For a
discussion of these investments and investment techniques, see Additional In-
vestment Information and Risk Factors.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
CONVERTIBLE SECURITIES. The Portfolio may invest in convertible securities of
domestic and, subject to the Portfolio's investment restrictions, foreign is-
suers. The convertible securities in which the Portfolio may invest include any
debt securities or preferred stock which may be converted into common stock or
which carry the right to purchase common stock. Convertible securities entitle
the holder to exchange the securities for a specified number of shares of com-
mon stock, usually of the same company, at specified prices within a certain
period of time.
COMMON STOCK WARRANTS. The Portfolio may invest in common stock warrants that
entitle the holder to buy common stock from the issuer of the warrant at a spe-
cific 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 un-
derlying common stock, yet warrants are subject to similar price fluctuations.
As a result, warrants may be more volatile investments than the underlying com-
mon 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 ex-
ercised on or prior to the expiration date.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase securi-
ties 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 pur-
chase commitment. The value of these securities is subject to market fluctua-
tion during this period and for fixed income investments no interest accrues to
the Portfolio until settlement. At the time of settlement a when-issued secu-
rity may be valued at less than its purchase price. The Portfolio maintains
with the Custodian a separate account with a segregated portfolio of securities
in an amount at least equal to these commitments. When entering into a when-is-
sued 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
obligations created by these commitments.
6
<PAGE>
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement trans-
actions with brokers, dealers or banks that meet the credit guidelines estab-
lished by the Portfolio's Trustees. In a repurchase agreement, the Portfolio
buys a security from a seller that has agreed to repurchase it at a mutually
agreed upon date and price, reflecting the interest rate effective for the
term of the agreement. The term of these agreements is usually from overnight
to one week. A repurchase agreement may be viewed as a fully collateralized
loan of money by the Portfolio to the seller. The Portfolio always receives
securities as collateral with a market value at least equal to the purchase
price plus accrued interest and this value is maintained during the term of
the agreement. If the seller defaults and the collateral value declines, the
Portfolio might incur a loss. If bankruptcy proceedings are commenced with re-
spect to the seller, the Portfolio's realization upon the disposition of col-
lateral may be delayed or limited. Investments in certain repurchase agree-
ments and certain other investments which may be considered illiquid are lim-
ited. See Illiquid Investments; Privately Placed and other Unregistered Secu-
rities below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in an amount up to 33 1/3%
of the value of the Portfolio's net assets. The Portfolio may lend its securi-
ties if such loans are secured continuously by cash or equivalent collateral
or by a letter of credit in favor of the Portfolio at least equal at all times
to 100% of the market value of the securities loaned, plus accrued interest.
While such securities are on loan, the borrower will pay the Portfolio any in-
come accruing thereon. Loans will be subject to termination by the Portfolio
in the normal settlement time, generally three business days after notice, or
by the borrower on one day's notice. Borrowed securities must be returned when
the loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to the Portfolio
and its respective investors. The Portfolio may pay reasonable finders' and
custodial fees in connection with a loan. In addition, the Portfolio will con-
sider all facts and circumstances, including the creditworthiness of the bor-
rowing financial institution, and the Portfolio will not make any loans in ex-
cess of one year. The Portfolio will not lend its securities to any officer,
Trustee, Director, employee or other affiliate of the Portfolio, the Advisor
or the Distributor, unless otherwise permitted by applicable law.
REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into re-
verse repurchase agreements. In a reverse repurchase agreement, the Portfolio
sells a security and agrees to repurchase it at a mutually agreed upon date
and price, reflecting the interest rate effective for the term of the agree-
ment. For purposes of the 1940 Act, it is considered a form of borrowing 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 Information.
INVESTING IN EMERGING MARKETS. The Portfolio invests primarily in equity secu-
rities of companies in emerging markets. Investments in securities of issuers
in emerging markets countries may involve a high degree of risk and many may
be considered speculative. These investments carry all of the risks of invest-
ing in securities of foreign issuers described herein to a heightened degree.
OTHER FOREIGN INVESTMENT INFORMATION. Generally, investment in securities of
foreign issuers involves somewhat different investment risks from those af-
fecting securities of U.S. domestic issuers. There may be limited publicly
available information with respect to foreign issuers, and foreign issuers are
not generally subject to uniform accounting, auditing and financial standards
and requirements comparable to those applicable to domestic companies. Divi-
dends and interest paid by foreign issuers may be subject to withholding and
other foreign taxes which may decrease the net return on foreign investments
as compared to dividends and interest paid to these Portfolios by domestic
companies.
Investors should realize that the value of the Portfolio's investments in for-
eign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation, na-
tionalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United
7
<PAGE>
States or abroad could result in appreciation or depreciation of portfolio se-
curities and could favorably or unfavorably affect the Portfolio's operations.
Furthermore, the economies of individual foreign nations may differ from the
U.S. economy, whether favorably or unfavorably, in areas such as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position; it may also be more diffi-
cult to obtain and enforce a judgment against a foreign issuer. Any foreign
investments made by the Portfolio must be made in compliance with U.S. and
foreign currency restrictions and tax laws restricting the amounts and types
of foreign investments.
In addition, while the volume of transactions effected on foreign stock ex-
changes has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, the Portfolio's for-
eign investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settle-
ment periods for foreign securities, which are often longer than those for se-
curities of U.S. issuers, may affect portfolio liquidity. In buying and sell-
ing securities on foreign exchanges, purchasers normally pay fixed commissions
that are generally higher than the negotiated commissions charged in the
United States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.
The Portfolio invests primarily in equity securities of companies in emerging
markets countries. Investments in securities of issuers in emerging markets
countries may involve a high degree of risk and many may be considered specu-
lative. These investments carry all of the risks of investing in securities of
foreign issuers outlined in this section to a heightened degree. These height-
ened risks include (i) greater risks of expropriation, confiscatory taxation,
nationalization, and less social, political and economic stability; (ii) the
small current size of the markets for securities of emerging markets issuers
and the currently low or non-existent volume of trading, resulting in lack of
liquidity and in price volatility; (iii) certain national policies which may
restrict the Portfolio's investment opportunities including restrictions on
investing in issuers or industries deemed sensitive to relevant national in-
terests; and (iv) the absence of developed legal structures governing private
or foreign investment and private property.
The Portfolio may invest in securities of foreign issuers directly or in the
form of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") or other similar securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities they
represent. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying foreign securities. Certain such insti-
tutions issuing ADRs may not be sponsored by the issuer of the underlying for-
eign securities. A non-sponsored depository may not provide the same share-
holder information that a sponsored depository is required to provide under
its contractual arrangements with the issuer of the underlying foreign securi-
ties. EDRs are receipts issued by a European financial institution evidencing
a similar arrangement. Generally, ADRs, in registered form, are designed for
use in the U.S. securities markets, and EDRs, in bearer form, are designed for
use in European securities markets.
Since the Portfolio's investments in foreign securities involve foreign cur-
rencies, the value of its assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. See Foreign Currency Exchange Trans-
actions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and sells
securities and receives interest and dividends in currencies other than the
U.S. dollar, the Portfolio may enter from time to time into foreign currency
exchange transactions. The Portfolio either enters into these transactions on
a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or uses forward contracts to purchase or sell foreign curren-
cies. The cost of the Portfolio's spot currency exchange transactions is gen-
erally the difference between the bid and offer spot rate of the currency be-
ing purchased or sold.
8
<PAGE>
A forward foreign currency exchange contract is an obligation by the Portfolio
to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These con-
tracts are entered into in the interbank market directly between currency
traders (usually large commercial banks) and their customers. A forward for-
eign currency exchange contract generally has no deposit requirement, and is
traded at a net price without commission. The Portfolio will not enter into
forward contracts for speculative purposes. Neither spot transactions nor for-
ward foreign currency exchange contracts eliminate fluctuations in the prices
of the Portfolio's securities or in foreign exchange rates, or prevent loss if
the prices of these securities should decline.
The Portfolio may enter into foreign currency exchange transactions in an at-
tempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or antici-
pated securities transactions. The Portfolio may also enter into forward con-
tracts to hedge against a change in foreign currency exchange rates that would
cause a decline in the value of existing investments denominated or princi-
pally traded in a foreign currency. To do this, the Portfolio would enter into
a forward contract to sell the foreign currency in which the investment is de-
nominated or principally traded in exchange for U.S. dollars or in exchange
for another foreign currency. The Portfolio will only enter into forward con-
tracts to sell a foreign currency in exchange for another foreign currency if
the Advisor expects the foreign currency purchased to appreciate against the
U.S. dollar.
Although these transactions are intended to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time they limit any
potential gain that might be realized should the value of the hedged currency
increase. In addition, forward contracts that convert a foreign currency into
another foreign currency will cause the Portfolio to assume the risk of fluc-
tuations in the value of the currency purchased vis a vis the hedged currency
and the U.S. dollar. The precise matching of the forward contract amounts and
the value of the securities involved will not generally be possible because
the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The projec-
tion of currency market movements is extremely difficult, and the successful
execution of a hedging strategy is highly uncertain.
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.
MONEY MARKET INSTRUMENTS. The Portfolio is permitted to invest in money market
instruments although it intends to stay invested in equity securities to the
extent practical in light of its objective and long-term investment perspec-
tive. The Portfolio may make money market investments pending other investment
or settlement, for liquidity or in adverse mar-
9
<PAGE>
ket conditions. The money market investments permitted for the Portfolio in-
clude obligations of the U.S. Government and its agencies and instrumentali-
ties, other debt securities, commercial paper, bank obligations and repurchase
agreements. The Portfolio may also invest in short-term obligations of sover-
eign foreign governments, their agencies, instrumentalities and political sub-
divisions. For more detailed information about these money market investments,
see Investment Objectives and Policies in the Statement of Additional Informa-
tion.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio are
subject to the following fundamental limitations: (a) the Portfolio may not in-
vest more than 5% of its total assets in the securities of any one issuer, ex-
cept U.S. Government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer.
The investment objective of the Fund and the Portfolio, together with the in-
vestment restrictions described below and in the Statement of Additional Infor-
mation, except as noted, are deemed fundamental policies, i.e., they may be
changed only with the approval of the holders of a majority of the outstanding
voting securities of the Fund and the Portfolio. The Fund has the same invest-
ment restrictions as the Portfolio, except that the Fund may invest all of its
investable assets in another open-end investment company with the same invest-
ment objective and restrictions (such as the Portfolio). References below to
the Portfolio's investment restrictions also include the Fund's investment re-
strictions.
The Portfolio may not (i) purchase securities or other obligations of issuers
conducting their principal business activity in the same industry if its in-
vestments in such industry would exceed 25% of the value of the Portfolio's to-
tal assets, except this limitation shall not apply to investments in U.S. Gov-
ernment securities; (ii) borrow money except that the Portfolio may (a) borrow
money from banks for temporary or emergency purposes (not for leveraging pur-
poses) and (b) enter into reverse repurchase agreements for any purpose, pro-
vided that (a) and (b) in total do not exceed one-third of the Portfolio's to-
tal assets less liabilities (other than borrowings), or (iii) issue senior se-
curities except as permitted by the 1940 Act or any rule, order or interpreta-
tion thereunder.
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>
<S> <C>
Frederick S. Addy................... Former Executive Vice President and Chief
Financial Officer, Amoco Corporation
William G. Burns.................... Former Vice Chairman of the Board and Chief
Financial Officer, NYNEX Corporation
Arthur C. Eschenlauer............... Former Senior Vice President, Morgan
Guaranty Trust Company of New York
Matthew Healey...................... Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi................. Senior Vice President, Capital Cities/ABC,
Inc., President, Broadcast Group
</TABLE>
10
<PAGE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust, the Portfolio
and The Pierpont Funds, up to and including creating a separate board of
trustees. See Trustees and Officers in the Statement of Additional Information
for more information about the Trustees and Officers of the Fund and the Port-
folio.
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pier-
pont Group, Inc. in providing these services. Pierpont Group, Inc. was orga-
nized in 1989 at the request of the Trustees of The Pierpont Family of Funds
for the purpose of providing these services at cost to these funds. See Trust-
ees and Officers in the Statement of Additional Information. The principal of-
fices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New
York 10017.
ADVISOR. The Fund has not retained the services of an investment adviser be-
cause the Fund seeks to achieve its investment objective by investing all of
its investable assets in the Portfolio. The Portfolio has retained the serv-
ices of Morgan as Investment Advisor. Morgan, with principal offices at 60
Wall Street, New York, New York 10260, is a New York trust company which con-
ducts a general banking and trust business. Morgan is a wholly owned subsidi-
ary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"), a bank holding company
organized under the laws of Delaware. Through offices in New York City and
abroad, J.P. Morgan, through the Advisor and other subsidiaries, offers a wide
range of services to governmental, institutional, corporate and individual
customers and acts as investment adviser to individual and institutional cli-
ents with combined assets under management of over $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 equity portfolios, the process utilizes research, sys-
tematic stock selection, disciplined portfolio construction and, in the case
of foreign equities, country exposure and currency management. Morgan has man-
aged portfolios of emerging markets equity securities on behalf of its clients
since 1990. The portfolio managers making investments in emerging markets work
in conjunction with Morgan's emerging markets research analysts, as well as
capital market, credit and economic research analysts, traders and administra-
tive officers. The equity research analysts, located in New York, London and
Singapore, each cover a different industry, monitoring a universe of approxi-
mately 900 companies in emerging markets countries.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio (the inception date
of each person's responsibility for the Portfolio and his business experience
for the past five years is indicated parenthetically): Douglas J. Dooley, Man-
aging Director (since November, 1993, employed by Morgan since prior to 1991)
and Satyen Mehta, Vice President (since November, 1993, 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 1.00% of the Portfolio's average daily net assets. While
the advisory fee for the Portfolio is higher than that of most investment com-
panies, it is similar to the advisory fees of other emerging market funds.
Under separate agreements, Morgan also provides financial, fund accounting and
administrative services to the Fund and the Portfolio and shareholder services
to shareholders of the Fund. See Administrative Services Agent and Shareholder
Servicing below. 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.
11
<PAGE>
ADMINISTRATOR AND DISTRIBUTOR. Under Administration Agreements with the Trust
and the Portfolio, Signature Broker-Dealer Services, Inc. ("SBDS") serves as
the Administrator for the Trust and the Portfolio. In this capacity, SBDS ad-
ministers and manages all aspects of the Fund's and the Portfolio's day-to-day
operations subject to the supervision of the Trustees, except as set forth un-
der Advisor, Administrative Services Agent, Custodian and Shareholder Servic-
ing. In connection with its responsibilities as Administrator, SBDS (i) fur-
nishes ordinary clerical and related services for day-to-day operations includ-
ing certain recordkeeping responsibilities; (ii) takes responsibility for com-
pliance with all applicable federal and state securities and other regulatory
requirements; (iii) is responsible for the registration of sufficient Fund
shares under federal and state securities laws; (iv) takes responsibility for
monitoring the Fund's status as a regulated investment company under the Inter-
nal Revenue Code of 1986, as amended (the "Code"); and (v) performs such admin-
istrative and managerial oversight of the activities of the Trust's and the
Portfolio's custodian and transfer agent as the Trustees may direct from time
to time.
Under the Trust's and the Portfolio's Administration Agreements with SBDS, each
of the Fund and the Portfolio has agreed to pay SBDS a fee equal to its propor-
tionate 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 Pier-
pont Funds or The JPM Advisor Funds invest. This charge is calculated in accor-
dance with the following annual schedule: 0.03% on the first $7 billion of the
Master Portfolios' aggregate average daily net assets, and 0.01% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion. The
portion of this charge payable by the Fund or the Portfolio is determined by
the proportionate share that its net assets bear to the total net assets of the
Trust, The Pierpont Funds, The JPM Advisor Funds and the Master Portfolios.
SBDS, a registered broker-dealer, also serves as the Distributor of shares of
the Fund and exclusive placement agent for the Portfolio. SBDS is a wholly
owned subsidiary of Signature. Signature and its affiliates currently provide
administration and distribution services for a number of registered investment
companies through offices located in Boston, New York, London, Toronto and
George Town, Grand Cayman.
ADMINISTRATIVE SERVICES AGENT. Under Administrative Services Agreements with
the Trust and the Portfolio, Morgan is responsible for certain financial, fund
accounting and administrative services provided to the Fund and the Portfolio,
including services related to Portfolio and Fund tax returns, Portfolio and
Fund financial reports, computing Fund dividends and net asset value per share
and keeping the Fund's books of account. Under these agreements, each of the
Fund and the Portfolio has agreed to pay Morgan a fee equal to its proportion-
ate share of an annual complex-wide charge. This charge is calculated daily
based on the aggregate net assets of the Master Portfolios in accordance with
the following annual schedule: 0.06% on the first $7 billion of the Master
Portfolios' aggregate average daily net assets, and 0.03% of the Master Portfo-
lios' aggregate average daily net assets in excess of $7 billion. The portion
of this charge payable by the Fund or the Portfolio is determined by the pro-
portionate share that its net assets bear to the total net assets of the Trust,
The Pierpont Funds, The JPM Advisor Funds, the Master Portfolios and other in-
vestors in the Master Portfolios for which Morgan provides similar services.
Under the terms of the agreements, Morgan may delegate one or more of its re-
sponsibilities to other entities, at Morgan's expense.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02101, serves as the Fund's and the Portfolio's Custodian and
Transfer and Dividend Disbursing Agent.
EXPENSES. In addition to the fees payable to Morgan, SBDS and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor, Adminis-
trator and Distributor, and Administrative Services Agent above and Shareholder
Servicing below, the Fund and the Portfolio are responsible for usual and cus-
tomary expenses associated with their respective operations. Such expenses in-
clude organization expenses, legal fees, accounting expenses, insurance costs,
the compensation and expenses of the Trustees, registration fees under federal
securities laws, and extraordinary expenses applicable to the Fund or the Port-
folio. For the Fund, such expenses also include transfer, registrar and divi-
dend disburs
12
<PAGE>
ing 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 registration fees under
foreign securities laws, custodian fees and brokerage expenses.
Morgan has agreed to waive fees as necessary if in any fiscal year the sum of
the Fund's expenses exceeds the limits set by applicable regulations of state
securities commissions. Such annual limits are currently 2.5% of the first $30
million of average net assets, 2% of the next $70 million of such net assets
and 1.5% of such net assets in excess of $100 million for any fiscal year.
SHAREHOLDER SERVICING
The Fund has entered into a Shareholder Servicing Agreement with Morgan pursu-
ant to which Morgan acts as shareholder servicing agent for its customers and
other Fund investors who are customers of an eligible institution which is a
customer of Morgan (an "Eligible Institution"). The Fund has agreed to pay Mor-
gan for these services at an annual rate (expressed as a percentage of the av-
erage daily net asset values of Fund shares owned by or for shareholders for
whom Morgan is acting as shareholder servicing agent) of 0.10% of the Fund's
average daily net assets. Under the terms of the Shareholder Servicing Agree-
ment with the Fund, Morgan may delegate one or more of its responsibilities to
other entities at Morgan's expense.
Shareholders should address all inquiries to J.P. Morgan Funds Services, Morgan
Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York 10036
or call (800) 766-7722.
The business days of the Fund and the Portfolio are the days the New York Stock
Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
as shareholder servicing agent and the Fund is authorized to accept any in-
structions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Fund's Dis-
tributor. Investors must be customers of Morgan or an Eligible Institution. In-
vestors 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 becom-
ing a Morgan customer for this purpose. Morgan reserves the right to determine
the customers that it will accept, and the Fund reserves the right to determine
the purchase orders that it will accept.
The Fund requires a minimum initial investment of $500,000 and a minimum subse-
quent 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) $500,000 if the account is opened for one client or (ii) $1 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 $1 million
minimum investment within a reasonable period of time that will be no longer
than thirteen months after opening its account. An employer-sponsored retire-
ment plan opening an account in the Fund will be required to attain the $1 mil-
lion minimum balance within thirteen months of opening the account.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value per share next determined after
receipt of an order. Prospective investors may purchase shares with the assis-
tance of an Eligible Institution that may establish its own terms, conditions
and charges.
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<PAGE>
To purchase shares in the Fund, investors should request their Morgan repre-
sentative (or a representative of their Eligible Institution) to assist them
in placing a purchase order with the Fund's Distributor and to transfer imme-
diately available funds to the Fund's Distributor on the next business day.
Any shareholder may also call J.P. Morgan Funds Services at (800) 766-7722 for
assistance in placing an order for Fund shares. If the Fund receives a pur-
chase order prior to 4:00 P.M. New York time on any business day, the purchase
of Fund shares is effective and is made at the net asset value determined that
day, and the purchaser generally becomes a holder of record on the next busi-
ness day upon the Fund's receipt of payment. If the Fund receives a purchase
order after 4:00 P.M. New York time, the purchase is effective and is made at
the net asset value determined on the next business day, and the purchaser be-
comes a holder of record on the following business day upon the Fund's receipt
of payment.
ELIGIBLE INSTITUTIONS. The services provided by Eligible Institutions may in-
clude establishing and maintaining shareholder accounts, processing purchase
and redemption transactions, arranging for bank wires, performing shareholder
sub- accounting, answering client inquiries regarding the Trust, assisting
clients in changing dividend options, account designations and addresses, pro-
viding periodic statements showing the client's account balance and integrat-
ing these statements with those of other transactions and balances in the cli-
ent's other accounts serviced by the Eligible Institution, transmitting proxy
statements, periodic reports, updated prospectuses and other communications to
shareholders and, with respect to meetings of shareholders, collecting, tabu-
lating and forwarding executed proxies and obtaining such other information
and performing such other services as Morgan or the Eligible Institution's
clients may reasonably request and agree upon with the Eligible Institution.
Eligible Institutions may separately establish their own terms, conditions and
charges for providing the aforementioned services and for providing other
services.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
Morgan or his 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 Number 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 prior to 4:00 P.M. New York time is
effective on that day. A redemption request received after that time becomes
effective on the next business day. Proceeds of an effective redemption are
generally deposited the next business day in immediately available funds to
the shareholder's account at Morgan or at his Eligible Institution or, in the
case of certain Morgan customers, are mailed by check or wire transferred in
accordance with the customer's instructions and, subject to Further Redemption
Information, in any event are paid within seven days.
MANDATORY REDEMPTION BY THE FUND. If the value of a shareholder's holdings in
the Fund falls below the applicable minimum initial investment amount for more
than 30 days because of a redemption of shares, the shareholder's remaining
shares may be redeemed by the Fund 60 days after written notice to the share-
holder unless the account is increased to the Fund's minimum investment amount
or more.
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions
from the Fund may not be processed if a redemption request is not submitted in
proper form. To be in proper form, the Fund must have received the sharehold-
er's taxpayer identification number and address. As discussed under Taxes be-
low, the Fund may be required to impose "back-up" withholding of federal in-
come tax on dividends, distributions and redemption proceeds when non-corpo-
rate investors have not provided a certified taxpayer identification number.
In addition, if a shareholder sends a check for
14
<PAGE>
the purchase of Fund shares and shares are purchased before the check has
cleared, the transmittal of redemption proceeds from the shares will occur
upon clearance of the check which may take up to 15 days.
The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other
periods as the 1940 Act or the Securities and Exchange Commission may permit.
See Redemption of Shares in the Statement of Additional Information.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other JPM Institutional
Fund or Pierpont Fund without charge. An exchange may be made so long as after
the exchange the investor has shares, in each fund in which he or she remains
an investor, with a value of at least each of those fund's minimum investment
amounts. See Method of Purchase in the prospectuses for the other JPM Institu-
tional Funds and The Pierpont Funds for the minimum investment amount for each
of those funds. Shares are exchanged on the basis of relative net asset value
per share. Exchanges are in effect redemptions from one fund and purchases of
another fund and the usual purchase and redemption procedures and requirements
are applicable to exchanges. See Purchase of Shares and Redemption of Shares
in this Prospectus and in the prospectuses for the other JPM Institutional
Funds and The Pierpont Funds. See also Additional Information below for an ex-
planation of the telephone exchange policy of The JPM Institutional Funds.
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income
tax purposes. The Fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state securi-
ties laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
Dividends consisting of substantially all of the Fund's net investment income
if any, are declared and paid annually. The Fund may also declare an addi-
tional dividend of net investment income in a given year to the extent neces-
sary to avoid the imposition of federal excise tax on the Fund.
Substantially all the realized net capital gains, if any, of the Fund are de-
clared and paid on an annual basis, except that an additional capital gains
distribution may be made in a given year to the extent necessary to avoid the
imposition of federal excise tax on the Fund. Declared dividends and distribu-
tions are payable to shareholders of record on the record date.
Dividends and capital gains distributions paid by the Fund are automatically
reinvested in additional shares of the Fund unless the shareholder has elected
to have them paid in cash. Dividends and distributions to be paid in cash are
credited to the shareholder's account at Morgan or at his Eligible Institution
or, in the case of certain Morgan customers, are mailed by check in accordance
with the customer's instructions. The Fund reserves the right to discontinue,
alter or limit the automatic reinvestment privilege at any time.
NET ASSET VALUE
Net asset value per share for the Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in the
Portfolio and other assets) the amount of its liabilities and dividing the re-
mainder by the number of its outstanding shares, rounded to the nearest cent.
Expenses, including the fees payable to Morgan, are accrued daily. See Net As-
set Value in the Statement of Additional Information for information on valua-
tion of portfolio securities for the Portfolio.
15
<PAGE>
The Fund computes its net asset value once daily at 4:00 P.M. New York time on
Monday through Friday, except that the net asset value is not computed on the
holidays listed under Net Asset Value in the Statement of Additional
Information.
ORGANIZATION
The Trust was organized on November 4, 1992 as an unincorporated business trust
under Massachusetts law and is an entity commonly known as a "Massachusetts
business trust". The Declaration of Trust permits the Trustees to issue an un-
limited number of full and fractional shares ($0.001 par value) of one or more
series. To date, sixteen 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 ap-
propriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and non- assessable by the Fund. The Trust does not intend to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for ac-
tion by shareholder vote as may be required by either the 1940 Act or the Dec-
laration of Trust. The Trustees will call a meeting of shareholders to vote on
removal of a Trustee upon the written request of the record holders of ten per-
cent of Trust shares and will assist shareholders in communicating with each
other as prescribed in Section 16(c) of the 1940 Act. For further organization
information, including certain shareholder rights, see Description of Shares in
the Statement of Additional Information.
The Portfolio in which all of the assets of the Fund are invested 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 com-
mon 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. According-
ly, the Trustees of the Trust believe that neither the Fund nor its sharehold-
ers will be adversely affected by reason of the Fund's investing in the Portfo-
lio.
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 federal
taxes and with respect to the applicability of state or local taxes. See Taxes
in the Statement of Additional Information. Annual statements as to the current
federal tax status of distributions, if applicable, are mailed to shareholders
after the end of the taxable year for the Fund.
The Trust intends to qualify the Fund as a separate regulated investment com-
pany under Subchapter M of the Code. As a regulated investment company, the
Fund should not be subject to federal income taxes or federal excise taxes if
all of its net investment income and capital gains less any available capital
loss carryforwards are distributed to shareholders within allowable time lim-
its. The Portfolio intends to qualify as an association treated as a partner-
ship for federal income tax purposes. As such, the Portfolio should not be sub-
ject to tax. The Fund's status as a regulated investment company is dependent
on, among other things, the Portfolio's continued qualification as a partner-
ship for federal income tax purposes.
16
<PAGE>
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 non-corporate shareholders.
Distributions of net investment income and realized net short-term capital
gains in excess of net long-term capital losses are taxable as ordinary income
to shareholders of the Fund whether such distributions are taken in cash or re-
invested in additional shares. Distributions of this type to corporate share-
holders of the Fund will not qualify for the dividends- received deduction be-
cause the income of the Fund will not consist of dividends paid by United
States corporations.
Distributions of net long-term capital gains in excess of net short-term capi-
tal losses are taxable to shareholders of the Fund as long-term capital gains
regardless of how long a shareholder has held shares in the Fund and 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.
The Fund is subject to foreign withholding taxes with respect to income re-
ceived from sources within certain foreign countries. So long as more than 50%
of the value of the Fund's total assets at the close of any taxable year con-
sists of stock or securities of foreign corporations, the Fund may elect to
treat any such foreign income taxes paid by it as paid directly by its share-
holders. The Fund will make such an election only if it deems it to be in the
best interests of its shareholders and will notify shareholders in writing each
year if it makes the election and of the amount of foreign income taxes, if
any, to be treated as paid by the shareholders. If the Fund makes the election,
each shareholder will be required to include in income his proportionate share
of the amount of foreign income taxes paid by the Fund and will be entitled to
claim either a credit (which is subject to certain limitations), or, if the
shareholder itemizes deductions, a deduction for his share of the foreign in-
come taxes in computing his federal income tax liability. (No deduction will be
permitted to individuals in computing their alternative minimum tax liability.)
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The finan-
cial statements appearing in annual reports are audited by independent accoun-
tants. Shareholders also will be sent confirmations of each purchase and re-
demption and monthly statements, reflecting all other account activity, includ-
ing dividends and any distributions reinvested in additional shares or credited
as cash.
All shareholders are given the privilege to initiate transactions automatically
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 requiring in-
vestors to give their Personal Identification Number and tape recording of tel-
ephone instructions, to confirm that instructions communicated from investors
by telephone are genuine; if it does not, the Fund, the Shareholder Servicing
Agent or a shareholder's Eligible Institution may be liable for any losses due
to unauthorized or fraudulent instructions.
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<PAGE>
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 & Poors 500 Composite Stock Price Index, the Dow Jones
Average, the Frank Russell Indexes, the Morgan Stanley Capital International
Emerging Markets Free Index, the Financial Times World Stock Index and other
industry publications.
The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of op-
erations, if less) assuming that all distributions and dividends by the Fund
were reinvested on the reinvestment dates during the period and less all re-
curring fees. This method of calculating total return is required by regula-
tions of the Securities and Exchange Commission. Yield and total return data
similarly calculated, unless otherwise indicated, over other specified periods
of time may also be used. See Performance Data in the Statement of Additional
Information. All performance figures are based on historical earnings and are
not intended to indicate future performance. Performance information may be
obtained by calling the Fund's Distributor at (800) 847-9487.
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<PAGE>
APPENDIX
The Portfolio may (a) purchase and sell (write) exchange traded and over-the-
counter (OTC) put and call options on equity securities or indexes of equity
securities, (b) purchase and sell futures contracts on indexes of equity secu-
rities, and (c) purchase and sell (write) put and call options on futures con-
tracts on indexes of equity 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 the option is allowed to expire, the Portfolio will lose
the entire premium it paid. If the Portfolio exercises a put option on a secu-
rity, it will sell the instrument underlying the option at the strike price. If
the Portfolio exercises an option on an index, settlement is in cash and does
not involve the actual sale of securities. If an option is American style, it
may be exercised on any day up to its expiration date. A European style option
may be exercised only on its expiration date.
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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 (write) put and call
options on any securities index based on securities in which the Portfolio may
invest. Options on securities indexes are similar to options on securities, ex-
cept that the exercise of securities index options is settled by cash payment
and does not involve the actual purchase or sale of securities. In addition,
these options are designed to reflect price fluctuations in a group of securi-
ties or segment of the securities market rather than price fluctuations in a
single security. The Portfolio, in purchasing or selling index options, is sub-
ject to the risk that the value of its portfolio securities may not change as
much as an index because the Portfolio's investments generally will not match
the composition of an index.
For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Portfolio may incur additional
losses if the counterparty is unable to perform.
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<PAGE>
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, high quality assets in connection with its
use of options and futures contracts to the extent required by the staff of the
Securities and Exchange Commission. Securities held in a segregated account
cannot be sold while the futures contract or option is outstanding, unless they
are replaced with other suitable assets. As a result,
there is a possibility that segregation of a large percentage of the Portfo-
lio's assets could impede portfolio management or the Portfolio's ability to
meet redemption requests or other current obligations.
For further information about the Portfolio's use of futures and options and a
more detailed discussion of associated risks, see Investment Objectives and
Policies in the Statement of Additional Information.
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---------------------------------------
The JPM
Institutional
Emerging Markets
Equity Fund
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied
upon as having been authorized by the Trust or the Distributor. This Prospectus
does not constitute an offer by the Trust or by the Distributor to sell or a
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Trust or the
Distributor to make such offer in such jurisdiction.
PROSPECTUS
March 1, 1996
<PAGE>
JPM529A
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
MARCH 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 SIGNATURE BROKER-DEALER SERVICES, INC., ATTENTION:
THE JPM INSTITUTIONAL FUNDS; (800) 847-9487.
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Table of Contents
PAGE
General . . . . . . . . . . . . . . . . . . . 1
Investment Objectives and Policies . . . . . . 1
Investment Restrictions . . . . . . . . . . . 34
Trustees and Officers . . . . . . . . . . . . 55
Investment Advisor . . . . . . . . . . . . . . 60
Administrator and Distributor . . . . . . . . 64
Services Agent . . . . . . . . . . . . . . . . 68
Custodian . . . . . . . . . . . . . . . . . . 71
Shareholder Servicing . . . . . . . . . . . . 71
Independent Accountants . . . . . . . . . . . 73
Expenses . . . . . . . . . . . . . . . . . . . 73
Purchase of Shares . . . . . . . . . . . . . . 74
Redemption of Shares . . . . . . . . . . . . . 75
Exchange of Shares . . . . . . . . . . . . . . 76
Dividends and Distributions . . . . . . . . . 76
Net Asset Value . . . . . . . . . . . . . . . 76
Performance Data . . . . . . . . . . . . . . . 78
Portfolio Transactions . . . . . . . . . . . . 82
Massachusetts Trust . . . . . . . . . . . . . 85
Description of Shares . . . . . . . . . . . . 86
Taxes . . . . . . . . . . . . . . . . . . . . 89
Additional Information . . . . . . . . . . . 94
Financial Statements . . . . . . . . . . . . . 95
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
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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 Signature Financial Group, Inc.'s Hub and Spoke(R)
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 6 St.
James Avenue, Boston, Massachusetts 02116.
INVESTMENT OBJECTIVES AND POLICIES
THE JPM INSTITUTIONAL MONEY MARKET FUND (the "Money Market Fund") is
designed to be an economical and convenient means of making substantial
investments in money market instruments. The Money Market Fund's investment
objective is to maximize current income and maintain a high level of liquidity.
The Fund attempts to achieve this objective by investing all of its investable
assets in The Money Market Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the Money
Market Fund.
The Portfolio seeks to achieve its investment objective by maintaining
a dollar-weighted average portfolio maturity of not more than 90 days and by
investing in U.S. dollar denominated securities described in the Prospectus and
this Statement of
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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, 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.
Treasury. The Treasury Money Market Fund's investment objective is to provide
current income, maintain a high level of liquidity and preserve capital. The
Fund attempts to accomplish this objective by investing all of its investable
assets in The Treasury Money Market Portfolio (the "Portfolio"), a diversified
open-end management investment company having the same investment objective as
the Treasury Money Market Fund.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing 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
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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.
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.
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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
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"New York Total Return Bond Fund") is designed to be an economical and
convenient means of investing in a portfolio consisting primarily of debt
obligations that are exempt from federal and New York State income taxes. The
New York Total Return Bond Fund's investment objective is to provide a high
after tax total return for New York residents consistent with moderate risk of
capital. Total return will consist of income plus capital gains and losses. The
Fund attempts to achieve its objective by investing all of its investable assets
in The New York Total Return Bond Portfolio (the "Portfolio"), a non-diversified
open-end management investment company having the same investment objective as
the Fund.
The Portfolio attempts to achieve its investment objective by investing
primarily in municipal securities issued by New York State and its political
subdivisions and by agencies, authorities 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
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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 current and prospective holdings and, in conjunction with the credit
committee, recommend purchases and sales.
THE JPM INSTITUTIONAL DIVERSIFIED FUND (the "Diversified Fund") is
designed for investors who wish to invest for long term objectives such as
retirement and who seek to attain real appreciation in their investments over
the long term, but with somewhat less price fluctuation than a portfolio
consisting solely of equity securities. The Diversified Fund's investment
objective is to provide a high total return from a diversified portfolio of
equity and fixed income securities. The Fund attempts to achieve its investment
objective by investing all of its investable assets in The Diversified
Portfolio, a diversified open-end management investment company having the same
investment objective as the Diversified Fund.
THE JPM INSTITUTIONAL SELECTED U.S. EQUITY FUND (the
"Selected U.S. Equity Fund") is designed for investors who want
an actively managed portfolio of selected equity securities that
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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 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,
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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 risk control 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
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(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,
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.
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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 Europe Index which is comprised of more than 500 companies in
fourteen European countries. The European Equity Fund's investment objective is
to provide a high total return from a portfolio of Equity Securities of European
companies. The European Equity Fund attempts to achieve its investment objective
by investing all of its investable assets in The European Equity Portfolio (the
"Portfolio"), a diversified open-end management investment company having the
same investment objective as the European Equity Fund.
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The Portfolio seeks to achieve its investment objective by investing
primarily in the Equity Securities of European companies. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing at the same time in a significant number of European
countries render investments in such countries inadvisable.
INVESTMENT PROCESS
Country allocation: Morgan's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of those
deviations. Countries with high (low) rankings are overweighted (underweighted)
in comparison to the Morgan Stanley Capital International Europe Index to
reflect the above-average (below-average) attractiveness of their stock markets.
In determining weightings, Morgan analyzes a variety of qualitative factors as
well -- including the liquidity, earnings momentum and interest rate climate of
the market at hand. These qualitative assessments can change the magnitude but
not the direction of the country allocations called for by the risk-premium
forecast. In an effort to contain risk, Morgan places limits on the total size
of the Portfolio's country over- and under-weightings.
Stock selection: Morgan's 15 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
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Equity Fund's investment objective is to provide a high total return from a
portfolio of Equity Securities of Japanese companies. The Japan Equity Fund
attempts to achieve its investment objective by investing all of its investable
assets in The Japan Equity Portfolio (the "Portfolio"), a non-diversified
open-end management investment company having the same investment objective as
the Japan Equity Fund. For additional information, see "Appendix C - Investing
in Japan and Asian Growth Markets."
The Portfolio seeks to achieve its investment objective by investing
primarily in the Equity Securities of Japanese companies. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing in Japan render investments there inadvisable.
INVESTMENT PROCESS
Systematic valuation: Morgan's ten Japanese equity analysts in Tokyo
- --each an industry specialist -- follow a total of over 300 Japanese companies.
The most attractive names in that universe are identified by a multifactor model
which screens for low price/earnings ratios, high earnings growth rates and high
sales/price ratios. Within each sector, this subset of the universe is ranked by
these three measures and broken into quintiles; the companies in the top
quintile are considered the most attractive ones from both a growth and
valuation viewpoint. To provide an additional check on the valuation of selected
companies, the analysts prepare normalized, long-term earnings and dividend
forecasts which are converted into comparable expected returns by a dividend
discount model.
Warrant/convertible strategy: Once a company has been identified as a
buy candidate, the portfolio manager analyzes the yields on the company's
available equity vehicles -- stocks, warrants and convertibles -- to determine
which appears the most attractive means of purchase. In an effort to enhance
potential returns, the Portfolio also trades among these vehicles -- a strategy
that seeks to capitalize on the inefficiencies that pervade the Japanese equity
market. If the Portfolio invests in a warrant, it will set aside cash in an
amount approximately equal to the difference in the price of the warrant and the
market value of the underlying common stock. The cash is invested in money
market instruments.
Disciplined portfolio construction: The Portfolio is constructed using
disciplined buy and sell rules. The portfolio manager's objective is to
concentrate purchases in the top 20% of the rankings; the specific companies
selected reflect the portfolio manager's judgment concerning the liquidity of an
issue, the soundness of the underlying forecasts, and the magnitude of the risks
versus the rewards. Once a stock falls
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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.
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
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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
the United States itself in the event the agency or instrumentality does not
meet
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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 Short Term Bond, Bond,
International Bond, Selected U.S. Equity, U.S. Small Company,
International Equity, Emerging Markets Equity or Diversified
Funds, in another currency. See "Foreign Investments."
BANK OBLIGATIONS. Each of the Funds, except the Treasury Money Market
Fund, unless otherwise noted in the Prospectus or below, may invest in
negotiable certificates of deposit, time deposits and bankers' acceptances of
(i) banks, savings and loan associations and savings banks which have more than
$2 billion in total assets (the "Asset Limitation") and are organized under the
laws of the United States or any state, (ii) foreign branches of these banks or
of foreign banks of equivalent size (Euros) and (iii) U.S. branches of foreign
banks of equivalent size (Yankees). The Tax Exempt Money Market, Tax Exempt Bond
and New York Total Return Bond Funds may not invest in obligations of foreign
branches of foreign banks and the Asset Limitation is not applicable to the
International Bond, International Equity, Emerging Markets Equity, European
Equity, 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).
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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
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
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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
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
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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
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notes, bond anticipation notes, revenue anticipation notes, grant anticipation
notes and project notes. Notes sold in anticipation of collection of taxes, a
bond sale, or receipt of other revenues are usually general obligations of the
issuing municipality or agency.
Municipal commercial paper typically consists of very short-term
unsecured negotiable promissory notes that are sold to meet seasonal working
capital or interim construction financing needs of a municipality or agency.
While these obligations are intended to be paid from general revenues or
refinanced with long-term debt, they frequently are backed by letters of credit,
lending agreements, note repurchase agreements or other credit facility
agreements offered by banks or institutions.
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
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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 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
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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 and Diversified
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,
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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
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'
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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, with listed
stock prices reaching their lowest levels in the third quarter of 1992 and OTC
stock prices reaching their lowest levels in the fourth quarter of 1992. During
the period from January 1, 1989 through December 31, 1994, the highest Nikkei
stock average and Nikkei OTC average were 38,915.87 and 4,149.20, respectively,
and the lowest for each were 14,309.41 and 1,099.32, respectively. There can be
no assurance that additional market corrections will not occur.
The common stocks of many Japanese companies continue to trade at high
price earnings ratios in comparison with those in the United States, even after
the recent market decline. Differences in accounting methods make it difficult
to compare the earnings of Japanese companies with those of companies in other
countries, especially the United States.
Since the 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. Such
rate of exchange is determined by forces of supply and demand on the foreign
exchange markets. These forces are in turn affected by the international balance
of payments and other economic, political and financial conditions, government
intervention, speculation and other factors. See Foreign Currency Exchange
Transactions.
Japanese securities held by the
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Portfolios are not registered with the SEC nor are the issuers thereof subject
to its reporting requirements. There may be less publicly available information
about issuers of Japanese securities than about U.S. companies and such issuers
may not be subject to accounting, auditing and financial reporting standards and
requirements comparable to those to which U.S. companies are subject.
Although the Japanese economy has grown substantially over the past
four decades, recently the rate of growth had slowed substantially. During 1991,
1992 and 1993, the Japanese economy grew at rates of 4.3%, 1.1% and 0.1%,
respectively, as measured by real gross domestic product.
Japan's success in exporting its products has generated a sizeable
trade surplus. Such trade surplus has caused tensions at times between Japan and
some of its trading partners. In particular, Japan's trade relations with the
United States have recently been the subject of discussion and negotiation
between the two nations. The United States has imposed certain measures designed
to address trade issues in specific industries. These measures and similar
measures in the future may adversely affect the performance of 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
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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 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
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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
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borrowed securities which occurs during the term of the loan inures to a
Portfolio and its respective investors. The Portfolios may pay reasonable
finders' and custodial fees in connection with a loan. In addition, a Portfolio
will consider all facts and circumstances including the creditworthiness of the
borrowing financial institution, and no Portfolio will make any loans in excess
of one year. The Portfolios will not lend their securities to any officer,
Trustee, Director, employee or other affiliate of the Portfolios, the Advisor or
the Distributor, unless otherwise permitted by applicable law.
PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. The Portfolios
for each of the Funds (except the Treasury Money Market Fund) may invest in
privately placed, restricted, Rule 144A or other unregistered securities as
described in the Prospectus.
As to illiquid investments, a Portfolio is subject to a risk that
should the Portfolio decide to sell them when a ready buyer is not available at
a price the Portfolio deems representative of their value, the value of the
Portfolio's net assets could be adversely affected. Where an illiquid security
must be registered under the Securities Act of 1933, as amended (the "1933
Act"), before it may be sold, a Portfolio may be obligated to pay all or part of
the registration expenses, and a considerable period may elapse between the time
of the decision 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
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and instrumentalities, and (2) the Fund may not own more than 10% of the
outstanding voting securities of any one issuer. As for the other 25% of the
Fund's assets not subject to the limitation described above, there is no
limitation on investment of these assets under the 1940 Act, so that all of such
assets may be invested in securities of any one issuer, subject to the
limitation of any applicable state securities laws, or with respect to the Money
Market and Treasury Money Market Funds, as described below. Investments not
subject to the limitations described above could involve an increased risk to a
Fund should an issuer, or a state or its related entities, be unable to make
interest or principal payments or should the market value of such securities
decline.
Although the New York Total Return Bond, International Bond and Japan
Equity Funds are not limited by the diversification requirements of the 1940
Act, these Funds will comply with the diversification requirements imposed by
the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as
a regulated investment company. To meet these requirements, each Fund must
diversify its holdings so that, with respect to 50% of the Fund's assets, no
more than 5% of its assets are invested in the securities of any one issuer
other than the U.S. Government at the close of each quarter of the Fund's
taxable year. The Fund may with respect to the remaining 50% of its assets,
invest up to 25% of its assets in the securities of any one issuer (except this
limitation does not apply to U.S. Government Securities).
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,
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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
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
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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 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
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invest in any commercial paper, bank obligation or repurchase agreement, the
issuer must have outstanding debt rated A or higher by Moody's or Standard &
Poor's, the issuer's parent corporation, if any, must have outstanding
commercial paper rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no
such ratings are available, the investment must be of comparable quality in the
Advisor's opinion.
TAX EXEMPT BOND FUND. The Tax Exempt Bond Fund invests principally in a
diversified portfolio of "high grade" and "investment grade" tax exempt
securities. On the date of investment (i) municipal bonds must be rated within
the three highest ratings of Moody's, currently Aaa, Aa and A, or of Standard &
Poor's, currently AAA, AA, and A, (ii) municipal notes must be rated MIG-1 by
Moody's or SP-1 by Standard & Poor's (or, in the case of New York State
municipal notes, MIG-1 or MIG-2 by Moody's or SP-1 or SP-2 by Standard & Poor's)
and (iii) municipal commercial paper must be rated Prime-1 by Moody's or A-1 by
Standard & Poor's or, if not rated by either Moody's or Standard & Poor's,
issued by an issuer either (a) having an outstanding debt issue rated A or
higher by Moody's or Standard & Poor's or (b) having comparable quality in the
opinion of the Advisor. The Fund may invest in other tax exempt securities which
are not rated if, in the opinion of the Advisor, such securities are of
comparable quality to the rated securities discussed above. In addition, at the
time the Fund invests in 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
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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
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
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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,
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certain Portfolios may purchase a put option and write a call option on the same
underlying instrument, in order to construct a combined position whose risk and
return characteristics are similar to selling a futures contract. Another
possible combined position would involve writing a call option at one strike
price and buying a call option at a lower price, in order to reduce the risk of
the written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types of
exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match a
Portfolio's current or anticipated investments exactly. A Portfolio may invest
in options and futures contracts based on securities with different issuers,
maturities, or other characteristics from the securities in which it typically
invests, which involves a risk that the options or futures position will not
track the performance of the Portfolio's other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match the
Portfolio's investments well. Options and futures contracts prices are affected
by such factors as current and anticipated short term interest rates, changes in
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
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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 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
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gains that are greater than if these techniques involved the purchase and sale
of the securities themselves rather than their synthetic derivatives.
SPECIAL FACTORS AFFECTING THE NEW YORK TOTAL RETURN BOND FUND. The New York
Total Return Bond Fund intends to invest a high proportion of its assets in
municipal obligations of the State of New York and its political subdivisions,
municipalities, agencies, instrumentalities and public authorities. Payment of
interest and preservation of principal is dependent upon the continuing ability
of New York issuers and/or obligators of state, municipal and public authority
debt obligations to meet their obligations thereunder.
The fiscal stability of New York State is related, at least in part, to
the fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State through lease-purchase arrangements, other
contractual arrangements or moral obligation provisions. While debt service is
normally paid out of revenues generated by projects of such State agencies,
authorities and localities, the State has had to provide special assistance in
recent years, in some cases of a recurring nature, to enable such agencies,
authorities and localities to meet their financial obligations and, in some
cases, to prevent or cure defaults. To the extent State agencies and local
governments require State assistance to meet their financial obligations, the
ability of the State to meet its own obligations as they become due or to obtain
additional financing could be adversely affected.
On July 10, 1995, Standard & Poor's downgraded its rating on New York
city's outstanding general obligation bonds to BBB+ from A-, citing the city's
chronic structural budget problems and weak economic outlook. Other factors
contributing to Standard & Poor's downgrade include the city's reliance on
one-time revenue measures to close annual budget gaps, a dependence on
unrealized labor savings, overly optimistic estimates of revenues and of state
and federal aid, and the city's continued high debt levels.
For further information concerning New York municipal obligations, see
Appendix B to this Statement of Additional Information. The summary set forth
above and in Appendix B is included for the purpose of providing a general
description of New York State and New York City credit and financial conditions.
This summary is based on information from an official statement of New York
general obligation municipal obligations and does not purport to be complete.
PORTFOLIO TURNOVER
Set forth below are the portfolio turnover rates for the Portfolios
corresponding to the Funds. A rate of 100% indicates that the equivalent of all
of the Portfolio's assets have been
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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%.
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 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 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 estimated portfolio turnover rate for each of the European Equity,
Japan Equity and Asia Growth Portfolios
generally should not exceed 100%.
INVESTMENT RESTRICTIONS
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The investment restrictions of each Fund and its corresponding
Portfolio are identical, unless otherwise specified. Accordingly, references
below to a Fund also include the Fund's corresponding Portfolio unless the
context requires otherwise; similarly, references to a Portfolio also include
its corresponding Fund unless the context requires otherwise.
The investment restrictions below have been adopted by the Trust with
respect to each Fund and by each corresponding Portfolio. Except where otherwise
noted, these investment restrictions are "fundamental" policies which, under the
1940 Act, may not be changed without the vote of a majority of the outstanding
voting securities of the Fund or Portfolio, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
(a) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities. Whenever a Fund is requested to vote on a change in the
fundamental investment restrictions of its corresponding Portfolio, the Trust
will hold a meeting of Fund shareholders and will cast its votes as instructed
by the Fund's shareholders.
The MONEY MARKET FUND and its corresponding PORTFOLIO may not:
1. Acquire any illiquid securities, such as repurchase agreements with more than
seven days to maturity or fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 10% of the market value of the
Fund's total assets would be in investments which are illiquid;
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
40
<PAGE>
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");
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
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<PAGE>
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 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
- --------
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.
2For purposes of interpretation of Investment Restriction No. 4 "guaranteed by
another entity" includes credit substitutions, such as letters of credit or
insurance, unless the Advisor determines that the security meets the Fund's
credit standards without regard to the credit substitution.
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<PAGE>
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 objective and restrictions as the Fund. This
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<PAGE>
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
44
<PAGE>
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. 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
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<PAGE>
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
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
46
<PAGE>
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,
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<PAGE>
or maintain a short position in securities, except in the course of the Fund's
hedging activities, unless at all times when a short position is open the Fund
owns an equal amount of such securities, provided that this restriction shall
not be deemed to be applicable to the purchase or sale of when-issued securities
or delayed delivery securities;
8. Issue any senior security, except as appropriate to evidence indebtedness
which constitutes a senior security and which the Fund is permitted to incur
pursuant to Investment Restriction No. 1 and except that the Fund may enter into
reverse repurchase agreements, provided that the aggregate of senior securities,
including reverse repurchase agreements, shall not exceed one-third of the
market value of the Fund's total assets, less liabilities other than obligations
created by reverse repurchase agreements. The Fund's arrangements in connection
with its hedging activities as described in "Investment Objectives and Policies"
shall not be considered senior securities for purposes hereof;
9. Acquire securities of other investment companies, except as
permitted by the 1940 Act; or
10. Act as an underwriter of securities.
The TAX EXEMPT BOND FUND and its corresponding PORTFOLIO may
not:
1. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts up to 10% of the value of the Fund's total assets, taken at
cost at the time of such borrowing; or mortgage, pledge, or hypothecate any
assets except in connection with any such borrowing in amounts up to 10% of the
value of the Fund's net assets at the time of such borrowing. The Fund will not
purchase securities while borrowings exceed 5% of the Fund's total assets;
provided, however, that the Fund may increase its interest in an open-end
management investment company with the same investment objective and
restrictions as the Fund's while such borrowings are outstanding. This borrowing
provision facilitates the orderly sale of portfolio securities, for example, in
the event of abnormally heavy redemption requests. This provision is not for
investment purposes. Collateral arrangements for premium and margin payments in
connection with the Fund's hedging activities are not deemed to be a pledge of
assets;
2. Purchase securities or other obligations of any one 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
48
<PAGE>
and each multi-state agency of which such state is a member will be a separate
issuer if the security is backed only by the assets and revenue of that issuer.
If the security is guaranteed by another entity, the guarantor will be deemed to
be the issuer.3 This limitation shall not apply to securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or to
permitted investments of up to 25% of the Fund's total assets;
3. Invest more than 25% of its total assets in securities of governmental units
located in any one state, territory, or possession of the United States. The
Fund may invest more than 25% of its total assets in industrial developments and
pollution control obligations whether or not the users of facilities financed by
such obligations are in that same industry;4
4. Purchase industrial revenue bonds if, as a result of such purchase, more than
5% of total Fund assets would be invested in industrial revenue bonds where
payment of principal and interest are the responsibility of companies with fewer
than three years of operating history (including predecessors);
5. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities) or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies (see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof
except to the extent that securities subject to a demand obligation, stand-by
commitments and puts may be purchased (see "Investment Objectives and
Policies"); real estate; commodities; commodity contracts, except for the Fund's
interests in hedging activities as described under "Investment Objectives and
Policies"; or interests in oil, gas, or mineral exploration or development
programs. However, the Fund may purchase municipal bonds, notes or commercial
paper secured by interests in real estate;
7. Purchase securities on margin, make short sales of securities, or maintain a
short position, except in the 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;
- --------
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.
49
<PAGE>
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
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
50
<PAGE>
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
51
<PAGE>
same investment objective and restrictions as the Fund's while such borrowings
are outstanding. This borrowing provision is included to facilitate the orderly
sale of portfolio securities, for example, in the event of abnormally heavy
redemption requests, and is not for investment purposes. Collateral arrangements
for premium and margin payments in connection with the Fund's use of futures
contracts and options are not deemed to be a pledge of assets;
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;
52
<PAGE>
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
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;
53
<PAGE>
5. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities), or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies (see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, or commodity contracts, except for the Fund's
interests in hedging activities as described under "Investment Objectives and
Policies"; or interests in oil, gas, or mineral exploration or development
programs. However, the Fund may purchase securities or commercial paper issued
by companies which invest in real estate or interests therein, including real
estate investment trusts;
7. Purchase securities on margin, make short sales of securities, or maintain a
short position, except in the course of the Fund's hedging activities, provided
that this restriction shall not be deemed to be applicable to the purchase or
sale of when-issued securities or delayed delivery securities;
8. Acquire securities of other investment companies, except as permitted by the
1940 Act;
9. Act as an underwriter of securities;
10. Issue any senior security, except as appropriate to evidence indebtedness
which the Fund is permitted to incur pursuant to Investment Restriction No. 2.
The Fund's arrangements in connection with its hedging activities as described
in "Investment Objectives and Policies" shall not be considered senior
securities for purposes hereof; or
11. Purchase any equity security if, as a result, the Fund would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three years.
The INTERNATIONAL EQUITY FUND and its corresponding PORTFOLIO may not:
1. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts up to 30% of the value of the Fund's net assets at the time
of borrowing, and except in connection with reverse repurchase agreements and
then only in amounts up to 33 1/3% of the value of the Fund's net assets; or
purchase securities while borrowings, including reverse repurchase agreements,
exceed 5% of the Fund's total assets; provided, however, that the Fund may
increase its interest in an open-end management investment company with the same
investment objective and restrictions as the Fund's while such borrowings are
outstanding. The Fund will not mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts not to exceed 30% of
the value of the
54
<PAGE>
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
55
<PAGE>
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
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;
56
<PAGE>
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:
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
57
<PAGE>
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:
(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.
58
<PAGE>
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, EMERGING MARKETS EQUITY FUND,
EUROPEAN EQUITY FUND, JAPAN EQUITY FUND AND ASIA GROWTH FUND. The investment
restriction described below is not a fundamental policy of these Funds or their
corresponding Portfolios and may be changed by their respective Trustees. This
non-fundamental investment policy requires that each such Fund may not:
(i) acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 15% of the market 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
59
<PAGE>
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;
(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
60
<PAGE>
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;
(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
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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
(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
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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; Limited Partner, Galen
Partners L.P. and Vice Chairman, Galen Associates, since 1990;
Chief Executive Officer, Galen Associates and General Partner,
Galen Partners L.P., until 1991. His address is 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; Chairman and Chief Executive
Officer, Execution Services, Inc. until October 1991. His address is Pine Tree
Club Estates, 10286 Saint Andrews Road, Boynton Beach, FL 33436.
MICHAEL P. MALLARDI--Trustee; Senior Vice President, Capital
Cities/ABC, Inc., President, Broadcast Group, since 1986. His
address is 77 West 66th Street, New York, NY 10017.
- ------------------------
(*) Mr. Healey is an "interested person" of the Trust and each
Portfolio as that term is defined in the 1940 Act.
The Trustees of the Trust are the same as the Trustees of each of the
Portfolios. In accordance with applicable state requirements, a majority of the
disinterested Trustees have adopted written procedures reasonably appropriate to
deal with potential conflicts of interest arising from the fact that the same
individuals are Trustees of the Trust, each of the Portfolios and The Pierpont
Funds, up to and including creating a separate board of trustees.
Each Trustee is paid an annual fee as follows for serving as Trustee of
the Trust, each of the Portfolios, The Series Portfolio and The Pierpont Funds,
and is reimbursed for expenses incurred in connection with service as a Trustee.
The compensation paid to the Trustees in calendar 1995 is set
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forth below. The Trustees may hold various other directorships
unrelated to these funds.
<TABLE>
<S> <C> <C> <C> <C>
PENSION TOTAL COMPENSATION FROM
AGGREGATE RETIREMENT THE PORTFOLIOS, JPM
COMPENSATION BENEFITS ESTIMATED INSTITUTIONAL AND
FROM THE TRUST ACCRUED AS PART ANNUAL BENEFITS PIERPONT FUNDS PAID TO
DURING 1995 OF FUND EXPENSES UPON RETIREMENT TRUSTEES DURING 1995
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, $8,727 None None $62,500
Trustee
</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, The Series Portfolio 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.
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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.
THE TAX EXEMPT BOND PORTFOLIO -- For the fiscal year ended 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. THE NEW YORK TOTAL RETURN BOND
PORTFOLIO -- For the period April 11, 1994 (commencement of operations) through
March 31, 1995:
$4,140.
INTERNATIONAL BOND FUND -- For the period December 1, 1994
(commencement of operations) through September 30, 1995: $232.
THE NEW YORK TOTAL RETURN BOND 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
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<PAGE>
(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.
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.
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: $1,437.
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.
As of the date of this Statement of Additional Information, financial
information for the initial fiscal period of the European Equity, Japan Equity
and Asia Growth Portfolios
was not yet available.
OFFICERS
The Trust's and Portfolios' executive officers (listed
below), other than the Chief Executive Officer, are provided and
compensated by Signature Broker-Dealer Services, Inc. ("SBDS"), a
wholly owned subsidiary of Signature Financial Group, Inc.
("Signature"). The officers conduct and supervise the business
operations of the Trust and the Portfolios. The Trust and the
Portfolios have no employees.
The officers of the Trust and the Portfolios and their principal
occupations during the past five years are set forth below. Unless otherwise
specified, each officer holds the same position with the Trust and each
Portfolio. The business address of each of the officers unless otherwise noted
is Signature Broker-Dealer Services, Inc., 6 St. James Avenue, Boston,
Massachusetts 02116.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
Inc., since 1989; Chairman and Chief Executive Officer, Execution Services, Inc.
until October 1991. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, FL
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<PAGE>
33436.
PHILIP W. COOLIDGE; President; Chairman, Chief Executive Officer and
President, Signature since December 1988 and SBDS since April 1989.
DAVID G. DANIELSON; Assistant Treasurer; Assistant Manager, Signature
since May 1991; Graduate Student, Northeastern University from April 1990 to
March 1991.
JOHN R. ELDER; Treasurer; Vice President, Signature (since April 1995);
Treasurer, Phoenix Family of Mutual Funds (Phoenix Home Life Mutual Insurance
Company) (from 1983 to March
1995).
LINDA T. GIBSON; Assistant Secretary; Legal Counsel and Assistant
Secretary, Signature since June 1991; Assistant Secretary, SBDS since November
1992; law student, Boston University School of Law prior to May 1992.
JAMES E. HOOLAHAN; Vice President; Senior Vice President, Signature
since December 1989.
SUSAN JAKUBOSKI; Assistant Secretary and Assistant Treasurer of the
Portfolios only; Manager and Senior Fund Administrator, Signature and Signature
(Cayman) (since August 1994); Assistant Treasurer, SBDS (since September 1994);
Fund Compliance Administrator, Concord Financial Group, Inc. (from November 1990
to August 1994); Senior Fund Accountant, Neuberger & Berman Management
Incorporated (since prior to 1990).
Her address is P.O. Box 2494, Elizabethan Square, George Town, Grand
Cayman, Cayman Islands, B.W.I.
THOMAS M. LENZ; Secretary; Vice President and Associate General
Counsel, Signature since November 1989; Assistant Secretary, SBDS since February
1991.
MOLLY S. MUGLER; Assistant Secretary; Legal Counsel and Assistant
Secretary, Signature since December 1988; Assistant Secretary, SBDS since April
1989.
ANDRES E. SALDANA; Assistant Secretary; Legal Counsel and Assistant
Secretary, Signature since November 1992; Assistant Secretary, SBDS since
September 1993; Attorney, Ropes & Gray from September 1990 to November 1992.
DANIEL E. SHEA; Assistant Treasurer; Assistant Manager of Fund
Administration, Signature since November 1993; Supervisor and Senior Technical
Advisor, Putnam Investments since prior to 1990.
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<PAGE>
Messrs. Coolidge, Danielson, Elder, Hoolahan, Lenz, Saldana and Shea
and Mss. Gibson, Mugler and Jakuboski hold similar positions for other
investment companies for which SBDS or an affiliate serves as principal
underwriter.
INVESTMENT ADVISOR
The investment advisor to the Portfolios is Morgan Guaranty Trust
Company of New York, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), a bank holding company organized under the laws of the State of
Delaware. Morgan, whose principal offices are at 60 Wall Street, New York, New
York 10260, is a New York trust company which conducts a general banking and
trust business. Morgan is subject to regulation by the New York State Banking
Department and is a member bank of the Federal Reserve System. Through offices
in New York City and abroad, Morgan offers a wide range of services, primarily
to governmental, institutional, corporate and high net worth individual
customers in the United States and throughout the world.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of $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.
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
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<PAGE>
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 and The Treasury Money Market
Portfolio--IBC/Donoghue's Money Fund Average; The Tax Exempt Money Market
Portfolio--IBC/Donoghue's Tax Exempt Money Fund Average; The Short Term Bond
Portfolio--Merrill Lynch 1-3 Year Treasury Index; The U.S. Fixed Income
Portfolio--Salomon Brothers Broad Investment Grade Bond Index; The Tax Exempt
Bond Portfolio--Lehman Brothers Quality Intermediate Municipal Bond Index; The
New York Total Return Bond Portfolio--Lehman Brothers 1-15 Year Municipal Bond
Index; The 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;
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
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<PAGE>
institutional investors, including investment companies. Certain
of the assets of employee benefit accounts under its management
are invested in commingled pension trust funds for which the
Advisor serves as trustee. J.P. Morgan Investment Management
Inc. advises the Advisor on investment of the commingled pension
trust funds.
The Portfolios are managed by officers of the Advisor who, in acting
for their customers, including the Portfolios, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan Investment Management Inc. See "Portfolio Transactions" below for a
description of services provided to the Portfolios by J.P.
Morgan Investment Management Inc.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Advisory
Agreements, the Portfolio corresponding to each Fund has agreed to pay the
Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of each Portfolio's average daily net assets shown below.
MONEY MARKET: 0.20% of net assets up to $1 billion and 0.10% of
net assets in excess of $1 billion
TAX EXEMPT MONEY MARKET: 0.20% of net assets up to $1 billion
and 0.10% of net assets in excess of $1 billion
TREASURY MONEY MARKET: 0.20% of net assets up to $1 billion and
0.10% of net assets in excess of $1 billion
SHORT TERM BOND: 0.25%
U.S. FIXED INCOME: 0.30%
TAX EXEMPT BOND: 0.30%
NEW YORK TOTAL RETURN BOND: 0.30%
NON-U.S. FIXED INCOME: 0.35%
SELECTED U.S. EQUITY: 0.40%
U.S. SMALL COMPANY: 0.60%
NON-U.S. EQUITY: 0.60%
EMERGING MARKETS EQUITY: 1.00%
DIVERSIFIED: 0.55%
EUROPEAN EQUITY: 0.65%
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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.
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.
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) --
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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 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.
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.
As of the date of this Statement of Additional Information, financial
information for the initial fiscal period of the European Equity, Japan Equity
and Asia Growth Portfolios was not yet available.
The Investment Advisory Agreements provide that they will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Administrator and Distributor" below. Each of the Investment Advisory
Agreements will terminate automatically if assigned and is terminable at any
time without penalty by a vote of a majority of the Portfolio's Trustees, or by
a vote of the holders of a majority of the Portfolio's outstanding voting
securities, on 60 days' written notice to the Advisor and by the Advisor on 90
days' written notice to the Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks such as Morgan from engaging in the business of underwriting or
distributing securities, and the Board of Governors of the Federal Reserve
System has issued an interpretation to the effect that under these laws a bank
holding company registered under the federal Bank Holding Company Act or certain
subsidiaries thereof may not sponsor, organize, or control a registered open-end
investment company continuously engaged in the issuance of its shares, such as
the Trust. The interpretation does not prohibit a holding company or a
subsidiary thereof from acting as investment advisor and custodian to such an
investment company. Morgan believes that it may perform the services for the
Portfolios contemplated by the
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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.
ADMINISTRATOR AND DISTRIBUTOR
SBDS serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for each Fund's shares. In that capacity,
SBDS has been granted the right, as agent of the Trust, to solicit and accept
orders for the purchase of each Fund's shares in accordance with the terms of
the Distribution Agreement between the Trust and SBDS. The Distribution
Agreement shall continue in effect with respect to each Fund for a period of two
years after execution only if it is approved at least annually thereafter (i) by
a vote of the holders of a majority of the Fund's outstanding shares or by its
Trustees and (ii) by a vote of a majority of the Trustees of the Trust who are
not "interested persons" (as defined by the 1940 Act) of the parties to the
Distribution Agreement, cast in person at a meeting called for the purpose of
voting on such approval (see "Trustees and Officers"). The Distribution
Agreement will terminate automatically if assigned by either party thereto and
is terminable at any time without penalty by a vote of a majority of the
Trustees of the Trust, a vote of a majority of the Trustees who are not
"interested persons" of the Trust, or by a vote of the holders of a majority of
the Fund's outstanding shares as defined under "Additional Information", in any
case without payment of any penalty on not more than 60 days' nor less than 30
days' written notice to the other party. The principal offices of SBDS are
located at 6 St. James Avenue, Boston, Massachusetts 02116.
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SBDS also serves as the Trust's and the Portfolios' Administrator and
in that capacity administers and manages all aspects of the Funds' and the
Portfolios' day-to-day operations subject to the supervision of the Trustees,
except as set forth under Investment Advisor, Services Agent, Custodian, and
Shareholder Services. In connection with its responsibilities as Administrator,
SBDS (i) furnishes ordinary clerical and related services for day-to-day
operations including certain record keeping responsibilities; (ii) takes
responsibility for compliance with all applicable federal and state securities
and other regulatory requirements including, without limitation, preparing and
mailing and filing (but not paying for) registration statements, prospectuses,
statements of additional information, and proxy statements and all required
reports to the Trust's shareholders, the SEC, the Secretary of The Commonwealth
of Massachusetts, and state securities commissions; (iii) is responsible for the
registration of sufficient Fund shares under federal and state securities laws;
(iv) takes responsibility for monitoring each Fund's status as a regulated
investment company under the Code; and (v) performs such administrative and
managerial oversight of the activities of the Trust's and the Portfolios'
custodian and transfer agent as the Trustees may direct from time to time.
Under the Trust's and the Portfolios' Administration Agreements, each
Fund and its corresponding Portfolio has agreed to pay SBDS a fee equal to its
proportionate share of an annual complex-wide charge. This charge is calculated
daily based on the aggregate net assets of the Portfolios in accordance with the
following annual schedule: 0.03% of the first $7 billion of the Portfolios'
aggregate average daily net assets, and 0.01% of the Portfolios' average daily
net assets in excess of $7 billion. The portion of this charge payable by a Fund
or its corresponding Portfolio is determined by the proportionate share that its
net assets bear to the total net assets of the Trust, The Pierpont Funds, The
JPM Advisor Funds and the Portfolios.
Below are set forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to the Administrator for the fiscal
periods indicated. See "Expenses" in the Prospectus and below for applicable
expense limitations.
THE MONEY MARKET PORTFOLIO -- For the period July 12, 1993 (commencement of
operations) through November 30, 1993: $32,869.
For the fiscal year ended November 30, 1994: $165,519. 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.
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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.
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.
NEW YORK TOTAL RETURN BOND FUND -- For the period April 11, 1994 (commencement
of operations) through March 31, 1995: $3,042.
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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 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.
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.
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: $3,660.
As of the date of this Statement of Additional Information, financial
information for the initial fiscal periods of the European Equity, Japan Equity
and Asia Growth Funds and their corresponding Portfolios
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was not yet available.
The Administration Agreements may be renewed or amended by the
respective Trustees without a shareholder vote. The Administration Agreements
are terminable at any time without penalty by a vote of a majority of the
Trustees of the Trust or the Portfolios, as applicable, on not more than 60
days' written notice nor less than 30 days' written notice to the other party.
The Administrator may subcontract for the performance of its obligations under
the Administration Agreements only if the Trustees approve such subcontract and
find the subcontracting party to be qualified to perform the obligations sought
to be subcontracted, provided, however, that unless the Trust or the Portfolios,
as applicable, expressly agrees in writing, the Administrator shall be fully
responsible for the acts and omissions of any subcontractor as it would for its
own acts or omissions.
SERVICES AGENT
The Trust, on behalf of each Fund, and the Portfolios have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
effective December 29, 1995, pursuant to which Morgan is responsible for certain
financial, fund accounting and administrative services provided to each Fund and
its corresponding Portfolio. The services to be provided by Morgan as Services
Agent under the Services Agreements include, but are not limited to, monitoring
the fund and shareholder accounting activities of the Custodian, assisting the
Administrator in preparing tax returns, reviewing financial reports,
coordinating annual audits, assisting in the development of budgets, overseeing
preparation of tax information for Fund shareholders, monitoring the fund
accounting activities and daily partnership allocation, and providing other
related services.
Under the Services Agreements, each Fund and its corresponding
Portfolio has agreed to pay Morgan a fee equal to its proportionate share of an
annual complex-wide charge. This charge is calculated daily based on the
aggregate net assets of the Master Portfolios in accordance with the following
annual schedule: 0.06% of the first $7 billion of the Master Portfolios'
aggregate average daily net assets, and 0.03% of the Master Portfolios' average
daily net assets in excess of $7 billion. The portion of this charge payable by
a Fund or its corresponding Portfolio is determined by the proportionate share
that its net assets bear to the total 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. Under the Services
Agreements, Morgan may delegate one or more of its responsibilities to other
entities, including SBDS, at Morgan's expense. 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.
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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 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.
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)*.
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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)*.
THE NEW YORK TOTAL RETURN BOND FUND -- For the Period April 11, 1994
(commencement of operations) through March 31, 1995:
$(49,096)*.
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)*.
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.
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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 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)*.
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: $3,660.
- ------------------------------------
(*) 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.
As of the date of this Statement of Additional Information, financial
information for the initial fiscal periods of the European Equity, Japan Equity
and Asia Growth Funds and their corresponding Portfolios was not yet available.
CUSTODIAN
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02101, serves as the Trust's and each of the
Portfolio's Custodian and Transfer and Dividend Disbursing Agent. Pursuant to
the Custodian Contract with each of the Portfolios, it is responsible for
maintaining the books and records of portfolio transactions and holding
portfolio securities and cash. 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
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purpose of holding TENR Notes and with Bank of New York and Chemical Bank, N.A.
for the purpose of holding certain variable rate demand notes. In the case of
foreign assets held outside the United States, the Custodian employs various
subcustodians who were approved by the Trustees of the Portfolios in accordance
with the regulations of the SEC. The Custodian maintains portfolio transaction
records. As Transfer Agent and Dividend Disbursing Agent, State Street is
responsible for maintaining account records detailing the ownership of Fund
shares and for crediting income, capital gains and other changes in share
ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of each of the Funds has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of an Eligible Institution. Under this agreement, Morgan is responsible for
performing shareholder account administrative and servicing functions, which
includes but is not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to a Fund; assisting customers in
designating and changing dividend options, account designations and addresses;
providing necessary personnel and facilities to coordinate the establishment and
maintenance of shareholder accounts and records with the Funds' transfer agent;
transmitting purchase and redemption orders to the Funds' transfer agent and
arranging for the wiring or other transfer of funds to and from customer
accounts in connection with orders to purchase or redeem Fund shares; verifying
purchase and redemption orders, transfers among and changes in accounts;
informing the Distributor of the gross amount of purchase orders for Fund
shares; and providing other related services.
Under the Shareholder Servicing Agreement, each Fund has agreed to pay
Morgan for these services a fee at the following annual rates (expressed as a
percentage of the average daily net asset values of Fund shares owned by or for
shareholders for whom Morgan is acting as shareholder servicing agent): Money
Market, 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.
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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.
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.
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.
EMERGING MARKETS EQUITY FUND -- For the period November 15, 1993 (commencement
of operations) through October 31, 1994: $39,124.
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For the fiscal year ended October 31, 1995: $79,381.
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: $36,552.
As of the date of this Statement of Additional Information, financial
information for the initial fiscal periods of the European Equity, Japan Equity
and Asia Growth Funds
was not yet available.
As discussed under "Investment Advisor", the Glass-Steagall Act and other
applicable laws and regulations limit the activities of bank holding companies
and certain of their subsidiaries in connection with registered open-end
investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and providing financial and accounting services to the Funds and the Portfolios
under the Financial and Fund Accounting Services Agreements and in acting as
Advisor to the Portfolios under the Investment Advisory Agreements, may raise
issues under these laws. However, Morgan believes that it may properly perform
these services and the other activities described in the Prospectus without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing and Financial and Fund Accounting Services Agreements, the
Trustees would seek an alternative provider of such services. In such event,
changes in the operation of the Funds or the Portfolios might occur and a
shareholder might no longer be able to avail himself or herself of any services
then being provided to shareholders by Morgan.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolios are Price
Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036. Price
Waterhouse LLP conducts an annual audit of the financial statements of each of
the Funds and the Portfolios, assists in the preparation and/or review of each
of the Fund's and the Portfolio's federal and state income tax returns and
consults with the Funds and the Portfolios as to matters of accounting and
federal and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., Morgan and
SBDS under various agreements discussed under Trustees and Officers, Investment
Advisor, Administrator and Distributor, Services Agent and Shareholder Servicing
above, the Fund and the Portfolio are responsible for usual and customary
expenses associated with their respective operations. Such expenses
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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 for
SBDS's fees as Administrator and the usual and customary expenses described
above (excluding organization and extraordinary expenses, custodian fees and
brokerage expenses).
Morgan has agreed that if in any fiscal year the sum of any Fund's
expenses exceeds the limits set by applicable regulations of state securities
commissions, the fees payable by the Fund to Morgan for that year shall be
reduced as specified by agreement with the Trust on behalf of the Fund.
Currently, Morgan believes that the most restrictive expense limitation of state
securities commissions limits expenses to 2.5% of the first $30 million of
average net assets, 2% of the next $70 million of such net assets and 1.5% of
such net assets in excess of $100 million for any fiscal year. For additional
information regarding waivers or expense subsidies, see "Management of the Trust
and the Portfolio(s)" in the Prospectus.
The Administrator paid the organization expenses and expenses incurred
in the initial offering of shares of the Trust.
PURCHASE OF SHARES
Investors may open Fund accounts and purchase shares as described in
the 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,
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securities accepted in payment for shares must: (i) meet the investment
objective and policies of the acquiring Fund's corresponding Portfolio; (ii) be
acquired by the applicable Fund for investment and not for resale (other than
for resale to the Fund's corresponding Portfolio); (iii) be liquid securities
which are not restricted as to transfer either by law or liquidity of market;
and (iv) if stock, have a value which is readily ascertainable as evidenced by a
listing on a stock exchange, over the counter market or by readily available
market quotations from a dealer in such securities. Each Fund reserves the right
to accept or reject at its own option any and all securities offered in payment
for its shares.
Prospective investors may purchase shares with the assistance of an
Eligible Institution, and the Eligible Institution may charge the investor a fee
for this service and other services it provides to its customers.
REDEMPTION OF SHARES
Investors may redeem shares as described in the 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
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Portfolio. The Portfolios have advised the Trust that the Portfolios will not
redeem in kind except in circumstances in which a Fund is permitted to redeem in
kind.
FURTHER REDEMPTION INFORMATION. The Trust, on behalf of a Fund, and the
Portfolios reserve the right to suspend the right of redemption and to postpone
the date of payment upon redemption as follows: (i) for up to seven days, (ii)
during periods when the New York Stock Exchange is closed for other than
weekends and holidays or when trading on such Exchange is restricted as
determined by the SEC by rule or regulation, (iii) during periods in which an
emergency, as determined by the SEC, exists that causes disposal by the
Portfolio of, or evaluation of the net asset value of, its portfolio securities
to be unreasonable or impracticable, or (iv) for such other periods as the SEC
may permit.
EXCHANGE OF SHARES
An investor may exchange shares from any JPM Institutional Fund into
any other JPM Institutional Fund or Pierpont Fund, as described under "Exchange
of Shares" in the Prospectus. For complete information, the Prospectus as it
relates to the Fund into which a transfer is being made should be read prior to
the transfer. Requests for exchange are made in the same manner as requests for
redemptions. See "Redemption of Shares." Shares of the Fund to be acquired are
purchased for settlement when the proceeds from redemption become available. In
the case of investors in certain states, state securities laws may restrict the
availability of the exchange privilege. The Trust reserves the right to
discontinue, alter or limit the exchange privilege at any time.
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares and pays dividends and distributions as described
under "Dividends and Distributions" in the Prospectus.
Net investment income of the Money Market, Tax Exempt Money
Market and Treasury Money Market Funds consists of accrued
interest or discount and amortized premium, less the accrued
expenses of the Fund applicable to that dividend period including
the fees payable to Morgan. See "Net Asset Value."
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
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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
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securities exchange or, in the absence of recorded sales, at the readily
available closing bid price on such exchange or at the quoted bid price in the
over-the-counter market, if such exchange or market constitutes the broadest and
most representative market for the security and (ii) in other cases, take into
account various factors affecting market value, including yields and prices of
comparable securities, indication as to value from dealers and general market
conditions. If such prices are not supplied by the Portfolio's independent
pricing service, such securities are priced in accordance with procedures
adopted by the Trustees. All portfolio securities with a remaining maturity of
less than 60 days are valued by the amortized cost method. Securities listed on
a foreign exchange are valued at the last quoted sale price available before the
time when net assets are valued. Because of the large number of municipal bond
issues outstanding and the varying maturity dates, coupons and risk factors
applicable to each issuer's books, no readily available market quotations exist
for most municipal securities. 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
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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 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
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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 (8/31/95): 7-day current yield:
3.64%; 7-day Tax equivalent yield at 39% tax rate: 5.97%; 7-day
effective yield: 3.71%.
TREASURY MONEY MARKET FUND (10/31/95): 7-day current
yield: 5.42%; 7-day effective yield: 5.57%.
SHORT TERM BOND FUND (10/31/95): 30-day yield:
5.69%.
BOND FUND (10/31/95): 30-day yield: 6.28%.
INTERNATIONAL BOND (9/30/95): 30-day yield: 5.05%.
TAX EXEMPT BOND FUND (8/31/95): 30-day yield: 4.83%; 30-day tax
equivalent yield at 39% tax rate: 7.92%.
NEW YORK TOTAL RETURN BOND FUND (9/30/95): 30-day yield: 4.97%;
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30-day tax equivalent yield at 39% tax rate: 8.15%.
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 (8/31/95): Average annual total
return, 1 year: 3.57%; Average annual total return, 5 years:
3.19%; average annual total return, 10 years: 4.10%; aggregate
total return, 1 year: 3.57%; aggregate total return, 5 years:
17.01%; aggregate total return, 10 years: 49.45%.
TREASURY MONEY MARKET FUND (10/31/95): Average annual
total return, 1 year: 5.69%; average annual total return, 5
years: N/A; average annual total return, commencement of
operations(*) to period end: 4.08%; aggregate total return,
1 year: 5.69%; aggregate total return, 5 years: N/A;
aggregate total return, commencement of operations(*) to period
end: 11.95%.
SHORT TERM BOND FUND (10/31/95): Average annual total
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return, 1 year: 8.81%; average annual total return, 5
years: N/A; average annual total return, commencement of
operations(*) to period end: 4.56%; aggregate total return,
1 year: 8.81%; aggregate total return, 5 years: N/A;
aggregate total return, commencement of operations(*) to period
end: 10.87%.
BOND FUND (10/31/95): Average annual total return, 1
year: 15.50%; average annual total return, 5 years:
8.81%; average annual total return, commencement of operations(*)
to period end: 8.40%; aggregate total return, 1 year:
15.50%; aggregate total return, 5 years: 52.52%; aggregate
total return, commencement of
operations(*) to period end: 85.27%.
TAX EXEMPT BOND FUND (8/31/95): Average annual total return, 1
year: 8.00%; average annual total return, 5 years: 7.82%; average
annual total return, 10 years: 7.87%; aggregate total return, 1
year: 8.00%; aggregate total return, 5 years: 45.72%; aggregate
total return, 10 years: 113.34%.
NEW YORK TOTAL RETURN BOND FUND (9/30/95): Average annual total
return, 1 year: 9.24%; average annual total return, 5 years: N/A;
average annual total return, commencement of operations(*) to
period end: 7.13%; aggregate total return, 1 year: 9.24%;
aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 10.82%.
INTERNATIONAL BOND FUND (9/30/95): Average annual total return, 1
year: N/A; average annual total return, 5 years: N/A;
average annual total return, commencement of operations (*) to
period end: 15.66%; aggregate total return, 1 year:
N/A; aggregate total return, 5 years: N/A; aggregate total return
commencement of operations (*) to period end: 12.84%.
DIVERSIFIED FUND (6/30/95): Average annual total return, 1 year:
17.36%; average annual total return, 5 years: N/A; average annual
total return, commencement of operations(*) to period end:
8.95%; aggregate total return, 1 year: 17.36%; aggregate total
return, 5 years: N/A; aggregate total return, commencement of
operations(*) to period end: 16.70%.
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,
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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 (10/31/95): Average annual
total return, 1 year: (2.46)%; average annual total return,
5 years: 5.06%; average annual total return, commencement of
operations(*) to period end: 3.33%; aggregate total return,
1 year: (2.46)%; aggregate total return, 5 years: 27.98%
; aggregate total return, commencement of operations(*) to period
end: 19.41%.
EMERGING MARKETS EQUITY FUND (10/31/95): Average annual
total return, 1 year: (20.81)%; average annual total
return, 5 years: N/A; average annual total return, commencement
of operations(*) to period end: (0.64)%; aggregate total
return, 1 year: (20.81)%; aggregate total return, 5 years:
N/A; aggregate total return, commencement of operations(*) to
period end: (1.24)%.
- --------------------
(*) The Treasury Money Market, Short Term Bond, Diversified, Emerging Markets
Equity, New York Total Return Bond and International Bond Funds commenced
operations on January 4, 1993, July 8, 1993, July 8, 1993, November 15, 1993,
April 11, 1994 and December 1, 1994, 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
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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 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.
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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.
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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:
DIVERSIFIED FUND (June): 1995: $145,589; 1994: $78,737; 1993:
N/A.
SELECTED U.S. EQUITY FUND (May): 1995: $1,179,132; 1994:
$744,676; 1993: $293,698.
U.S. SMALL COMPANY FUND (May): 1995: $1,217,016; 1994:
$1,760,320; 1993: $142,310.
INTERNATIONAL EQUITY FUND (October): 1995: $1,691,642; 1994:
$1,413,238; 1993: $639,000.
EMERGING MARKETS EQUITY FUND (October): 1995: $1,475,147; 1994:
$1,262,905; 1993: N/A.
The increases in brokerage commissions reflected above were due to
increased portfolio activity and an increase in net investments by shareholders
in a Portfolio or its predecessor.
Subject to the overriding objective of obtaining the best possible
execution of orders, J.P. Morgan Investment Management Inc. may allocate a
portion of a Portfolio's brokerage transactions to affiliates of Morgan. In
order for affiliates of Morgan to effect any portfolio transactions for a
Portfolio, the commissions, fees or other remuneration received by such
affiliates must be reasonable and fair compared to the commissions, fees, or
other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. Furthermore, the
Trustees of each Portfolio, including a majority of the Trustees who are not
"interested persons," have adopted procedures which are reasonably designed to
provide that any commissions, fees, or other remuneration paid to such
affiliates are consistent with the foregoing standard.
Portfolio securities will not be purchased from or through or sold to
or through the Portfolios' Administrator, Distributor or Advisor or any
"affiliated person" (as defined in the 1940 Act) of the Administrator,
Distributor or Advisor when such entities are acting as principals, except to
the extent permitted by law. In addition, the Portfolios will not purchase
securities during the existence of any underwriting group relating thereto of
which the Advisor or an affiliate of the Advisor is a member, except to the
extent permitted by law.
On those occasions when Morgan deems the purchase or sale of a security
to be in the best interests of a Portfolio as well as
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other customers including other Portfolios, J.P. Morgan Investment Management
Inc. to the extent permitted by applicable laws and regulations, may, but is not
obligated to, aggregate the securities to be sold or purchased for a Portfolio
with those to be sold or purchased for other customers in order to obtain best
execution, including lower brokerage commissions if appropriate. In such event,
allocation of the securities so purchased or sold as well as any expenses
incurred in the transaction will be made by J.P. Morgan Investment Management
Inc. in the manner it considers to be most equitable and consistent with
Morgan's fiduciary obligations to a Portfolio. In some instances, this procedure
might adversely affect a Portfolio.
If a Portfolio that writes options effects a closing purchase
transaction with respect to an option written by it, normally such transaction
will be executed by the same broker-dealer who executed the sale of the option.
The writing of options by a Portfolio will be subject to limitations established
by each of the exchanges governing the maximum number of options in each class
which may be written by a single investor or group of investors acting in
concert, regardless of whether the options are written on the same or different
exchanges or are held or written in one or more accounts or through one or more
brokers. The number of options which a Portfolio may write may be affected by
options written by the Advisor for other investment advisory clients. An
exchange may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which each Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall not be subject to any
personal liability for the acts or obligations of any Fund and that every
written agreement, obligation, instrument or undertaking made on behalf of any
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of
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such provision is given, except possibly in a few jurisdictions. With respect to
all types of claims in the latter jurisdictions, (i) tort claims, (ii) contract
claims where the provision referred to is omitted from the undertaking, (iii)
claims for taxes, and (iv) certain statutory liabilities in other jurisdictions,
a shareholder may be held personally liable to the extent that claims are not
satisfied by the Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Funds.
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of a Fund is liable to a
Fund or to a shareholder, and that no Trustee, officer, employee, or agent is
liable to any third persons in connection with the affairs of a Fund, except as
such liability may arise from his or its own bad faith, willful misfeasance,
gross negligence or reckless disregard of his or its duties to such third
persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of a
Fund. With the exceptions stated, the Trust's Declaration of Trust provides that
a Trustee, officer, employee, or agent is entitled to be indemnified against all
liability in connection with the affairs of a Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which each Fund represents a separate series of
shares of beneficial interest.
See "Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in a Fund (or in the assets of other series, if applicable). To
date shares of the sixteen series described in this Statement of Additional
Information have been authorized and are available for sale to the public. Each
share represents an equal proportional interest in a Fund with each other share.
Upon liquidation of a Fund, holders are entitled to share pro rata in the net
assets of a Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of a Fund
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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
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to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion. After opportunity for hearing upon the objections specified in
the written statements filed, the SEC may, and if demanded by the Trustees or by
such applicants shall, enter an order either sustaining one or more of such
objections or refusing to sustain any of them. If the SEC shall enter an order
refusing to sustain any of such objections, or if, after the entry of an order
sustaining one or more of such objections, the SEC shall find, after notice and
opportunity for hearing, that all objections so sustained have been met, and
shall enter an order so declaring, the Trustees shall mail copies of such
material to all shareholders with reasonable promptness after the entry of such
order and the renewal of such tender.
The Trustees have authorized the issuance and sale to the public of
shares of 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 February 2, 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-- Welsh Carson Anderson & Stowe
VII LP (8.2%), Welsh Carson Anderson & Stowe VI
(6.8%), K. O'Connell (17.1%), Northern Trust Co. as Trustee for
Towers Perrin Profit Sharing Plan (5%);
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Tax Exempt Money Market Fund--
M. Carey-Rye Songs
(16.0%), E.H. Skove (15.7%), Morgan as Agent for
Estate of J. P. Grace
(10.6%), Morgan as Agent for J. L. Kenner (9.9%), D. D. Durst
(8.4%), W. B. Ruger Trustee REV TR (8.2%), Morgab as Agent for G.
L. Dick (7.1%), Morgan as Agent for M. S. Grace (7%);
Treasury Money Market Fund--Quintiles Transnational Corp (37.7%),
Bank of New York AS Series 1993-3 (9.8%), Morgan as Agent for One
Penn Plaza Escrow (8.7%), Bank of New York AS Series
1992-1 (6.8%), Bank of New York AS
Series 1993- 2 (6.5%), Bank of New York
AS Series
1993-
1 (6.5%), Reuters America Inc. (6.2%), S. and/or I. Berson
(5.5%);
Bond Fund--J.P. Morgan as Agent for Charles Engelhard Foundation
(5.8%), Morgan as Agent for Center Insurance Trust (5.8%);
Short Term Bond Fund--United Gaming, Inc.
(44%), Morgan as Agent
for G.C. Bible Trust (12.8%) Morgan as Agent for R.W. Murray
Trust (12.2%), Morgan as Agent for H.G. Storr Trust (9.1%),
Morgan as Agent for W. Campbell Trust (7.1%);
Tax Exempt Bond Fund--Morgan as Agent for E. Hanovia
Inc. (13.6%), Morgan as Agent for R. Edsel (5.8%);
New York Total Return Bond Fund--Morgan as Agent for Trust FBO R.
Klotz (24.6%), Morgan as Agent for Shubert Organization
(21.6%), Morgan as Agent for J. Corry (7.5%), Morgan as Agent
for R. Weintraub (7.3%), Morgan as Agent for L. Casseel
(8%);
International Bond Fund--Morgan as Agent for Albany Medical
Center Insurance Trust (50.3%), J.P. Morgan as Agent for General
Motors Savings Plan (27.7%), J.P. Morgan as Agent of
Community Funds Inc. Dewitt Wallace Readers Digest (22%);
Selected U.S. Equity Fund--Morgan as Agent for Major League
Baseball Master Pension Trust (9.8%), Holnam, Inc.
Pension Plan Trust (7.2%), Wachovia Bank NC Trustee for
Newmont Gold Co. Master Pension Trust (9%),
Boston & Co. Mutual
Funds Operations (7.5%), LaCross and Company (6.1%), Harris Trust
and Savings Bank as Trustee of CTS Emp. Benefit Plans (5.2%),
Lin Television Corp. Retirement Plan (6.8%), Morgan as
Trustee for Degussa Defined Benefit Trust (5.4%);
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U.S. Small Company--Morgan as agent for S. Lutz Trust (7%);
Emerging Markets Equity --
Morgan as Agent for Alfred P. Sloan
Foundation (11.5%); The Nature Conservancy (5.9%);
International Equity Fund-- Blue Cross Blue Shield of North
Carolina (6%); and
Diversified Fund--Boston Foundation Inc, (13.5%), Westinghouse
Personal Investment Plan (10%), Vanguard Fiduciary Trust Company
(13%), Morgan as Agent for
UNIFI Inc. Profit Sharing Plan
(13%), Celtic Insurance Co. Ltd. (11.2%),
BG Sulzle, Inc. Employee Pension
(7%), Retirement Plan Employees Assn. American Arbitration
Pension Cmte. (5.4%).
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
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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.
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
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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
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losses on the disposition of debt securities held by a Portfolio, if any,
denominated in foreign currency, to the extent attributable to fluctuations in
exchange rates between the acquisition and disposition dates are also treated as
ordinary income or loss.
Forward currency contracts, options and futures contracts entered into
by a Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by the
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities. Straddles may also result in the loss of 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
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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.
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
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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.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the
Prospectus, the term "majority of the outstanding voting
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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 JPM Institutional Funds are
hereby incorporated herein by reference from the Funds' annual reports to
shareholders 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.
JPM529A
108
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THE SERIES PORTFOLIO - THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 24, 1995
ASSETS
Cash $ 200
Deferred Organization Expenses 33,000
Total Assets 33,200
LIABILITIES
Organization Expenses Payable 33,000
Total Liabilities 33,000
Commitments and Contingencies (See Note 3) -
Net Assets $ 200
======
NOTES TO FINANCIAL STATEMENT
NOTE 1 - ORGANIZATION
The European Equity Portfolio (the "Portfolio") is a series of The Series
Portfolio (the "Series Portfolio"), a trust organized under the laws of the
State of New York on June 24, 1994, and has been inactive since that date except
for matters relating to its organization and registration as an investment
company under the Investment Company Act of 1940, as amended, and the sales of
beneficial interests in the Portfolio in the respective amounts of $100 to The
JPM Advisor European Equity Fund (the "Fund") and $100 to JPM Europe Fund, Ltd.
(the "initial beneficial interests").
The Portfolio has incurred $33,000 in organization expenses based on its
allocable pro rata share of total organization expenses for the three Portfolios
in the Series Portfolio. These costs are being deferred and will be amortized on
a straight line basis over a period not to exceed five years beginning with the
commencement of operations of the Portfolio. The Portfolio will receive upon a
redemption by Signature (the purchaser of the Fund's initial shares) from the
Fund, a pro rata portion of the unamortized organization expenses of the
Portfolio. The amount paid by the Portfolio on any withdrawal of an initial
beneficial interest by the Fund, JPM Europe Fund, Ltd. or any other current
holder of such initial beneficial interests will be reduced by a pro rata
portion of any unamortized organization expenses. This reduction will be
determined with respect to each withdrawal of an initial beneficial interest by
calculating the proportion of the amount of the initial beneficial interest
withdrawn to the aggregate initial beneficial interests then outstanding.
NOTE 2 - VALUATION OF INVESTORS' BENEFICIAL INTERESTS
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At 4:15 p.m. New York time on each business day of the Portfolio, the value of
an investor's beneficial interest in the Portfolio is equal to the product of
(i) the aggregate net asset value of the Portfolio, effective for that day, and
(ii) the percentage representing that investor's pro rata share of the aggregate
beneficial interests in the Portfolio, on that day.
NOTE 3 - SERVICE AGREEMENTS WITH AFFILIATES
The Series Portfolio has entered into separate investment advisory and financial
and fund accounting services agreements with Morgan Guaranty Trust Company of
New York ("Morgan") to provide investment advisory and financial and fund
accounting services for the Portfolio as described in the Series Portfolio's
accompanying registration statement on Form N-lA. The Series Portfolio has also
entered into separate administration and exclusive placement agent agreements
with Signature Broker-Dealer Services, Inc. ("SBDS"), to provide for
administrative and placement services for the Portfolio, and a fund services
agreement with Pierpont Group, Inc. ("Pierpont Group"), each as described in
such registration statement. The officers of the Series Portfolio, excluding its
Chief Executive Officer, are employees of SBDS. The Trustees of the Series
Portfolio represent all the existing shareholders of Pierpont Group.
110
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Investors and Trustees of
The European Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The European Equity
Portfolio (one of three portfolios comprising The Series Portfolio, hereafter
referred to as the "Portfolio") at March 24, 1995, in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Portfolio's management; our responsibility is to express an opinion on
this financial statement based on our audit. We conducted our audit of this
financial statement in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
March 24, 1995
111
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THE SERIES PORTFOLIO - THE JAPAN EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 24, 1995
ASSETS
Cash $ 100,100
Deferred Organization Expenses 33,000
------
Total Assets 133,100
LIABILITIES
Organization Expenses Payable 33,000
Total Liabilities 33,000
Commitments and Contingencies (See Note 3) -
Net Assets $ 100,100
========
NOTES TO FINANCIAL STATEMENT
NOTE 1 - ORGANIZATION
The Japan Equity Portfolio (the "Portfolio") is a series of The Series Portfolio
(the "Series Portfolio"), a trust organized under the laws of the State of New
York on June 24, 1994, and has been inactive since that date except for matters
relating to its organization and registration as an investment company under the
Investment Company Act of 1940, as amended, and the sales of beneficial
interests in the Portfolio in the respective amounts of $100 to The JPM Advisor
Japan Equity Fund (the "Fund") and $100,000 to JPM Japan Equity Fund, Ltd. (the
"initial beneficial interests").
The Portfolio has incurred $33,000 in organization expenses based on its
allocable pro rata share of total organization expenses for the three Portfolios
in the Series Portfolio. These costs are being deferred and will be amortized on
a straight line basis over a period not to exceed five years beginning with the
commencement of operations of the Portfolio. The Portfolio will receive upon a
redemption by Signature (the purchaser of the Fund's initial shares) from the
Fund, a pro rata portion of the unamortized organization expenses of the
Portfolio. The amount paid by the Portfolio on any withdrawal of an initial
beneficial by the Fund, JPM Japan Equity Fund, Ltd. or any other current holder
of such initial beneficial interests be reduced by a pro rata portion of any
unamortized organization expenses. This reduction will be determined with
respect to each withdrawal of an initial beneficial interest by calculating the
proportion of the amount of the initial beneficial interest withdrawn to the
aggregate initial beneficial interests then outstanding.
NOTE 2 - VALUATION OF INVESTORS' BENEFICIAL INTEREST
112
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At 4:15 p.m. New York time on each business day of the Portfolio, the value of
an investor's beneficial interest in the Portfolio is equal to the product of
(i) the aggregate net asset value of the Portfolio, effective for that day, and
(ii) the percentage representing that investor's pro rata share of the aggregate
beneficial interests in the Portfolio, on that day.
NOTE 3 - SERVICE AGREEMENTS WITH AFFILIATES
The Series Portfolio has entered into separate investment advisory and financial
and fund accounting services agreements with Morgan Guaranty Trust Company of
New York ("Morgan") to provide investment advisory and financial and fund
accounting services for the Portfolio, as described in the Series Portfolio's
accompanying registration statement on Form N-lA. The Series Portfolio has also
entered into separate administration and exclusive placement agent agreements
with Signature Broker-Dealer Services, Inc.("SBDS"), to provide for
administrative and placement services for the Portfolio, and a fund services
agreement with Pierpont Group, Inc. ("Pierpont Group"), each as described in
such registration statement. The officers of the Series Portfolio, excluding its
Chief Executive Officer, are employees of SBDS. The Trustees of the Series
Portfolio represent all the existing shareholders of Pierpont Group.
113
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Investors and Trustees of
The Japan Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The Japan Equity
Portfolio (one of three portfolios comprising The Series Portfolio, hereafter
referred to as the "Portfolio") at March 24, 1995, in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Portfolio's management; our responsibility is to express an opinion on
this financial statement based on our audit. We conducted our audit of this
financial statement in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
March 24, 1995
114
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THE SERIES PORTFOLIO - THE ASIA GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 24, 1995
ASSETS
Cash $ 200
Deferred Organization Expenses 33,000
Total Assets 33,200
LIABILITIES
Organization Expenses Payable 33,000
Total Liabilities 33,000
Commitments and Contingencies (See Note 3) -
Net Assets $ 200
======
NOTES TO FINANCIAL STATEMENT
NOTE 1 - ORGANIZATION
The Asia Growth Portfolio (the "Portfolio") is a series of The Series Portfolio
(the "Series Portfolio"), a trust organized under the laws of the State of New
York on June 24, 1994, and has been inactive since that date except for matters
relating to its organization and registration as an investment company under the
Investment Company Act of 1940, as amended, and the sales of beneficial
interests in the Portfolio in the respective amounts of $100 to The JPM Advisor
Asia Growth Fund (the "Fund") and $100 to JPM Asia Growth Fund, Ltd. (the
"initial beneficial interests").
The Portfolio has incurred $33,000 in organization expenses based on its
allocable pro rata share of total organization expenses for the three Portfolios
in the Series Portfolio. These costs are being deferred and will be amortized on
a straight line basis over a period not to exceed five years beginning with the
commencement of operations of the Portfolio. The Portfolio will receive upon a
redemption by Signature (the purchaser of the Fund's initial shares) from the
Fund, a pro rata portion of the unamortized organization expenses of the
Portfolio. The amount paid by the Portfolio on any withdrawal of an initial
beneficial interest by the Fund, JPM Asia Growth Fund, Ltd. or any other current
holder of such initial beneficial interest will be reduced by a pro rata portion
of any unamortized organization expenses. This reduction will be determined with
respect to each withdrawal of an initial beneficial interest by calculating the
proportion of the amount of the initial beneficial interest withdrawn to the
aggregate initial beneficial interests then outstanding.
NOTE 2 - VALUATION OF INVESTORS' BENEFICIAL INTERESTS
115
<PAGE>
At 4:15 p.m. New York time on each business day of the Portfolio, the value of
an investor's beneficial interest in the Portfolio is equal to the product of
(i) the aggregate net asset value of the Portfolio, effective for that day, and
(ii) the percentage representing that investor's pro rata share of the aggregate
beneficial interests in the Portfolio, on that day.
NOTE 3 - SERVICE AGREEMENTS WITH AFFILIATES
The Series Portfolio has entered into separate investment advisory and financial
and fund accounting services agreements with Morgan Guaranty Trust Company of
New York ("Morgan") to provide investment advisory and financial and fund
accounting services for the Portfolio as described in the Series Portfolio's
accompanying registration statement on Form N-lA. The Series Portfolio has also
entered into separate administration and exclusive placement agent agreements
with Signature Broker-Dealer Services, Inc.("SBDS"), to provide for
administrative and placement services for the Portfolio, and a fund services
agreement with Pierpont Group, Inc. ("Pierpont Group"), each as described in
such registration statement. The officers of the Series Portfolio, excluding its
Chief Executive Officer, are employees of SBDS. The Trustees of the Series
Portfolio represent all the existing shareholders of Pierpont Group.
116
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Investors and Trustees of
The Asia Growth Portfolio
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The Asia Growth
Portfolio (one of three portfolios comprising The Series Portfolio, hereafter
referred to as the "Portfolio") at March 24, 1995, in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Portfolio's management; our responsibility is to express an opinion on
this financial statement based on our audit. We conducted our audit of this
financial statement in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
March 24, 1995
117
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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
A-1
<PAGE>
satisfactory capacity to pay principal and interest.
MOODY'S
CORPORATE AND MUNICIPAL BONDS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
- - Leading market positions in well established industries.
A-2
<PAGE>
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection. - Broad margins in earnings coverage of fixed financial
charges and high internal cash generation. - Well established access to a range
of financial markets and assured sources of alternate liquidity.
SHORT-TERM TAX EXEMPT NOTES
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest rating
assigned by Moody's for notes judged to be the best quality. Notes with this
rating enjoy strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of protection not
as large as MIG-1.
JPM529A
A-3
<PAGE>
APPENDIX B
ADDITIONAL INFORMATION CONCERNING NEW YORK MUNICIPAL OBLIGATIONS
The following information is a summary of special factors affecting
investments in New York municipal obligations. It does not purport to be a
complete description and is based on information from the Annual Information
Statement of the State of New York dated June 23, 1995.
GENERAL
New York (the "State") is the third most populous state in the nation
and has a relatively high level of personal wealth. The State's economy is
diverse with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location, air transport
facilities and natural harbors have made it an important link in international
commerce. Travel and tourism constitute an important part of the economy. The
State has a declining proportion of its work force engaged in manufacturing and
an increasing proportion engaged in service industries. This transition reflects
a national trend.
The State has historically been one of the wealthiest states in the
nation. For decades, however, the State economy has grown more slowly than that
of the nation as a whole, resulting in the gradual erosion of its relative
economic affluence. Statewide, urban centers have experienced significant
changes 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
B-1
<PAGE>
houses the home offices of three major radio and television broadcasting
networks, most of the national magazines and a substantial portion of the
nation's book publishers. The City also retains leadership in the design and
manufacture of men's and women's apparel.
ECONOMIC OUTLOOK
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the Federal government, that
are not under the control of the State. The State Financial Plan is based upon
forecasts of national and State economic activity. Economic forecasts have
frequently failed to predict accurately the timing and magnitude of changes in
the national and the State economies. Many uncertainties exist in forecasts of
both the national and State economies, including consumer attitudes toward
spending, the extent of corporate and governmental restructuring, Federal
financial and monetary policies, the availability of credit, the level of
interest rates, and the condition of the world economy, which would have an
adverse effect on the State. There can be no assurance that the State economy
will not experience results in the current fiscal year that are worse than
predicted, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
The national economy began to expand in 1991, although the growth rate
for the first two years of the expansion was modest by historical standards. The
State economy remained in recession until 1993, when employment growth resumed.
Since November 1992, the State has added approximately 185,000 jobs. Employment
growth has been hindered during recent years by significant cutbacks in the
computer and instrument manufacturing, utility, and defense industries. Personal
income increased substantially in 1992 and 1993, aided significantly by large
bonus payments in banking and financial industries.
The national economy performed better in 1994 than in any year since
the recovery began in 1991. National job and income growth were substantial. In
response, the Federal Reserve Board shifted to a policy of monetary tightening
by raising interest rates throughout the year. As a result, the national
economic growth is expected to weaken, but not turn negative, during the course
of 1995 before beginning to rebound by the end of the year. This dynamic is
often described as a "soft landing." The overall rate of growth of the national
economy during calendar year 1995 will be slightly below the "consensus" of a
widely followed survey of national economic forecasters. Growth in the real
gross domestic product during 1995 is projected to be moderate (3.0 percent),
with declines in defense spending and net
B-2
<PAGE>
exports more than offset by increases in consumption and investment. Continuing
efforts by business and government to reduce costs are expected to exert a drag
on economic growth. Inflation, as measured by the Consumer Price Index, is
projected to remain about 3 percent due to moderate wage growth and foreign
competition. Personal income and wages are projected to increase by about 6
percent or more.
The State economy had a mixed performance during 1994. The moderate
employment growth that characterized 1993 continued into mid-1994, then
virtually ceased. New York's economy is expected to continue to expand modestly
during 1995, but there will be a pronounced slow-down during the course of the
year. Although industries that export goods and services abroad are expected to
benefit from the lower dollar, growth will be slowed by government cutbacks at
all levels. On an average annual basis, employment growth will be about the same
as 1994. Both personal income and wages are expected to record moderate gains in
1995. Bonus payments in the securities industry are expected to increase from
last year's depressed level. Personal income rose 4.0 percent in 1994.
The State has for many years had a very high State and local tax burden
relative to other States. The State and its localities have used these taxes to
develop and maintain their transportation networks, public schools and colleges,
public health systems, other social services and recreational facilities.
Despite these benefits, the burden of State and local 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
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<PAGE>
tax. Furthermore, legislation passed in 1986 authorizes the creation of up to 40
"economic development zones" in economically distressed regions of the State.
Businesses in these zones are provided a variety of tax and other incentives to
create jobs and make investments in the zones.
STATE FINANCIAL PLAN
The State Constitution requires the Governor to submit to the
Legislature a balanced Executive Budget which contains a complete plan of
expenditures (the "State Financial Plan") for the ensuing fiscal year and all
moneys and revenues estimated to be available therefor, accompanied by bills
containing all proposed appropriations or reappropriations and any new or
modified revenue measures to be enacted in connection with the Executive Budget.
A final budget must be approved before the statutory deadline of April 1. The
State Financial Plan is updated quarterly pursuant to law.
The State's fiscal year, which commenced on April 1, 1995, and ends on
March 31, 1996, is referred to herein as the State's 1995-96 fiscal year.
The State's budget for the 1995-96 fiscal year was enacted by the
Legislature on June 7, 1995, more than two months after the start of the fiscal
year. Prior to adoption of the budget, the Legislature enacted appropriations
for disbursements considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt service. The State
Financial Plan for the 1995-96 fiscal year was formulated on June 20, 1995, and
is based on the State's budget as enacted by the Legislature and signed into law
by the Governor. The State Financial Plan will be updated quarterly pursuant to
law in July, October and January.
The 1995-96 budget is the first to be enacted in the administration of
the Governor, who assumed office on January 1. It is the first budget in over
half a century which proposed and, as enacted, projects an absolute
year-over-year decline in General Fund disbursements. Spending for State
operations is projected to drop even more sharply, by 4.6 percent. Nominal
spending from all State funding sources (I.E., excluding Federal aid) is
proposed to increase by only 2.5 percent from the prior fiscal year, in contrast
to the prior decade when such spending growth averaged more than 6.0 percent
annually.
In his Executive Budget, the Governor indicated that in the 1995-96
fiscal year, the State Financial Plan, based on then-current law governing
spending and revenues, would be out of balance by almost $4.7 billion, as a
result of the projected structural deficit resulting from the ongoing disparity
between sluggish growth in receipts, the effect of prior-year tax changes, and
the rapid acceleration of spending growth; the impact of unfunded 1994-95
initiatives, primarily for local aid
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<PAGE>
programs; and the use of one-time solutions, primarily surplus funds from the
prior year, to fund recurring spending in the 1994-95 budget. The Governor
proposed additional tax cuts, to spur economic growth and provide relief for
low- and middle-income tax payers, which were larger than those ultimately
adopted, and which added $240 million to the then projected imbalance or budget
gap, bringing the total to approximately $5 billion.
This gap is projected to be closed in the 1995-96 State Financial Plan
based on the enacted budget, through a series of actions, mainly spending
reductions and cost containment measures and certain reestimates that are
expected to be recurring, but also through the use of one-time solutions. The
State Financial Plan projects (i) nearly $1.6 billion in savings from cost
containment, disbursement reestimates, and other savings in social welfare
programs, including Medicaid, income maintenance and various child and family
care programs; (ii) $2.2 billion in savings from State agency actions to reduce
spending on the State work force, SUNY and CUNY, mental hygiene programs,
capital projects, the prison system and fringe benefits; (iii) $300 million in
savings from local assistance reforms, including actions affecting school aid
and revenue sharing while proposing program legislation to provide relief from
certain mandates that increase local spending; (iv) over $400 million in revenue
measures, primarily a new Quick Draw Lottery game, changes to tax payment
schedules, and the sale of assets; and (v) $300 million from reestimates in
receipts.
The Executive Budget indicates that for years State revenues have grown
at a slower rate than State spending, producing an increasing structural
deficit, and that as the Executive Budget is enacted, the State will start to
eliminate the structural imbalance that has characterized the State's fiscal
record. There can, however, be no assurances that the tax and spending cuts will
eliminate potential imbalances in future fiscal years. The Governor's
recommended multi-year personal income tax cuts are designed to reduce the yield
on that tax by about one-third by 1998, and could require significant additional
spending cuts in those years, increased economic growth to provide additional
revenues, additional revenue measures, or a combination of those factors.
GOVERNMENT FUNDS
The four governmental fund types that comprise the State Financial Plan
are the General Fund, the Special Revenue Funds, the Capital Projects Funds, and
the Debt Service Funds.
GENERAL FUND RECEIPTS
The General Fund is the principal operating fund of the State and is
used to account for all financial transactions, except those required to be
accounted for in another fund. It is
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<PAGE>
the State's largest fund and receives almost all State taxes and other resources
not dedicated to particular purposes. In the State's 1995-96 fiscal year, the
General Fund is expected to account for approximately 49 percent of total
governmental-funded disbursements and 71 percent of total State-funded
disbursements. General Fund moneys are also transferred to other funds,
primarily to support certain capital projects and debt service on long-term
bonds, where these costs are not funded from other sources.
The Financial Plan for the 1995-96 fiscal year released on February 1,
1995, projects General Fund receipts, including transfers from other funds, of
$33.110 billion, a reduction of $48 million from the total receipts in the
1994-95 fiscal year. Tax receipts are projected at $29.793 billion for the
1995-96 fiscal year. Although growth in the base for tax receipts is expected to
accelerate during the 1995-96 fiscal year, tax receipts are expected to fall by
3.5 percent, principally due to the combined effect of implementing during the
1995-96 fiscal year (1) a portion of the tax reductions originally enacted in
1987 and deferred each year since 1990, (2) additional tax cuts to prevent tax
increases also originally enacted in 1987 from taking effect and (3) the
proposed employer day care credit ($5 million), together with the incremental
cost of the tax reductions enacted in 1994 (more than $500 million), which
effectively negate the effect of projected growth in the recurring revenue base.
In addition, certain nonrecurring revenues in the 1994-95 receipts base,
including the 1993-94 surplus of $1.026 billion, additional earmarking to
dedicated funds (more than $210 million) and other miscellaneous one-time
receipts (more than $100 million) are not available in the 1995-96 fiscal year,
thereby reducing potential year-over-year growth by another 4 percentage points.
The projected yield of personal income tax in the 1995-96 fiscal year
of $17.285 billion is a decrease of $305 million from reported collections in
the State's 1994-95 fiscal year. The decrease reflects both the effects of the
tax reductions and the fact that reported collections in the preceding year were
affected by net refund reserve transactions that buoyed collections in that year
by $862 million that will be unavailable in the current year. Without these
changes, the yield of the tax would have grown by more than $1.0 billion (6
percent), reflecting liability growth for the 1995 tax year projected at
approximately the same rate. The income base for the tax is projected to rise
approximately 5 percent for the 1995 tax year. Personal income tax receipts
showed a sharp increase in 1994-95 and are expected to decline in 1995-96.
Personal income tax reductions recommended in the Executive Budget are projected
to produce taxpayer savings of $720 million in calendar year 1995 reflecting the
scheduled implementation of the 1987 tax reductions. The tax reductions
recommended by the Governor are part of a multi-year program designed to reduce
the yield of the income tax by about one-third by 1998.
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Receipts in user taxes and fees in the State's 1995-96 fiscal year are
expected to total $6.697 billion, an increase of $73 million from reported
1994-95 results. Growth in user taxes and fees is expected to slow to about 1
percent in 1995-96, reflecting nearly $70 million of additional tax relief in
this category in the coming year resulting from tax reductions enacted in 1994,
the absence of extraordinary audit collections received in 1994-95, and a
slowdown in the underlying growth rate of sales and use tax collections, offset
by a projected improvement of $41 million as a result of recommended legislation
to enhance sales tax collection procedures. Business tax receipts are projected
at $4.709 billion, a decline of $360 million from reported 1994-95 results. The
decline in the 1995-96 fiscal year largely reflecting the effect of tax
reductions enacted in 1994.
Total receipts from other taxes in the State's 1995-96 fiscal year are
projected at $1.102 billion, $6 million less than in the preceding year. The
estimates reflect 1994 and 1995 legislation reducing the burden of the real
property gains tax and the estate tax as well as diversion of a portion of the
real estate transfer tax proceeds to the Environmental Protection Fund.
Miscellaneous receipts in the State's 1995-96 fiscal year are expected to total
$1.596 billion, an increase of $335 million above the amount received in the
prior State fiscal year. Growth in overall collections from miscellaneous
receipts in the coming fiscal year is expected to result largely from several
discrete actions involving settlement of environmental litigation, the
recommended merger of public authorities, and transactions with the Power
Authority, which together account for over $200 million of projected
miscellaneous receipts anticipated in 1995-96. Transfers from other funds
continue at prior year levels, with the addition of the transfer of $220 million
in excess funds from the Metropolitan Mass Transportation Operating Assistance
Fund.
GENERAL FUND DISBURSEMENTS
General Fund disbursements are projected to total $33.055 billion in
1995-96, a decrease of $344 million from the total amount disbursed in the prior
fiscal year. This decline reflects a broad agenda of cost containment actions,
more than offsetting modest increases for fixed costs, such as pensions, debt
service on bonds sold during the current year and capital projects under
construction.
Disbursements from grants to local governments are projected to total
$22.910 billion in the 1995-96 State Financial Plan, a decrease of $392 million
from 1994-95 levels. Although spending in this category is reduced, direct
payments to local governments, including school aid and revenue sharing are
maintained largely at last year's levels. This category of the State Financial
Plan includes $10.823 billion in aid for elementary, secondary, and higher
education. Costs for social services, such as Medicaid, income maintenance and
child support
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services account for $8.706 billion. Remaining disbursements primarily support
community-based mental hygiene programs, community and public health programs,
local transportation programs, and revenue sharing.
Significant decreases from the prior year result largely from cost
containment initiatives in Medicaid and other social welfare programs. Payments
for Medicaid from the General Fund are projected to be $506 million lower than
in 1994-95. $128 Million in operating aid to the New York City Transit Authority
will be eliminated, matching the reduction in New York City support of the
Authority.
Spending for State operations is projected at $6.020 billion, a
decrease of $288 million. Recommendations in the Executive Budget reduce the
work force by approximately 3,200 positions (most of which reduce disbursements
in this category).
Spending for general State charges is projected at $2.080 billion in
the 1995-96 State Financial Plan, and are virtually unchanged from the 1994-95
level. The budgeted amount for general State charges assumes the use of $110
million from a special reserve for pension supplementation, established in 1970
and funded through State and local employer contributions in the early 1970's,
to offset the State's pension contribution. The Comptroller, as sole trustee of
the Common Retirement Fund and administrative head of the Retirement System, is
in the process of reviewing the legislation that directs the use of these
reserves to determine whether or not to commence legal proceedings to prevent
such proposed use in the enacted 1995-96 State budget as a violation of the
State Constitution, and there is a substantial likelihood that he will do so.
The Executive considers the proposed use of these reserves to be a credit for
prior-year supplementation payments and, therefore, in compliance with the State
Constitution.
Debt service in the General Fund for 1995-96 reflects only the $9
million interest cost of the State's commercial paper program. No cost is
included for a TRAN borrowing, since none is expected to be undertaken. General
Fund debt service on short-term obligations of the State reflects the
elimination of the State's spring borrowing. Transfers in support of debt
service are projected to total $1.583 billion, and increase of $157 million.
This increase is heightened by the use of one-time reimbursements from other
funds in the 1994-95 fiscal year. Transfers in support of capital projects are
projected to total $375 million, an increase of $169 million, which reflects
significant investments in both new and ongoing capital programs. All other
transfers are projected to total $78 million, an increase of $9 million from
1994-95 levels.
The 1995-96 opening fund balance of $158 million includes $157 million
which is reserved in the Tax Stabilization Reserve Fund, as well as $1 million
which is reserved in the Contingency
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Reserve Fund. The Contingency Reserve Fund was established in 1993-94 to set
aside moneys to address adverse judgments or settlements resulting from
litigation against the State. The closing fund balance in the General Fund of
$213 million reflects a balance of $172 million in the Tax Stabilization Reserve
Fund, following an additional payment of $15 million during the year, and a
balance of $41 million in the Contingency Reserve Fund.
The 1995-96 Financial Plan includes over $600 million in non-recurring
resources. These actions include items discussed above, as well as retroactive
Federal reimbursements and some non-recurring social welfare cost containment
actions. The Budget Division believes that recommendations included in the
Executive Budget will provide fully annualized savings in 1996-97 that more than
offset the non-recurring resources used in 1995-96.
SPECIAL REVENUE FUNDS
Special Revenue Funds are used to account for the proceeds of specific
revenue sources such as Federal grants that are legally restricted, either by
the Legislature or outside parties, to expenditures for specified purposes. For
1995-96, the State Financial Plan projects disbursements of $26.002 billion from
these funds, an increase of $1.641 billion over 1994-95 levels. Disbursements
from Federal funds, primarily the Federal share of Medicaid and other social
services programs, are projected to total $19.209 billion in the 1995-96 fiscal
year. Remaining projected spending of $6.793 billion primarily reflects aid to
SUNY supported by tuition and dormitory fees, education aid funded from lottery
receipts, operating aid payments to the Metropolitan Transportation Authority
funded from the proceeds of dedicated transportation taxes, and costs of a
variety of self-supporting programs which deliver services financed by user
fees.
CAPITAL PROJECTS FUNDS
Capital Projects Funds are used to account for the financial resources
used for the acquisition, construction, or rehabilitation of major state capital
facilities and for capital assistance grants to certain local government or
public authorities. This fund type consists of the Capital Projects Fund, which
is supported by tax dollars transferred from the General Fund, and 37 other
capital funds established to distinguish specific capital construction purposes
supported by other revenues.
Disbursements from the Capital Projects Funds in 1995-96 are projected
at $4.160 billion, an increase of $541 million over prior-year levels. Spending
for capital projects will be financed through a combination of sources: Federal
grants, public authority bond proceeds, general obligation bond proceeds, and
current revenues. Total receipts in this fund type are projected at $4.170
billion, not including $364 million expected to be
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available from the proceeds of general obligation bonds.
DEBT SERVICE FUNDS
Debt Service Funds are used to account for the payment of principal of,
and interest on, long-term debt of the State and to meet commitments under
lease-purchase and other contractual-obligation financing arrangements.
Disbursements are estimated at $2.506 billion in the 1995-96 fiscal year, an
increase of $303 million from 1994-95. The transfer from the General Fund of
$1.583 billion is expected to finance 63 percent of these payments. The
remaining payments are expected to be financed by pledged revenues, including
$1.794 billion in taxes, $228 million in dedicated fees, and $2.200 billion in
patient revenues, including transfers of Federal reimbursements. After
impoundment for debt service, as required, $3.481 billion is expected to be
transferred to the General Fund and other funds in support of State operations.
The largest transfer - $1.761 billion - is made to the Special Revenue Fund
type, in support of operations of the mental hygiene agencies. Another $1.341
billion in excess sales taxes is expected to be transferred to the General Fund,
following payment of projected debt service on bonds of LGAC.
The increase in debt service costs recommended in the Executive Budget
primarily reflects prior capital commitments financed by bonds issued by the
State and State-supported debt issued by its public authorities, and the
completion of the LGAC program. The increase has been moderated by the
reductions to bond-financed capital spending as discussed above, and reflects
debt issuances in 1994-95 and 1995-96 which are lower than they would have been,
absent the Governor's review of capital spending.
CASH FLOW
For the second time in many years, the State will meet its cash flow
needs without relying on a spring borrowing. However, this achievement is
predicated on two actions: the issuance of all remaining LGAC bonds authorized
in the 1990 statute; and the passage of proposed legislation permitting the
State to use, for cash flow purposes only, balances in the Lottery Fund.
Temporary transfers will be returned within five months so that all available
Lottery moneys as well as advances of additional aid can be paid to school
districts in September.
The lingering impact of the 1994-95 receipts shortfall -- as well as
the impact of the potential $5 billion 1995-96 imbalance on cash operations --
exerts substantial pressures on the State's cash balance position in the first
three months of the fiscal year. These pressures are expected to abate later in
the 1995-96 fiscal year, as cash outlays decline from previous levels consistent
with cost-savings initiatives proposed in the Executive Budget.
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PRIOR FISCAL YEARS
New York State's financial operations have improved during recent
fiscal years. During the period 1989-90 through 1991-92, the State incurred
General Fund operating deficits that were closed with receipts from the issuance
of tax and revenue anticipation notes ("TRANs"). First, the national recession,
and then the lingering economic slowdown in the New York and regional economy,
resulted in repeated shortfalls in receipts and three budget deficits. For its
1992-93 and 1993-94 fiscal years, the State recorded balanced budgets on a cash
basis, with substantial fund balances in each year as described below.
1994-95 FISCAL YEAR
The State's budget for the 1994-95 fiscal year was enacted by the
Legislature on June 7, 1994, more than two months after the start of the fiscal
year. Prior to adoption of the budget, the Legislature enacted appropriations
for disbursements considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt service.
The 1994-95 budget contained a significant investment in efforts to
spur economic growth. The budget included provisions to reduce the level of
business taxation in New York, with cuts in the corporate tax surcharge, the
alternative minimum tax imposed on business and the petroleum business tax,
repeal of the State's hotel occupancy tax, and reductions in the real property
gains tax to stimulate construction and facilitate the real estate industry's
access to capital. Complementing the elimination of the hotel tax was a $10
million investment of State funds in the "I Love New York" program designed to
spur tourism activity throughout the State.
To help strengthen the State's economic recovery, the 1994-95 budget
also included more than $200 million in additional funding for economic
development programs. Special emphasis was placed on programs intended to enable
New York State to: (i) invest in high technology industries; (ii) expand access
to foreign markets; (iii) strengthen assistance to small businesses,
particularly those owned by women and minorities; (iv) retain and attract new
manufacturing jobs; (v) help companies and communities impacted by continued
cutbacks in Federal defense spending and ongoing corporate downsizings; and (vi)
bolster the tourism industry. In addition, the budget included increased levels
of support for programs to rebuild and maintain State infrastructure, and
provisions to create 21 new economic development zones.
New York State ended its 1994-95 fiscal year with the General Fund in
balance. The closing fund balance of $158 million reflects $157 million in the
Tax Stabilization Reserve Fund and
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$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, $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.
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1993-94 FISCAL YEAR
The State ended its 1993-94 fiscal year with a balance of $1.140
billion in the tax refund reserve account, $265 million in its Contingency
Reserve Fund and $134 million in its Tax Stabilization Reserve Fund. These fund
balances were primarily the result of an improving national economy, State
employment growth, tax collections that exceeded earlier projections and
disbursements that were below expectations. Deposits to the personal income tax
refund reserve have the effect of reducing reported personal income tax receipts
in the fiscal year when made and withdrawals from such reserve increase receipts
in the fiscal year when made. The balance in the tax refund reserve account will
be used to pay taxpayer refunds, rather than drawing from 1994-95 receipts.
1992-93 FISCAL YEAR
The State ended its 1992-93 fiscal year with a balance of $671 million
in the tax refund reserve account and $67 million in the Tax Stabilization
Reserve Fund. The State's 1992-93 fiscal year was characterized by performance
that was better than projected for the national and regional economies. National
gross domestic product, State personal income, and State employment and
unemployment performed better than originally projected in April 1992. This
favorable economic performance, particularly at year end, combined with a
tax-induced acceleration of income into 1992, was the primary cause of the
General Fund surplus. Personal income tax collections were more than $700
million higher than originally projected (before reflecting the tax refund
reserve account transaction), primarily in the withholding and estimated payment
components of the tax. There were, however, large and mainly offsetting
variances in other categories of receipts.
CERTAIN LITIGATION
Certain litigation pending against New York or its officers or
employees could have a substantial or long-term adverse effect on New York
finances. Among the more significant of these cases are those that involve: (i)
the validity of agreements and treaties by which various Indian tribes
transferred to New York title to certain land in New York; (ii) certain aspects
of New York's Medicaid rates and regulations, including reimbursements to
providers of mandatory and optional Medicaid services, and the eligibility for
and nature of home care services; (iii) challenges to provisions of Section
2807-C of the Public Health Law, which impose a 13% surcharge on inpatient
hospital bills paid by commercial insurers and employee welfare benefit plans
and portions of Chapter 55 of the laws of 1992, which require hospitals to
impose and remit to the State an 11% surcharge on hospital bills paid by
commercial insurers and which require health maintenance organizations to remit
to the State a surcharge of up to 9%; (iv) an action against the State of New
York and New York City officials alleging that the present level
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of shelter allowance for public assistance recipients is inadequate under
statutory standards to maintain proper housing; (v) challenges to the practice
of reimbursing certain Office of Mental Health patient care expenses from the
client's Social Security benefits; (vi) alleged responsibility of New York
officials to assist in remedying racial segregation in the City of Yonkers;
(vii) a challenge to the constitutionality of financing programs of the Thruway
Authority authorized by Chapters 166 and 410 of the Laws of 1991; and (viii) a
claim that the State's Department of Environmental Conservation prevented the
completion of a cogeneration facility by the projected date by failing to
provide data in a timely manner and that the plaintiff thereby suffered damages.
In addition, aspects of petroleum business taxes are the subject of
administrative claims and litigation.
THE CITY OF NEW YORK
The fiscal health of the State of New York is closely related to the
fiscal health of its localities, particularly the City, which has required and
continues to require significant financial assistance from New York. The City's
independently audited operating results for each of its 1981 through 1993 fiscal
years showed a General Fund surplus reported in accordance with GAAP. In
addition, the City's financial statements for the 1993 fiscal year received an
unqualified opinion from the City's independent auditors, the eleventh
consecutive year the City received such an opinion.
The 1996-1999 Financial Plan reflects a program of proposed actions by
the City to close the gaps between projected revenues and expenditures of $888
million, $1.5 billion and $1.4 billion for the 1997, 1998 and 1999 fiscal years,
respectively. These actions, a substantial number of which are not specified in
detail, include additional agency spending reductions, reduction in
entitlements, government procurement initiatives, revenue initiatives and the
availability of the general reserve.
The Office of the State Deputy Comptroller for the City of New York
(the "OSDC") and the State Financial Control Board continue their respective
budgetary oversight activities.
In response to the City's fiscal crisis in 1975, the State took action
to assist the City in returning to fiscal stability. Among those actions, the
State established the Municipal Assistance Corporation for the City of New York
(the "MAC") to provide financing assistance to the City; the New York State
Financial Control Board (the "Control Board") to oversee the City's financial
affairs; the Office of the State Deputy Comptroller for the City of New York to
assist the Control Board in exercising its powers and responsibilities; and a
"Control Period" from 1975 to 1986 during which the City was subject to certain
statutorily-prescribed fiscal-monitoring arrangements. Although the Control
Board terminated the Control Period in 1986
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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 issued $1.75 billion of notes for seasonal financing
purposes during its fiscal year ending June 30, 1994. The City's capital
financing program projects long-term financing requirements of approximately $17
billion for the City's fiscal years 1995 through 1998. The major capital
requirements include expenditures for the City's water supply and sewage
disposal systems, roads, bridges, mass transit,
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schools, hospitals and housing.
OTHER LOCALITIES
In addition to the City, certain localities, including the City of
Yonkers, could have financial problems leading to requests for additional State
assistance during the State's 1995-96 fiscal year and thereafter..
Municipalities and school districts have engaged in substantial short-term and
long-term borrowings. In 1993, the total indebtedness of all localities in the
State other than New York City was approximately $17.7 billion.
From time to time, Federal expenditure reductions could reduce, or in
some cases, eliminate, Federal funding of some local programs, and, accordingly,
might impose substantial increased expenditure requirements on affected
localities. If the State, the City or any of the public authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within the State could be adversely affected. Localities also face
anticipated and potential problems resulting from certain pending litigation,
judicial decisions and long-range economic trends. Long-range potential problems
of declining urban population, increasing expenditures and other economic trends
could adversely affect localities and require increasing State assistance in the
future.
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
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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 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.
JPM529A
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APPENDIX C
INVESTING IN JAPAN AND ASIAN GROWTH MARKETS
JAPAN AND ITS SECURITIES MARKETS
The Japan Equity Portfolio will be subject to general economic and
political conditions in Japan. These include future political and economic
developments, the possible imposition of, or changes in, exchange controls or
other Japanese governmental laws or restrictions applicable to such investments,
diplomatic developments, political or social unrest and natural disasters.
The information set forth in this section has been extracted from
various governmental publications and private news services.
The Japan Equity Portfolio makes no representation as to the accuracy of the
information, nor has the Portfolio attempted to verify it. Furthermore, no
representation is made that any correlation exists between Japan or its economy
in general and the performance of the Japan Equity Portfolio.
DOMESTIC POLITICS
Japan has a parliamentary form of government. The legislative power is
vested in the Japanese Diet, which consists of a House of Representatives and a
House of Councilors. Members of the House of Representatives are elected for
terms of four years unless the House of Representatives is dissolved prior to
the expiration of their full elected terms. Members of the House of Councilors
are elected for terms of six years with one-half of the membership being elected
every three years. Various political parties are represented in the Diet,
including the conservative Liberal Democratic Party ("LDP"), which until August
1993 had been in power nationally since its formation in 1955. The LDP ceased to
have a majority of the House of Representatives in June 1993, when certain
members of the House of Representatives left the LDP and formed two new
political parties. After an election for the House of Representatives was held
on July 18, 1993 and the LDP failed to secure a majority, seven parties formed a
coalition to control the House of Representatives and chose Morihiro Hosokawa,
the Representative of the Japan New Party, to head their coalition. In April
1994, amid accusations of financial improprieties, Prime Minister Hosokawa
announced that he would resign. Tusutomu Hata succeeded Mr. Hosokawa as prime
minister and formed a new cabinet as a minority coalition government. In June
1994 Mr. Hata yielded to political pressure from opposition parties and
resigned. He was succeeded by Social Democratic Party leader Tomi-ichi Murayama,
Japan's first Socialist prime minister since 1948, who was chosen by a new and
unstable alliance between left-wing and conservative parties, including the LDP.
This political instability may hamper Japan's ability to establish and maintain
effective economic and fiscal policies, and recent and future political
developments may lead to changes in policy that might adversely affect the Japan
Equity Portfolio.
C-1
<PAGE>
ECONOMIC BACKGROUND
Over the past 30 years, Japan has experienced significant economic
development. During the era of high economic growth in the 1960s and early
1970s, the expansion was based on the development of heavy industries such as
steel and shipbuilding. In the 1970s, Japan moved into assembly industries which
employ high levels of technology and consume relatively low quantities of
resources, and since then has become a major producer of electrical and
electronic products and automobiles. Moreover, since the mid-1980s, Japan has
become a major creditor nation. With the exception of the periods associated
with the oil crises of the 1970s, Japan has generally experienced very low
levels of inflation.
Japan is largely dependent upon foreign economies for raw materials.
For instance, almost all of its oil is imported, the majority from the Middle
East. Oil prices therefore have a major impact on the domestic economy, as is
evidenced by the current account deficits triggered by the two oil crises of the
1970s. Oil prices have declined mainly due to a worldwide easing of demand for
crude oil. The stabilized price of oil contributed to Japan's sizeable current
account surplus and stability of wholesale and consumer prices during the period
1981 through 1992. While Japan is working to reduce its dependence on foreign
materials, its lack of natural resources poses a significant obstacle to this
effort.
International trade is important to Japan's economy, as exports provide
the means to pay for many of the raw materials it must import. Japan's trade
surplus has increased dramatically in recent years, exceeding $100 billion since
1991. Because of the concentration of Japanese exports in highly visible
products such as automobiles, machine tools and semiconductors, and the large
trade surpluses resulting therefrom, Japan has entered a tense phase in its
relations with its trading partners, particularly with respect to the United
States, with whom the trade imbalance is the greatest. The United States and
Japan have engaged in "economic framework" negotiations to help increase the
United States' share in Japanese markets and reduce Japan's current account
surplus, but progress in the negotiations has been hampered by the recent
political upheaval in Japan. Any trade sanctions imposed upon Japan by the
United States as a result of the current friction or otherwise could adversely
affect Japan and the performance of the Japan Equity Portfolio.
C-2
<PAGE>
The following table sets forth the composition of Japan's trade
balance, as well as other components of its current account, for the years 1980
to 1993.
<TABLE>
<CAPTION>
CURRENT ACCOUNT
Trade
-----------------------------------------------------------------------------------
Change from Change from
PRECEDING PRECEDING TRADE Current
YEAR EXPORTS YEAR IMPORTS YEAR BALANCE SERVICE TRANSFERS BALANCE
(U.S. DOLLARS IN
MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1980 $ 126,736 25.2% $ 124,611 25.4% $ 2,125 $ (11,343) $ (1,528) $ (10,746)
1981 149,522 18.0 129,555 4.0 19,967 (1,624) 4,770
(13,573)
1982 137,663 (7.9) 119,584 (7.7) 18,079 (9,848) 6,850
(1,381)
1983 145,468 5.7 114,014 (4.7) 31,454 (9,106) (1,549) 20,799
1984 168,290 15.7 124,003 8.8 44,257 (7,747) (1,507) 35,003
1985 174,015 3.4 118,029 (4.8) 55,986 (5,165) (1,652) 49,169
1986 205,591 18.1 112,764 (4.5) (4,932) (2,050) 85,845 92,827
1987 224,605 9.2 128,219 13.7 96,386 (5,702) 87,015 (3,669)
1988 259,765 15.7 164,753 28.5 95,012 (11,263) (4,118) 79,631
1989 269,570 3.8 192,653 16.9 76,917 (15,526) (4,234) 57,157
1990 280,374 4.0 216,846 12.6 65,528 (22,292) (5,475) 35,761
1991 306,557 9.3 203,513 (6.1) 103,044 (17,660) (12,483) 72,901
1992 330,850 7.9 198,502 (2.5) 132,348 (10,112) (4,685) 117,551
1993 351,292 6.2 209,778 5.7 141,514 (6,117) 131,448 (3,949)
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
C-3
<PAGE>
The following table sets forth the composition of Japan's imports on a
customs clearance basis, both in terms of import item and in terms of regional
source, for the years 1980 to 1993.
<TABLE>
<CAPTION>
IMPORTS ON A CUSTOMS CLEARANCE BASIS
Crude
Materials Machinery and From From
YEAR TOTAL AND FUELS FOODSTUFF EQUIPMENT U.S. EUROPE FROM ASIA
- ---- ----- --------- --------- --------- ---- ------ ---------
(U.S. DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
1980 $140,528 $93,752 $14,666 $ 9,843 $24,408 $7,842 $31,751
1981 143,290 92,597 15,913 10,240 25,927 8,552 31,930
1982 131,931 84,529 14,575 9,112 24,179 7,560 29,985
1983 126,393 77,136 14,896 10,409 24,647 8,120 27,988
1984 136,503 79,862 16,027 12,066 26,862 9,334 31,883
1985 129,539 73,834 15,547 12,372 25,793 8,893 30,264
1986 126,408 54,423 19,186 14,699 29,054 13,989 29,849
1987 149,515 61,122 22,395 19,123 31,490 17,670 38,627
1988 187,354 66,330 29,120 26,661 42,037 24,071 47,802
1989 210,847 73,649 31,012 32,376 48,246 28,146 61,476
1990 234,799 85,102 31,572 40,863 52,369 35,028 66,646
1991 236,737 81,807 34,473 42,851 53,317 31,792 73,016
1992 233,021 78,734 37,289 42,853 52,230 31,280 74,448
1993 240,670 76,072 39,365 46,612 55,197 30,142 81,060
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
C-4
<PAGE>
ECONOMIC TRENDS. The following table sets forth Japan's gross domestic
product for the years 1987 to 1993.
<TABLE>
<CAPTION>
GROSS DOMESTIC PRODUCT (GDP)
1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ----
(YEN IN BILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Consumption
Expenditures
Private (Y)270,505.4 (Y)264,779.9 (Y)255,084.2 (Y)243,628.1 (Y)228,483.2 (Y)215,122.0 (Y)204,585.3
Government 44,970.3 43,254.0 41,232.0 38,806.6 36,274.8 34,184.3 32,974.5
Capital Formation
(incl.inventories)
Private 102,047.7 109,579.2 116,638.0 110,871.9 100,130.8 89,043.7 76,176.5
Government 40,328.3 35,013.4 30,062.3 28,182.6 25,724.5 24,660.89 23,673.8
Exports of Goods
and Services 44,234.5 47,409.4 46,809.7 45,919.9 42,351.8 37,483.2 36,209.6
Imports of Goods
and Services 33,317.2 36,183.8 38,529.3 42,871.8 36,768.1 29,065.1 25,194.9
GDP
(Expenditures) 468,769.0 463,850.0 451,296.9 24,537.2 396,197.0 371,429.0 348,425.0
Change in GDP from Preceding Year
Nominal
terms 1.1% 2.8% 6.3% 7.2% 6.7% 6.6% 4.1%
Real Terms 0.1% 1.1% 4.3% 4.8% 4.7% 6.2% 4.1%
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
The following tables set forth certain economic indicators in Japan for
the years indicated.
<TABLE>
<CAPTION>
ORDERS RECEIVED FOR MACHINERY
(280 COMPANIES)
1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ----
(YEN IN BILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Manufacturing................. (Y)4,657.7 (Y)5,526.1 (Y)6,785.9 (Y)7,289.3 (Y)6,663.1 (Y)5,621.3
Nonmanufacturing.............. 8,858.8 9,233.9 10,160.4 9,139.4 8,425.9 7,066.5
-------- ------- -------- ------- ------- -------
Total Demand by Private
Sector...................... (Y)13,516.5 (Y)14,759.9 (Y)16,946.3 (Y)16,429.3 (Y)15,088.9 (Y)12,687.8
Government Demand............. 11,226.7 11,010.7 11,291.3 11,601.2 10,316.4 9,131.4
-------- -------- -------- -------- -------- --------
Total......................... (Y)24,743.2 (Y)25,770.6 (Y)28,237.6 (Y)28,030.5 (Y)25,405.3 (Y)21,819.2
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
C-5
<PAGE>
<TABLE>
<CAPTION>
NEW DWELLING CONSTRUCTION STARTED
YEAR NUMBER FLOOR AREA
(UNITS IN THOUSANDS) (SQUARE METERS IN THOUSANDS)
<S> <C> <C>
1980 1,269 119,102
1981 1,152 107,853
1982 1,146 107,638
1983 1,137 99,442
1984 1,187 100,226
1985 1,236 103,129
1986 1,365 111,003
1987 1,674 132,527
1988 1,685 134,530
1989 1,663 135,029
1990 1,707 137,490
1991 1,370 117,219
1992 1,403 120,318
1993 1,486 131,683
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
<TABLE>
<CAPTION>
UNEMPLOYMENT
Labor Productivity Index
YEAR NUMBER UNEMPLOYED PERCENT UNEMPLOYED (MANUFACTURING)
(IN MILLIONS) (BASE YEAR 1990)
<S> <C> <C> <C>
1983 1.56 2.6% 66.7
1984 1.61 2.7 72.4
1985 1.56 2.6 75.6
1986 1.67 2.8 77.0
1987 1.73 2.8 81.4
1988 1.55 2.5 90.8
1989 1.42 2.3 96.2
1990 1.34 2.1 100.0
1991 1.36 2.1 102.5
1992 1.42 2.2 97.0
1993 1.66 2.5 95.4
</TABLE>
Source: Financial Statistics of Japan 1993 (1993 ed. and June 1994 supp.),
Institute of Fiscal and Monetary Policy, Ministry of Finance of Japan.
C-6
<PAGE>
<TABLE>
<CAPTION>
WHOLESALE PRICE INDEX
Change
All from Manu- Farm and
Commodi- Preced- factured Marine Mineral Domestic
YEAR TIES ING YEAR PRODUCTS PRODUCTS PRODUCTS UTILITIES PRODUCTS EXPORTS IMPORTS
---- ------ -------- -------- -------- -------- --------- -------- ------- -------
(BASE YEAR: 1990)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1980 110.9 17.7% 108.2 116.0 170.4 109.7 104.8 121.5 159.8
1981 112.5 1.4 109.0 114.1 185.5 121.1 106.2 122.9 162.4
1982 114.5 1.8 110.2 114.4 204.1 122.7 106.7 127.7 175.2
1983 111.9 (2.3) 108.6 113.6 180.9 106.0 120.0 161.3
122.9
1984 111.6 (2.7) 108.5 114.1 172.7 124.0 106.1 120.8 156.0
1985 110.4 (1.1) 107.4 109.4 173.6 124.4 105.3 119.1 152.2
1986 100.3 99.7 99.5 97.9 118.5 100.3 101.1 97.7 (9.1)
1987 96.5 (3.8) 96.4 94.9 110.8 97.2 96.0 89.7 88.2
1988 95.6 (0.9) 95.8 95.4 79.2 104.4 96.7 93.8 85.6
1989 98.0 2.5 98.2 98.3 87.1 100.8 98.5 97.9 92.0
1990 100.0 2.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
1991 99.4 (0.6) 99.8 97.5 93.6 100.1 94.6 91.8 101.0
1992 97.8 (1.6) 98.3 96.2 88.2 100.1 100.1 91.2 86.3
1993 (2.9) 95.5 95.1 76.8 100.2 98.6 83.9 77.3 95.0
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
C-7
<PAGE>
<TABLE>
<CAPTION>
CONSUMER PRICE INDEX
General
Change from Including
YEAR GENERAL PRECEDING YEAR FRESH FOOD
(Base Year: 1990)
<S> <C> <C> <C>
1980 81.7 7.7% 81.8
1981 85.6 4.9 85.7
1982 88.0 2.8 88.3
1983 89.6 1.9 89.9
1984 91.7 2.3 91.9
1985 93.5 2.0 93.7
1986 94.1 0.6 94.5
1987 94.2 0.1 94.8
1988 94.9 0.7 95.1
1989 97.0 2.3 97.4
1990 100.0 3.1 100.0
1991 103.3 3.3 102.9
1992 105.0 1.6 105.2
1993 106.4 1.3 106.6
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
C-8
<PAGE>
CURRENCY FLUCTUATION. The Japan Equity Portfolio's investments in
Japanese securities will be denominated in yen and most income received by the
Portfolio from such investments will be in yen. However, the Portfolio's net
asset value will be reported, and distributions will be made, in U.S. dollars.
Therefore, a decline in the value of the yen relative to the U.S. dollar could
have an adverse effect on the value of the Portfolio's Japanese investments.
The following table sets forth the average exchange rates of Japanese
yen for U.S. dollars for the years 1980 to 1993:
<TABLE>
<CAPTION>
CURRENCY EXCHANGE RATES
YEAR YEN PER U.S. DOLLAR
<S> <C>
1980 (Y)226.63
1981 220.63
1982 249.06
1983 237.55
1984 237.45
1985 238.47
1986 168.35
1987 144.60
1988 128.17
1989 138.07
1990 145.00
1991 134.59
1992 126.79
1993 111.08
</TABLE>
Source: Board of Governors of the Federal Reserve System, Federal Reserve
Bulletin
On March 25, 1995, the noon buying rate in London for cable transfers
payable in Japanese yen was 89.00 yen per U.S. dollar. The recent relative
strength of the yen to the U.S. dollar may adversely affect the economy of
Japan, and, in particular, the export sector thereof.
GEOLOGICAL FACTORS. The islands of Japan lie in the western Pacific
Ocean, off the eastern coast of the continent of Asia. Japan has in the past
experienced earthquakes and tidal waves of varying degrees of severity, and the
risks of such phenomena, and damage resulting therefrom, continue to exist.
C-9
<PAGE>
SECURITIES MARKETS
There are eight stock exchanges in Japan. Of these, the Tokyo Stock
Exchange is by far the largest, followed by the Osaka Stock Exchange and the
Nagoya Stock Exchange. These exchanges divide the market for domestic stocks
into two sections, with newly listed companies and smaller companies assigned to
the Second Section and largest companies assigned to the First Section.
The following table sets forth the number of Japanese companies listed
on each of the eight Japanese stock exchanges as of the end of 1993.
<TABLE>
<CAPTION>
NUMBER OF DOMESTIC COMPANIES LISTED ON ALL STOCK EXCHANGES
TOKYO OSAKA NAGOYA
1st 2nd 1st 2nd 1st 2nd
SEC. SEC. SEC. SEC. SEC. SEC. KYOTO HIROSHIMA FUKUOKA NIGATA SAPPORO
- --- --- --- --- --- --- ----- --------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,234 433 857 321 432 127 237 198 252 197 191
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1994
The following table sets forth the trading volume and value of Japanese
stocks on each of the eight Japanese stock exchanges for the years 1989 to 1993.
<TABLE>
<CAPTION>
STOCK TRADING VOLUME & VALUE ON ALL STOCK EXCHANGES
(shares in millions; yen in billions)
ALL EXCHANGES TOKYO OSAKA
NAGOYA
YEAR VOLUME VALUE VOLUME VALUE VOLUME VALUE VOLUME VALUE
- ---- -------- --------- ---------- --------- ---------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
1989 ........ 256,296 (Y)386,395 222,599 (Y)332,617 25,096 (Y)41,679 7,263 (Y)10,395
1990 ........ 145,837 231,837 123,099 186,667 17,187 35,813 4,323 7,301
1991 ........ 107,844 134,160 93,606 110,897 10,998 18,723 2,479 3,586
1992 ........ 82,563 80,456 66,408 60,110 12,069 15,575 3,300 3,876
1993 ........ 101,172 106,123 86,934 86,889 10,439 14,635 2,779 3,459
</TABLE>
<TABLE>
<CAPTION>
KYOTO HIROSHIMA FUKUOKA NIIGATA SAPPORO
VOLUME VALUE VOLUME VALUE VOLUME VALUE VOLUME VALUE VOLUME VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 ................. 331 (Y)443 190 (Y)235 268 (Y)330 398 (Y)475 151 (Y)221
1990 ................. 416 770 169 261 203 245 334 195 286 405
1991 ................. 220 300 125 149 122 174 181 208 113 123
1992 ................. 225 110 136 139 129 163 178 149 129 322
1993 ................. 222 340 185 178 229 225 206 226 173 170
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1994
C-10
<PAGE>
The following table sets forth the stock trading volume of Japanese
stocks on the Tokyo Stock Exchange for the years 1971 to 1993.
<TABLE>
<CAPTION>
TOKYO STOCK EXCHANGE
STOCK TRADING VOLUME
No. of
Trading Daily Turnover
YEAR DAYS TOTAL AVERAGE HIGH LOW RATIO
- ---- ------ ----- ------- ---- --- -----
(shares in millions)
<S> <C> <C> <C> <C> <C> <C>
1971............. 299 60,819 203 559 60 51.4%
1972............. 297 100,358 338 1,077 92 79.0
1973............. 287 59,248 206 1,066 48 43.0
1974............. 285 51,001 179 572 48 34.4
1975............. 284 51,906 183 401 62 32.6
1976............. 286 69,941 245 646 91 40.9
1977............. 286 71,195 249 921 102 39.4
1978............. 285 98,555 345 865 149 52.1
1979............. 286 98,246 344 914 138 50.2
1980............. 285 102,245 359 940 141 50.2
1981............. 285 107,549 377 1,390 114 50.0
1982............. 285 78,474 275 823 108 34.6
1983............. 286 104,309 365 997 122 44.3
1984............. 287 103,737 361 965 124 42.5
1985............. 285 121,863 428 1,367 163 48.0
1986............. 279 197,699 709 2,336 141 75.1
1987............. 274 263,611 962 2,839 211 96.1
1988............. 273 282,637 1,035 2,868 187 98.1
1989............. 249 222,599 894 2,212 276 73.1
1990............. 246 123,099 500 1,101 196 38.4
1991............. 246 93,606 381 1,462 138 28.4
1992............. 247 66,408 269 841 116 19.9
1993............. 246 86,935 353 1,553 82 25.9
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1994
C-11
<PAGE>
The following table sets forth the stock trading value of Japanese
stocks on the Tokyo Stock Exchange for the years 1971 to 1993.
<TABLE>
<CAPTION>
TOKYO STOCK EXCHANGE
STOCK TRADING VALUE
Turnover
YEAR TOTAL DAILY AVERAGE HIGH LOW RATIO
(yen in millions)
<S> <C> <C> <C> <C> <C>
1971................................... (Y)13,980,301 (Y)46,757 (Y)131,339 (Y)10,734 71.8%
1972................................... 21,435,235 72,173 202,347 18,951 60.6
1973................................... 14,904,472 51,932 253,353 11,834 34.4
1974................................... 12,390,319 43,475 137,534 11,455 33.2
1975................................... 15,566,058 54,810 154,217 14,261 39.3
1976................................... 23,662,168 82,735 216,984 28,945 49.2
1977................................... 21,500,060 75,175 193,945 30,497 41.1
1978................................... 32,534,301 144,155 265,158 45,010 55.2
1979................................... 34,911,285 122,067 305,407 44,292 51.5
1980................................... 36,489,558 128,034 247,596 53,714 49.9
1981................................... 49,364,571 173,209 472,362 50,288 53.4
1982................................... 36,571,457 128,320 579,505 48,401 38.5
1983................................... 54,844,791 191,765 496,110 67,825 48.8
1984................................... 67,974,003 236,843 575,562 83,682 47.1
1985................................... 78,711,048 276,179 727,316 110,512 44.7
1986................................... 159,836,218 572,890 1,682,060 115,244 67.2
1987................................... 250,736,971 915,098 2,382,114 221,230 80.6
1988................................... 285,521,260 1,045,865 2,768,810 192,704 70.2
1989................................... 332,616,597 1,335,810 2,796,946 392,347 61.1
1990................................... 186,666,820 758,808 1,464,920 218,205 57.7
1991................................... 110,897,491 450,803 1,531,064 151,565 19.3
1992................................... 60,110,391 243,362 686,737 97,616 18.0
1993................................... 86,889,072 353,208 1,422,760 61,747 18.3
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1994
C-12
<PAGE>
SECURITIES INDEX. The TOPIX is a composite index of all common stocks
listed on the First Section of the Tokyo Stock Exchange. The TOPIX reflects the
change in the aggregate market value of the common stocks as compared to the
aggregate market value of those stocks as of the close of January 4, 1968.
The following table sets forth the high, low and year-end TOPIX for
each year from 1971 to 1993.
<TABLE>
<CAPTION>
TOPIX (TOKYO STOCK PRICE INDEX)
(Jan. 4, 1968 = 100)
YEAR YEAR-END HIGH LOW
<S> <C> <C> <C>
1971 199.45 209.00 148.05
1972 401.70 401.70 199.93
1973 306.44 422.48 284.69
1974 278.34 342.47 251.96
1975 323.43 333.11 268.24
1976 383.88 383.88 326.28
1977 364.08 390.93 350.49
1978 449.55 452.60 364.04
1979 459.61 465.24 435.13
1980 494.10 497.96 449.01
1981 570.31 603.92 495.79
1982 593.72 593.72 511.52
1983 731.82 731.82 574.51
1984 913.37 913.37 735.45
1985 1,049.40 1,058.35 916.93
1986 1,556.37 1,583.35 1,025.85
1987 1,725.83 2,258.56 1,557.46
1988 2,357.03 2,357.03 1,690.44
1989 2,881.37 2,884.80 2,364.33
1990 1,733.83 2,867.70 1,523.43
1991 1,714.68 2,028.85 1,638.06
1992 1,307.66 1,763.43 1,102.50
1993 1,439.31 1,698.67 1,250.06
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1994
As this index reflects, share prices of companies traded on
Japanese stock exchanges reached historical peaks (which were later referred to
as the "bubble") in 1989 and 1990. Afterwards stock prices decreased
significantly, reaching their lowest levels in the second half of 1992. There
can be no assurance that additional market corrections will not occur.
ASIAN GROWTH MARKETS
The Asia Growth Portfolio will be subject to certain risks and special
considerations, including those set forth below, which are not typically
associated with investing in securities of U.S. companies. In particular,
securities markets in Asian growth markets have been subject to substantial
price volatility, often without warning. This potential for sudden market
declines should be weighed and balanced against the potential for rapid growth
in Asian growth markets. Further, certain securities that the Portfolio may
purchase, and investment techniques in which the Portfolio may engage, involve
risks, including those set forth below.
INVESTMENT AND REPATRIATION RESTRICTIONS
Foreign investment in the securities markets of several Asian growth
markets is restricted or controlled to varying degrees. These restrictions may
limit investment in certain of the Asian growth markets and may increase
expenses of the Portfolio. For example, certain countries may require
governmental approval prior to investments by foreign persons in a particular
company or industry sector or limit investment by foreign persons to only a
specific class of securities of a company which may have less advantageous terms
(including price) than securities of the company available for purchase by
nationals. Certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. In addition,
the repatriation of both investment income and capital from several of the Asian
growth markets is subject to restrictions such as the need for certain
government consents. Even where there is no outright restriction on repatriation
of capital, the mechanics of repatriation may affect certain aspects of the
operation of the Portfolio. For example, Taiwan imposes a waiting period on the
repatriation of investment capital for certain foreign investors. Although these
restrictions may in the future make it undesirable to invest in the countries to
which they apply, the Advisor does not believe that any current repatriation
restrictions would preclude the Portfolio from effectively managing its assets.
If, because of restrictions on repatriation or conversion, the
Portfolio were unable to distribute substantially all of its net investment
income and long-term capital gains within applicable time periods, the Portfolio
could be subject to U.S. Federal income and excise taxes which would not
otherwise be incurred and may cease to qualify for the favorable tax treatment
afforded to regulated investment companies under the Code, in which case it
would become subject to U.S. federal income tax on all of its
C-17
<PAGE>
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"). The
Advisor expects to receive the necessary approvals from these authorities within
three months from the date of this Prospectus. Under the guidelines that apply
currently for FIIs, no FII (or members of an affiliated group investing through
one or more FIIs) may hold more than 5% of the total issued capital of any
Indian company. In addition, all non-resident portfolio investments, including
those of all FIIs and their clients, may not exceed 24% of the issued share
capital of any Indian company; however, the 24% limit does not apply to
investments by FIIs through authorized offshore funds and offshore equity
issues. Further, at least 70% of the total investments made by an FII pursuant
to its FII authorization must be in equity and equity related instruments such
as convertible debentures and tradeable warrants. Under a recently adopted
policy, FIIs may purchase new issues of equity securities directly from an
Indian company, subject to certain conditions. The procedures for such direct
subscription by FIIs of such equity securities are unclear and it is likely that
a further limit, in addition to the 24% limit referred to above, may be imposed.
The guidelines that apply for FIIs are relatively recent and thus experience as
to their application has been limited. At present, FII authorizations are
granted for five years and may be renewed with the approval of India
governmental authorities. Korea generally prohibits foreign investment in
Won-denominated debt securities and Sri Lanka prohibits foreign investment in
government debt securities. In the Philippines, the Portfolio may generally
invest in "B" shares of Philippine issuers engaged in partly nationalized
business activities, which shares are made available to foreigners, and the
market prices, liquidity and rights of which may vary from shares owned by
nationals. Similarly, in the People's Republic of China (the "PRC"), the
Portfolio may only invest in "B" shares of securities traded on The Shanghai
Securities Exchange and The Shenzhen Stock Exchange, currently the two
officially recognized securities exchanges in the PRC. "B" shares traded on The
Shanghai Securities Exchange are settled in U.S. dollars and those traded on The
Shenzhen Stock Exchange are generally settled in Hong Kong dollars.
In Hong Kong, Korea, the Philippines, Taiwan and Thailand, there are
restrictions on the percentage of permitted foreign investment in shares of
certain companies, mainly those in highly regulated industries, although in
Taiwan there are limitations on foreign ownership of shares of any listed
company. In addition, Korea also prohibits foreign investment in specified
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telecommunications companies and the Philippines prohibits foreign investment in
mass media companies and companies providing certain professional services.
From time to time, pooled investment funds may be the most effective
available means by which the Portfolio may invest in equity securities of
certain Asian growth markets. For example, prior to January 3, 1992, foreign
investment in Korea was generally limited to a few investment funds that had
been granted a license from the government of Korea, although since that date
direct foreign investment in individual stocks in Korea has been officially
permitted within specific limits. Investment in such investment funds may
involve the payment of management expenses and, in connection with some
purchases, sales loads, and payment of substantial premiums above the value of
such companies' portfolio securities. The Portfolio does not intend to invest in
such investment funds unless, in the judgment of the Advisor, the potential
benefits of such investment outweigh the payment of any applicable premium,
sales load and expenses.
MARKET CHARACTERISTICS
DIFFERENCES BETWEEN THE U.S. AND ASIAN SECURITIES MARKETS. The
securities markets of Asian growth markets have substantially less volume than
the New York Stock Exchange, and equity and debt securities of most companies in
Asian growth markets are less liquid and more volatile than equity and debt
securities of U.S. companies of comparable size. Some of the stock exchanges in
Asian growth markets, such as those in the PRC, are in the earliest stages of
their development. Many companies traded on securities markets in Asian growth
markets are smaller, newer and less seasoned than companies whose securities are
traded on securities markets in the United States. Investments in smaller
companies involve greater risk than is customarily associated with investing in
larger companies. Smaller companies may have limited product lines, markets or
financial or managerial resources and may be more susceptible to losses and
risks of bankruptcy. Additionally, market making and arbitrage activities are
generally less extensive in such markets, which may contribute to increased
volatility and reduced liquidity of such markets. Accordingly, each of these
markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. To the extent that any Asian
growth market experiences rapid increases in its money supply and investment in
equity securities for speculative purposes, the equity securities traded in any
such country may trade at price-earnings multiples higher than those of
comparable companies trading on securities markets in the United States, which
may not be sustainable. Securities markets in Asian growth markets may also be
subject to substantial governmental control, which may cause sudden or prolonged
disruptions in market prices unrelated to supply and demand considerations. This
may also be true of currency markets.
Brokerage commissions and other transaction costs on
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securities exchanges in Asian growth markets are generally higher than in the
United States. In addition, security settlements may in some instance be subject
to delays and related administrative uncertainties, including risk of loss
associated with the credit of local brokers.
GOVERNMENT SUPERVISION OF ASIAN SECURITIES MARKETS; LEGAL SYSTEMS.
There is less government supervision and regulation of foreign securities
exchanges, listed companies and brokers in Asian growth markets than exists in
the United States. Less information, therefore, may be available to the Fund
than in respect of investments in the United States. Further, in certain Asian
growth markets, less information may be available to the Fund than to local
market participants. Brokers in Asian growth markets may not be as well
capitalized as those in the United States, so that they are more susceptible to
financial failure in times of market, political, or economic stress. In
addition, existing laws and regulations are often inconsistently applied. As
legal systems in some of the Asian growth markets develop, foreign investors may
be adversely affected by new laws and regulations, changes to existing laws and
regulations and preemption of local laws and regulations by national laws. In
circumstances where adequate laws exist, it may not be possible to obtain swift
and equitable enforcement of the law. Currently a mixture of legal and
structural restrictions affect the securities markets of certain Asian growth
markets. India in particular is experiencing difficulty in processing and
settling securities transactions to such a degree that investments are currently
impeded.
Korea, in an attempt to avoid market manipulation, requires
institutional investors to deposit in their broker's account a percentage of the
amount to be invested (currently 20%) prior to execution of a purchase order.
That deposit requirement will expose the Fund to the broker's credit risk. These
examples demonstrate that legal and structural developments can be expected to
affect the Portfolio, potentially affecting liquidity of positions held by the
Portfolio, in unexpected and significant ways from time to time.
FINANCIAL INFORMATION AND STANDARDS. Issuers in Asian growth markets
generally are subject to accounting, auditing and financial standards and
requirements that differ, in some cases significantly, from those applicable to
U.S. issuers. In particular, the assets and profits appearing on the financial
statements of an Asian growth market issuer may not reflect its financial
position or results of operations in accordance with U.S. generally accepted
accounting principles. In addition, for an issuer that keeps accounting records
in local currency, inflation accounting rules may require, for both tax and
accounting purposes, that certain assets and liabilities be restated on the
issuer's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits. Consequently, financial data may be materially affected by
restatements for inflation and may not
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accurately reflect the real condition of those issuers and securities markets.
Moreover, substantially less information may be publicly available about issuers
in Asian growth markets than is available about U.S. issuers.
SOCIAL, POLITICAL AND ECONOMIC FACTORS
Asian growth markets may be subject to a greater degree of social,
political and economic instability than is the case in the United States and
Western European countries. Such instability may result from, among other
things, the following: (i) authoritarian governments or military involvement in
political and economic decision-making, and changes in government through
extra-constitutional means; (ii) popular unrest associated with demand for
improved political, economic and social conditions; (iii) internal insurgencies,
(iv) war or hostile relations with neighboring countries; and (v) ethnic,
religious and racial disaffection. Such social, political and economic
instability could significantly disrupt the principal financial markets in which
the Portfolio invests and adversely affect the value of the Portfolio's assets.
In addition, there may be the possibility of asset expropriations or future
confiscatory levels of taxation affecting the Portfolio.
Few Asian growth markets have western-style or fully democratic
governments. Some governments in the region are authoritarian and influenced by
security forces. During the course of the last 25 years, governments in the
region have been installed or removed as a result of military coups, while
others have periodically demonstrated repressive police state characteristics.
Disparities of wealth, among other factors, have also led to social unrest in
some Asian growth markets, accompanied, in certain cases, by violence and labor
unrest. Ethnic, religious and 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
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partners, principally, the United States, Japan, the PRC and the European
Community. The enactment by the United States or other principal trading
partners of protectionist trade legislation, reduction of foreign investment in
the local economies and general declines in the international securities markets
could have a significant adverse effect upon the securities markets of the Asian
growth markets. In addition, the economies of some Asian growth markets,
Indonesia and Malaysia, for example, are vulnerable to weakness in world prices
for their commodity exports, including crude oil.
Governments in certain Asian growth markets participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could have a significant
adverse effect on market prices of securities and payment of dividends.
With respect to investments in the PRC, it should be noted that the PRC
has only recently permitted private economic activities and the PRC government
has exercised and continues to exercise substantial control over virtually every
sector of the PRC economy through regulation and state ownership. The PRC is a
socialist state which since 1949 has been, and is expected to continue to be,
controlled by the Communist party of the PRC. Continued economic growth and
development in the PRC, as well as opportunities for foreign investment, and
prospects of private sector enterprises, in the PRC, will depend in many
respects on the implementation of the PRC's current program of economic reform,
which cannot be assured.
In Hong Kong, British proposals to extend limited democracy have caused
a political rift with the PRC, which is scheduled to assume sovereignty over the
colony in 1997. Although the PRC has committed by treaty to preserve the
economic and social freedoms enjoyed in Hong Kong for 50 years after regaining
control of Hong Kong, the continuation of the current form of the economic
system in Hong Kong after the reversion will depend on the actions of the
government of the PRC. In addition, such reversion has increased sensitivity in
Hong Kong to political developments and statements by public figures in the PRC.
Business confidence in Hong Kong, therefore, can be significantly affected by
such developments and statements, which in turn can affect markets and business
performance.
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.
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With regard to India, agriculture occupies a more prominent position in
the Indian economy than in the United States, and the Indian economy therefore
is more susceptible to adverse changes in weather. The government of India has
exercised and continues to exercise significant influence over many aspects of
the economy, and the number of public sector enterprises in India is
substantial. Accordingly government actions in the future could have a
significant effect on the Indian economy which could affect private sector
companies, market conditions and prices and yields of securities held by the
Portfolio. Religious and ethnic unrest persists in India. The long standing
grievances between the Hindu and Muslim populations resulted in communal
violence during 1993 in the aftermath of the destruction of a mosque in Ayodhya
by radical elements of the Hindu population. The Indian government is also
confronted by separatist movements in several states and the long standing
border dispute with Pakistan over the State of Jammu and Kashmir, a majority of
whose population is Muslim, remains unsolved. In addition, Indian stock
exchanges have in the past been subject to repeated closure including for ten
days in December 1993 due to a broker's strike, and there can be no assurance
that this will not recur.
THINLY TRADED MARKETS
Compared to securities traded in the United States, generally all
securities of Asian growth market issuers may be considered to be thinly traded.
Even relatively widely held securities in such countries may not be able to
absorb trades of a size customarily transacted by institutional investors,
without price disruptions. Accordingly, the Portfolio's ability to reposition
itself will be more constrained than would be the case for a typical equity
mutual fund.
SETTLEMENT PROCEDURES AND DELAYS
Settlement procedures in Asian growth markets are less developed and
reliable than those in the United States and in other developed markets, and the
Portfolio may experience settlement delays or other material difficulties. This
problem is particularly severe in India where settlement is through physical
delivery and, where currently, a severe shortage of vault capacity exists among
custodial banks, although efforts are being undertaken to alleviate the
shortage. In addition, significant delays are common in registering transfers of
securities, and the Portfolio may be unable to sell such securities until the
registration process is completed and may experience delays in receipt of
dividends and other entitlement. The recent and anticipated inflow of funds into
the Indian securities market has placed added strains on the settlement system
and transfer process. In addition, the Portfolio may be subject to significant
limitations in the future on the volume of trading during any particular period,
imposed by its sub-custodian in India or otherwise as a result of such physical
or other operational constraints.
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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, The JPM
Institutional New York Total Return Bond Fund, The JPM Institutional European
Equity Fund, The JPM Institutional Japan Equity Fund and The JPM
Institutional Asia Growth 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
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
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
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
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
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
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
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, 1995 (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
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
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
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
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
The Diversified Portfolio
Schedule of Investments at June 30, 1995
Statement of Assets and Liabilities at June 30, 1995
Statement of Operations for the Fiscal Year Ended June 30, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements June 30, 1995
The JPM Institutional Emerging Markets Equity Fund
Statement of Assets and Liabilities at 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
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
The JPM Institutional New York Total Return Bond Fund
Statement of Assets and Liabilities at March 31, 1995
Statement of Operations for the fiscal year ended March 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements March 31, 1995
Statement of Assets and Liabilities at September 30, 1995 (unaudited)
Statement of Operations for the six months ended September 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements September 30, 1995 (unaudited)
The New York Total Return Bond Portfolio
Schedule of Investments at March 31, 1995
Statement of Assets and Liabilities at March 31, 1995
Statement of Operations for the fiscal year ended March 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements March 31, 1995
Schedule of Investments at September 30, 1995 (unaudited)
Statement of Assets and Liabilities at September 30, 1995 (unaudited)
Statement of Operations for the six months ended September 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements September 30, 1995 (unaudited)
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
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
The following financial statements are included in Part B:
The Series Portfolio - The European Equity Portfolio
Statement of Assets and Liabilities at March 24, 1995
The Series Portfolio - The Japan Equity Portfolio
Statement of Assets and Liabilities at March 24, 1995
The Series Portfolio - The Asia Growth Portfolio
Statement of Assets and Liabilities at March 24, 1995
(b) Exhibits
1. Declaration of Trust, as amended, was filed as Exhibit 1 to Registrant's
Post-Effective Amendment No. 16 to the Registration Statement (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 Registrant's
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 Signature Broker-Dealer
Services, Inc. ("SBDS") was filed as Exhibit 6 to Post-Effective Amendment
No. 13.
8. Custodian Contract between Registrant and State Street Bank and Trust Company
("State Street") was filed as Exhibit 8 to Post-Effective Amendment No. 13.
9(a). Administration Agreement between Registrant and SBDS.*
9(b). Restated Shareholder Servicing Agreement between Registrant and Morgan
Guaranty Trust Company of New York ("Morgan Guaranty").*
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). Administrative Services Agreement between Registrant and Morgan
Guaranty.*
9(e). Fund Services Agreement between Registrant and Pierpont Group, Inc. was
filed as Exhibit 9(e) to Registrant's Post-Effective Amendment No. 10 to the
Registration Statement filed June 10, 1994 ("Post-Effective Amendment No. 10").
10. Opinion and consent of Sullivan & Cromwell was filed as Exhibit No. 10 to
Registrant's Pre-Effective Amendment No. 1 to the Registration Statement filed
on December 30, 1992.
11. Consents of independent accountants.*
13. Purchase Agreement was filed as Exhibit No. 13 to Pre-Effective Amendment
No. 1.
16. Schedule for computation of performance quotations was filed as Exhibit 16
to Post-Effective Amendment No. 10.
17 . Financial Data Schedules.*
18. Powers of Attorney were filed as Exhibit 18 to Post-Effective Amendment No.
17 to the Registration Statement filed on August 25, 1995.
___________________
* 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 February 2, 1996.
The JPM Institutional Money Market Fund: 226
The JPM Institutional Treasury Money Market Fund: 53
The JPM Institutional Bond Fund: 132
The JPM Institutional Diversified Fund: 47
The JPM Institutional U.S. Small Company Fund: 383
The JPM Institutional International Equity Fund: 439
The JPM Institutional Emerging Markets Equity Fund: 518
The JPM Institutional International Bond Fund: 36
The JPM Institutional Short Term Bond Fund: 38
The JPM Institutional Selected U.S. Equity Fund: 105
The JPM Institutional Tax Exempt Money Market Fund: 81
The JPM Institutional Tax Exempt Bond Fund: 100
The JPM Institutional New York Total Return Bond Fund: 57
The JPM Institutional European Equity Fund: none
The JPM Institutional Japan Equity Fund: none
The JPM Institutional Asia Growth Fund: none
ITEM 27. INDEMNIFICATION.
Reference is made to Section 5.3 of Registrant's Declaration of Trust
and Article 4 of Registrant's Distribution Agreement.
Registrant, its Trustees and officers are insured against certain
expenses in connection with the defense of claims, demands, actions, suits, or
proceedings, and certain liabilities that might be imposed as a result of such
actions, suits or proceedings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "1933 Act"), may be permitted to directors,
trustees, officers and controlling persons of the Registrant and the principal
underwriter pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1933 Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, trustee, officer, or controlling person of the
Registrant and the principal underwriter in connection with the successful
defense of any action, suite or proceeding) is asserted against the Registrant
by such director, trustee, officer or controlling person or principal
underwriter in connection with the shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Not Applicable.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) SBDS is the Distributor (the "Distributor") for the shares of the
Registrant. SBDS also serves as the principal underwriter or placement agent for
numerous other registered investment companies.
(b) The following are the directors and officers of the Distributor.
The principal business address of these individuals is 6 St. James Avenue, Suite
900, Boston, Massachusetts 02116 unless otherwise noted. Their respective
position and offices with the Registrant, if any, are also indicated.
PHILIP W. COOLIDGE: President, Chief Executive Officer and Director of SBDS.
President of Registrant.
JOHN R. ELDER: Assistant Treasurer of SBDS. Treasurer of the Registrant.
BARBARA M. O'DETTE: Assistant Treasurer of SBDS.
LINWOOD C. DOWNS: Treasurer of SBDS.
THOMAS M. LENZ: Assistant Secretary of SBDS. Secretary of Registrant.
MOLLY S. MUGLER: Assistant Secretary of SBDS. Assistant Secretary of Registrant.
LINDA T. GIBSON: Assistant Secretary of SBDS. Assistant Secretary of Registrant.
BETH A. REMY: Assistant Treasurer of SBDS.
ANDRES E. SALDANA: Assistant Secretary of SBDS. Assistant Secretary of
Registrant.
SUSAN JAKUBOSKI: Assistant Treasurer of SBDS.
JULIE J. WYETZNER: Product Management Officer of SBDS.
KATE B.M. BOLSOVER: Director of SBDS; Signature Financial Group (Europe), Ltd.,
49 St. James's Street, London SW1A 1JT.
ROBERT G. DAVIDOFF: Director of SBDS; CMNY Capital, L.P., 135 East 57th Street,
New York, NY 10022.
LEEDS HACKETT: Director of SBDS; Hackett Associates Limited, 1260 Avenue of the
Americas, 12th Floor, New York, NY 10020
LAURENCE B. LEVINE: Director of SBDS; Blair Corporation, 250 Royal Palm Way,
Palm Beach, FL 33480
DONALD S. CHADWICK: Director of SBDS; 4609 Bayard Street, Apartment 411,
Pittsburgh, PA 15213.
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
PIERPONT GROUP, INC.: 461 Fifth Avenue, New York, New York 10017
(records relating to its assisting the Trustees in carrying out
their duties in supervising the Registrant's affairs).
MORGAN GUARANTY TRUST COMPANY OF NEW YORK: 60 Wall Street, New York, New York
10260-0060, 522 Fifth Avenue, New York, New York 10036 or 9 West 57th Street,
New York, New York 10019 (records relating to its functions as shareholder
servicing agent, and services agent).
STATE STREET BANK AND TRUST COMPANY: 1776 Heritage Drive, North
Quincy, Massachusetts 02171 (records relating to its functions as
custodian, transfer agent and dividend disbursing agent).
SIGNATURE BROKER-DEALER SERVICES, INC.: 6 St. James Avenue,
Boston, Massachusetts 02116 (records relating to its functions as
distributor and administrator).
INVESTORS BANK AND TRUST COMPANY: 1 First Canadian Place, Suite
5820, P.O. Box 231, Toronto, Ontario M5X1C8 (accounting records).
ITEM 31. MANAGEMENT SERVICES.
Not Applicable.
ITEM 32. UNDERTAKINGS.
(a) If the information called for by Item 5A of Form N-1A is contained
in the latest annual report to shareholders, the Registrant shall furnish each
person to whom a prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders upon request and without charge.
(b) The Registrant undertakes to comply with Section 16(c) of the 1940
Act as though such provisions of the 1940 Act were applicable to the Registrant,
except that the request referred to in the third full paragraph thereof may only
be made by shareholders who hold in the aggregate at least 10% of the
outstanding shares of the Registrant, regardless of the net asset value of
shares held by such requesting shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant 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 23rd day of February, 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 February 23, 1996.
MATTHEW HEALEY*
- --------------------------
Matthew Healey
Chairman and Chief Executive Officer
PHILIP W. COOLIDGE*
- --------------------------
Philip W. Coolidge
President
/S/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 23rd day of February, 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 February 23, 1996.
MATTHEW HEALEY*
- --------------------------
Matthew Healey
Chairman and Chief Executive Officer of the Portfolios
PHILIP W. COOLIDGE*
- --------------------------
Philip W. Coolidge
President of the Portfolios
- --------------------------
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
/S/SUSAN JAKUBOSKI
--------------------------
Susan Jakuboski,
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 London, England on the 28th day
of November, 1995.
THE MONEY MARKET PORTFOLIO, THE TAX EXEMPT MONEY MARKET PORTFOLIO, THE TREASURY
MONEY MARKET PORTFOLIO, THE SHORT TERM BOND PORTFOLIO, THE U.S. FIXED INCOME
PORTFOLIO, THE TAX EXEMPT BOND PORTFOLIO, THE SELECTED U.S. EQUITY PORTFOLIO,
THE U.S. SMALL COMPANY PORTFOLIO, THE NON-U.S. EQUITY PORTFOLIO, THE DIVERSIFIED
PORTFOLIO, THE EMERGING MARKETS EQUITY PORTFOLIO, THE NEW YORK TOTAL RETURN BOND
PORTFOLIO, THE NON-U.S. FIXED INCOME PORTFOLIO AND THE SERIES PORTFOLIO
By
--------------------------
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 November 28, 1995.
- --------------------------
Matthew Healey
Chairman and Chief Executive Officer of the Portfolios
- --------------------------
Philip W. Coolidge
President of the Portfolios
/S/ JOHN R. ELDER
- --------------------------
John R. Elder
Treasurer and Principal Accounting and Financial Officer of the Portfolios
- --------------------------
F.S. Addy
Trustee of the Portfolios
- --------------------------
William G. Burns
Trustee of the Portfolios
- --------------------------
Arthur C. Eschenlauer
Trustee of the Portfolios
- --------------------------
Michael P. Mallardi
Trustee of the Portfolios
--------------------------
Susan Jakuboski,
as attorney-in-fact pursuant to a power of attorney previously filed.
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
========== ======================
9(a). Administration Agreement between Registrant and SBDS.
9(b). Restated Shareholder Servicing Agreement between Registrant
and Morgan Guaranty.
9(d). Administrative Services Agreement between Registrant and
Morgan Guaranty.
11. Consents of independent accountants.
17. Financial Data Schedules.
THE JPM INSTITUTIONAL FUNDS
ADMINISTRATION AGREEMENT
ADMINISTRATION AGREEMENT, dated as of Sept. 24, 1993, 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 Signature Broker-Dealer Services, Inc., a
Delaware corporation (the "Administrator").
WITNESSETH:
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 eight 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 Administrator to provide
certain administrative and management services, and the 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 ADMINISTRATOR. Subject to the general direction and
control of the Board of Trustees of the Trust, the Administrator shall perform
such administrative and management services as may from time to time be
reasonably requested by the Trust, which shall include without limitation: (a)
providing office space, equipment and clerical personnel necessary for
maintaining the organization of the Trust and for performing the administrative
and management functions herein set forth; (b) arranging, if desired by the
Trust, for Directors, officers and employees of the Administrator to serve as
Trustees, officers or agents of the Trust if duly elected or appointed to such
positions and subject to their individual consent and to any limitations imposed
by law; (c) preparing and, if applicable, filing all documents required for
compliance by the Trust with applicable laws and regulations, including
registration statements, registration fee filings, prospectuses and statements
of additional information, semi-annual and annual reports to shareholders, proxy
statements and tax returns; (d) preparation of agendas and supporting documents
for and minutes of meetings of Trustees, committees of Trustees and
shareholders; and (e) maintaining books and records of the Trust. In the
performance of its duties under this Agreement, the Administrator will comply
with the
1
<PAGE>
provisions of the Declaration of Trust and By-Laws of the Trust and the stated
investment objective, policies and restrictions of each Series, 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 Administrator shall not be deemed to have
assumed any duties with respect to, and shall not be responsible for, the
management of the Trust's assets or the rendering of investment advice and
supervision with respect thereto or the distribution of Shares of any Series,
nor shall the Administrator be deemed to have assumed or have any responsibility
with respect to functions specifically assumed by any transfer agent, custodian
or shareholder servicing agent of the Trust.
2. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the 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 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 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 Administrator shall not pay other
expenses relating to the Trust including, without limitation, compensation of
Trustees not affiliated with the 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 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 Shares of the Trust; expenses of shareholder meetings;
and expenses relating to the issuance, registration and qualification of Shares
of the Trust.
4. COMPENSATION OF ADMINISTRATOR. For the services to be rendered and
the facilities to be provided by the Administrator hereunder, the Administrator
shall receive a fee from each such Series of the Trust as agreed by the Trust
and the Administrator from time to time as set forth on Schedule A attached
hereto. This fee will be computed daily and will be payable as agreed by the
Trust and the Administrator, but no more frequently than monthly.
2
<PAGE>
5. LIMITATION OF LIABILITY OF THE ADMINISTRATOR. The 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 "Administrator" shall include Signature Broker-Dealer Services, Inc.
and/or any of its affiliates and the Directors, officers and employees of
Signature Broker-Dealer Services, Inc. and/or of its affiliates.
6. ACTIVITIES OF THE ADMINISTRATOR. The services of the Administrator
to the Trust are not to be deemed to be exclusive, the 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 Administrator and/or any of its affiliates, as
Directors, officers, employees, or otherwise, and that Directors, officers and
employees of the Administrator and/or any of its affiliates are or may become
similarly interested in the Trust and that the 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 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 ADMINISTRATOR. The Administrator may
subcontract for the performance of its obligations hereunder with any one or
more persons; PROVIDED, HOWEVER, that the Administrator shall not enter into any
such 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 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.
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. 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
3
<PAGE>
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.
12. 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 Administrator at Signature
Broker-Dealer Services, Inc., 6 St. James Avenue, Suite 900, Boston,
Massachusetts 02116, Attention: Treasurer; or (2) to the Trust at The JPM
Institutional Funds c/o Signature Broker-Dealer Services, Inc., 6 St. James
Avenue, Suite 900, Boston, Massachusetts 02116, Attention: Treasurer.
13. 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 /s/JAMES B. CRAVER
James B. Craver
Secretary and Treasurer
SIGNATURE BROKER-DEALER SERVICES, INC.
By /s/PHILIP W. COOLIDGE
Philip W. Coolidge
Chief Executive Officer
4
<PAGE>
ADMINISTRATION FEES
THE JPM INSTITUTIONAL FUNDS (THE "TRUST")
The annual administration 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 (collectively the "Master Portfolios") in which the Funds, The
Pierpont Funds or The JPM Advisor Funds invest and in accordance with the
following annual schedule:
0.03% on the first $7 billion of the Master Portfolios'
aggregate average daily net assets; and 0.01% of the Master
Portfolios' aggregate average daily net assets in excess of $7
billion
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 and the Master Portfolios.
Approved:December 26, 1995
Effective December 29, 1995
(supersedes schedule dated/approved 4/13/95)
THE JPM INSTITUTIONAL FUNDS
/s/ Matthew Healey
Matthew Healey, Chairman and
Chief Executive Officer
SIGNATURE BROKER-DEALER SERVICES, INC.
/s/ Linwood C. Downs
Name: Linwood C. Downs
Title: Treasurer
THE JPM INSTITUTIONAL FUNDS
RESTATED SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT originally made as of the 23rd day of December 1992
restated as of July 7, 1994 between THE JPM INSTITUTIONAL FUNDS, an
unincorporated business trust organized under the laws 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 a diversified open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, transactions in shares of the Trust ("Shares") may be made by
investors who are using the services of a financial institution which is acting
as shareholder servicing agent pursuant to an agreement with the Trust; and
WHEREAS, Morgan wishes to act as the shareholder servicing agent for
its customers and for other investors in the Trust who are customers of an
Eligible Institution as contemplated by the currently effective prospectus of
the respective Series of the Trust (the "Customers") in performing certain
administrative functions in connection with purchases and redemptions of Shares
from time to time upon the order and for the account of Customers and to provide
related services to Customers in connection with their investments in the Trust;
and
WHEREAS, it is in the interest of the Trust to make the shareholder
services of Morgan available to Customers who are or may become shareholders of
the Trust; and
NOW, THEREFORE, the Trust and Morgan hereby agree as follows:
1. APPOINTMENT. Morgan hereby agrees to perform certain shareholder
services as agent for Customers with respect to each Fund (as defined in the
next sentence) as hereinafter set forth. As used herein, a "Fund" means the
assets and liabilities of the Trust attributable to any series of Shares as may
be created from time to time by the Trustees of the Trust and to which the Trust
and Morgan agree this Agreement shall apply.
2. SERVICES TO BE PERFORMED.
2.1. SHAREHOLDER SERVICES. Morgan shall be responsible for performing
shareholder account administrative and servicing functions, which shall include
without limitation:
1
<PAGE>
(a) answering Customer inquiries regarding account status and history,
the manner in which purchases and redemptions of the Shares may be effected, and
certain other matters pertaining to the Trust; (b) assisting Customers in
designating and changing dividend options, account designations and addresses;
(c) providing necessary personnel and facilities to coordinate the establishment
and maintenance of shareholder accounts and records with the Trust's transfer
agent; (d) receiving Customers' purchase and redemption orders on behalf of, and
transmitting such orders to the Trust's transfer agent; (e) arranging for the
wiring or other transfer of funds to and from Customer accounts in connection
with Customer orders to purchase or redeem Shares; (f) verifying purchase and
redemption orders, transfers among and changes in Customer-designated accounts;
(g) informing the distributor of the Trust of the gross amount of purchase and
redemption orders for Shares; (h) monitoring the activities of the Trust's
transfer agent related to Customers' accounts, and to statements, confirmations
or other reports furnished to Customers by the Trust's transfer agent; and (i)
providing such other related services as the Trust or a Customer may reasonably
request, to the extent permitted by applicable law. Morgan shall provide all
personnel and facilities necessary in order for it to perform the functions
contemplated by this paragraph with respect to Customers.
2.2 STANDARD OF SERVICES. All services to be rendered by Morgan
hereunder shall be performed in a professional, competent and timely manner
subject to the supervision of the Trustees of the Trust. The details of the
operating standards and procedures to be followed by Morgan in the performance
of the services described above shall be determined from time to time by
agreement between Morgan and the Trust.
3. FEES. As full compensation for the services described in Section 2
hereof and expenses incurred by Morgan, the Trust shall pay Morgan a fee at an
annual rate of the daily net asset values of each Fund's shares owned by or for
Customers and attributable to the Trust as set forth on Schedule A attached
hereto. This fee will be computed daily and will be payable as agreed by the
Trust and Morgan, but no more frequently than monthly.
4. INFORMATION PERTAINING TO THE SHARES; ETC. Morgan and its officers,
employees and agents are not authorized to make any representations concerning
the Trust or the Shares except to communicate to Customers accurately factual
information contained in the Fund's Prospectus and Statement of Additional
Information and objective historical performance information. Morgan shall act
as agent for Customers only in furnishing information regarding the Trust or the
Shares and shall have no authority to act as agent for the Trust in its capacity
as shareholder servicing agent hereunder.
During the term of this Agreement, the Trust agrees to furnish Morgan
all prospectuses, statements of additional information, proxy statements,
reports to shareholders, sales literature, or other material the Trust will
distribute to shareholders of each Fund or the public, which refer in any way to
Morgan, and Morgan agrees to furnish the Trust all material prepared for
Customers, in each case prior to use thereof,
2
<PAGE>
and not to use such material if the other party reasonably objects in writing
within five business days (or such other time as may be mutually agreed in
writing) after receipt thereof. In the event of termination of this Agreement,
the Trust will continue to furnish to Morgan copies of any of the
above-mentioned materials which refer in any way to Morgan. The Trust shall
furnish or otherwise make available to Morgan such other information relating to
the business affairs of the Trust as Morgan at any time, or from time to time,
reasonably requests in order to discharge its obligations hereunder.
Nothing in this Section 4 shall be construed to make the Trust liable
for the use of any information about the Trust which is disseminated by Morgan.
5. USE OF MORGAN'S NAME. The Trust shall not use the name of Morgan in
any prospectus, sales literature or other material relating to the Trust in a
manner not approved by Morgan prior thereto in writing; PROVIDED, HOWEVER, that
the approval of Morgan shall not be required for any use of its name which
merely refers in accurate and factual terms to its appointment hereunder or as
investment advisor to the Trust or which is required by the Securities and
Exchange Commission or any state securities authority or any other appropriate
regulatory, governmental or judicial authority; PROVIDED, FURTHER, that in no
event shall such approval be unreasonably withheld or delayed.
6. USE OF THE FUND'S NAME. Morgan shall not use the name of the Trust
on any checks, bank drafts, bank statements or forms for other than internal use
in a manner not approved by the Trust prior thereto in writing; PROVIDED,
HOWEVER, that the approval of the Trust shall not be required for the use of the
Trust's name in connection with communications permitted by Sections 2 and 4
hereof or for any use of the Trust's name which merely refers in accurate and
factual terms to Morgan's role hereunder or as investment advisor to the Trust
or which is required by the Securities and Exchange Commission or any state
securities authority or any other appropriate regulatory, governmental or
judicial authority; PROVIDED, FURTHER, that in no event shall such approval be
unreasonably withheld or delayed.
7. SECURITY. Morgan represents and warrants that the various procedures
and systems which it has implemented with regard to safeguarding from loss or
damage attributable to fire, theft or any other cause any Trust records and
other data and Morgan's records, data, equipment, facilities and other property
used in the performance of its obligations hereunder are adequate and that it
will make such changes therein from time to time as in its judgment are required
for the secure performance of its obligations hereunder. The parties shall
review such systems and procedures on a periodic basis, and the Trust shall from
time to time specify the types of records and other data of the Trust to be
safeguarded in accordance with this Section 7.
8. COMPLIANCE WITH LAWS; ETC. Morgan assumes no responsibilities under
this Agreement other than to render the services called for hereunder, on the
terms and conditions provided herein. Morgan shall comply with all applicable
federal and state
3
<PAGE>
laws and regulations. Morgan represents and warrants to the Trust that the
performance of all its obligations hereunder will comply with all applicable
laws and regulations, the provisions of its charter documents and by-laws and
all material contractual obligations binding upon Morgan. Morgan furthermore
undertakes that it will promptly inform the Trust of any change in applicable
laws or regulations (or interpretations thereof) which would prevent or impair
full performance of any of its obligations hereunder.
9. FORCE MAJEURE. Morgan shall not be liable or responsible for delays
or errors by reason of circumstances beyond its control, including, but not
limited to, acts of civil or military authority, national emergencies, labor
difficulties, fire, mechanical breakdown, flood or catastrophe, Acts of God,
insurrection, war, riots or failure of communication or power supply.
10. INDEMNIFICATION.
10.1. INDEMNIFICATION OF MORGAN. The Trust will indemnify and hold
Morgan harmless, from all losses, claims, damages, liabilities or expenses
(including reasonable fees and disbursements of counsel) from any claim, demand,
action or suit (collectively, "Claims") (a) arising in connection with
misstatements or omissions in each Fund's Prospectus, actions or inactions by
the Trust or any of its agents or contractors or the performance of Morgan's
obligations hereunder and (b) not resulting from the willful misfeasance, bad
faith, or gross negligence of Morgan, its officers, employees or agents, in the
performance of Morgan's duties or from reckless disregard by Morgan, its
officers, employees or agents of Morgan's obligations and duties under this
Agreement.
Notwithstanding anything herein to the contrary, the Trust will indemnify and
hold Morgan harmless from any and all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting from any
Claim as a result of Morgan's acting in accordance with any written instructions
reasonably believed by Morgan to have been executed by any person duly
authorized by the Trust, or as a result of acting in reliance upon any
instrument or stock certificate reasonably believed by Morgan to have been
genuine and signed, countersigned or executed by a person duly authorized by the
Trust, excepting only the gross negligence or bad faith of Morgan.
In any case in which the Trust may be asked to indemnify or hold Morgan
harmless, the Trust shall be advised of all pertinent facts concerning the
situation in question and Morgan shall use reasonable care to identify and
notify the Trust promptly concerning any situation which presents or appears
likely to present a claim for indemnification against the Trust. The Trust shall
have the option to defend Morgan against any Claim which may be the subject of
indemnification under this Section 10.1. In the event that the Trust elects to
defend against such Claim, the defense shall be conducted by counsel chosen by
the Trust and reasonably satisfactory to Morgan. Morgan may retain additional
counsel at its expense. Except with the prior written consent of the Trust,
Morgan shall not confess any Claim or make any compromise in any case in which
the Trust will be asked to indemnify Morgan.
4
<PAGE>
10.2. INDEMNIFICATION OF THE TRUST. Without limiting the rights of the
Trust under applicable law, Morgan will indemnify and hold the Trust harmless
from all losses, claims, damages, liabilities or expenses (including reasonable
fees and disbursements of counsel) from any Claim (a) resulting from the willful
misfeasance, bad faith or gross negligence of Morgan, its officers, employees,
or agents, in the performance of Morgan's duties or from reckless disregard by
Morgan, its officers, employees or agents of Morgan's obligations and duties
under this Agreement, and (b) not resulting from Morgan's actions in accordance
with written instructions reasonably believed by Morgan to have been executed by
any person duly authorized by the Trust, or in reliance upon any instrument or
stock certificate reasonably believed by Morgan to have been genuine and signed,
countersigned or executed by a person authorized by the Trust.
In any case in which Morgan may be asked to indemnify or hold the Trust
harmless, Morgan shall be advised of all pertinent facts concerning the
situation in question and the Trust shall use reasonable care to identify and
notify Morgan promptly concerning any situation which presents or appears likely
to present a claim for indemnification against Morgan. Morgan shall have the
option to defend the Trust against any Claim which may be the subject of
indemnification under this Section 10.2. In the event that Morgan elects to
defend against such Claim, the defense shall be conducted by counsel chosen by
Morgan and reasonably satisfactory to the Trust. The Trust may retain additional
counsel at its expense. Except with the prior written consent of Morgan, the
Trust shall not confess any Claim or make any compromise in any case in which
Morgan will be asked to indemnify the Trust.
10.3. SURVIVAL OF INDEMNITIES. The indemnities granted by the parties
in this Section 10 shall survive the termination of this Agreement.
11. INSURANCE. Morgan shall maintain reasonable insurance coverage
against any and all liabilities which may arise in connection with the
performance of its duties hereunder.
12. FURTHER ASSURANCES. Each party agrees to perform such further acts
and execute further documents as are necessary to effectuate the purposes
hereof.
13. TERMINATION. This Agreement shall continue in effect for a period
of one year and may thereafter be renewed by the Trustees of the Trust;
PROVIDED, however, that this Agreement may be terminated by the Trust at any
time without the payment of any penalty, by the Trustees of the Trust 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 Morgan or by
Morgan at any time, without the payment of any penalty, on not less than ninety
(90) days' written notice to the Trust. This Agreement shall terminate
automatically in the event of its assignment (as defined in the 1940 Act).
5
<PAGE>
14. SUBCONTRACTING BY MORGAN. Morgan may subcontract for the
performance of its obligations hereunder with any one or more persons, including
but not limited to any one or more persons which is an affiliate of Morgan;
PROVIDED HOWEVER, 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.
15. Nothing in this Agreement shall limit or restrict the right of
Morgan to engage in any other business or to render services of any kind to any
other corporation, firm, individual or association.
16. CHANGES; AMENDMENTS. This Agreement may be amended only by mutual
written consent.
17. NOTICES. 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, 9 West 57th Street, 10019, Attention: Managing Director, Funds
Management Division, or (2) to the Trust at The JPM Institutional Funds c/o
Signature Broker-Dealer Services, Inc., 6 St. James Avenue, Boston,
Massachusetts 02116, Attention: Treasurer, or at such other address as either
party may designate by notice to the other party.
18. 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 instrument to
be executed by their officers designated below as of the day and year first
written.
THE JPM INSTITUTIONAL FUNDS
By /s/ James B. Craver
James B. Craver
Secretary and Treasurer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Kathleen H. Tripp
Kathleen H. Tripp
Vice President
6
<PAGE>
Schedule A
Shareholder Servicing Fees
The JPM Institutional Money Market Fund
The JPM Institutional Tax Exempt Money Market Fund
THE JPM INSTITUTIONAL TREASURY MONEY MARKET FUND:
0.05% of the average daily net asset value of Fund shares owned by or for
Customers
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:
0.075% of the average daily net asset value of Fund shares owned by or for
Customers
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 Emerging Markets Equity Fund
The JPM Institutional Diversified Fund
The JPM Institutional Asia Growth Fund
The JPM Institutional Japan Equity Fund
THE JPM INSTITUTIONAL EUROPEAN EQUITY FUND:
0.10% of the average daily net asset value of Fund shares owned by or for
Customers
Approved 12/26/95
Effective December 29, 1995
(supersedes schedule dated/approved 7/7/94)
THE JPM INSTITUTIONAL FUNDS MORGAN GUARANTY TRUST COMPANY OF NEW YORK
/s/ Matthew Healey /s/ Kathleen H. Tripp
Matthew Healey, Chairman and Kathleen H. Tripp, Vice President
Chief Executive Officer
JPMSSA1
THE JPM INSTITUTIONAL FUNDS
ADMINISTRATIVE SERVICES AGREEMENT
ADMINISTRATIVE SERVICES AGREEMENT, dated as of December 29, 1995, 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
financial, fund accounting and 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 financial, fund accounting,
administrative and related services as may from time to time be reasonably
requested by the Trust, which shall include without limitation: a) preparing
each Fund's tax returns and 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; and e) overseeing the
Trust's custodian and the Transfer Agent, 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
1
<PAGE>
the frequency of distributing each Fund's dividends and capital gains and
confirming that they have been properly distributed to the shareholders of
record.
1.2. Morgan shall keep the books of account of each Fund. Until
otherwise directed by the Trust, Morgan shall compute the net asset value per
Share of the outstanding Shares of each Fund. Morgan shall also calculate daily
the net income of each Fund as described in the Trust's currently effective
prospectus related to such Fund and shall advise the Trust and the Transfer
Agent daily of the total amount of such net income and, if instructed in writing
by an officer of the Trust to do so, shall advise the Transfer Agent
periodically of the division of such net income among its various components.
The calculations of the net asset value per Share and the daily income of each
Fund shall be made at the time or times described from time to time in the
Trust's currently effective prospectus related to such Fund.
1.3. 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. 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.
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.
2
<PAGE>
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.
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 the Trust's 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 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 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.
3
<PAGE>
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.
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: Managing
Director, Funds Management Division, or (2) to the Trust at The JPM
Institutional Funds c/o Signature Broker-Dealer Services, Inc., 6 St. James
Avenue, Boston, Massachusetts 02116, 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
4
<PAGE>
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 /s/ Matthew Healey
Matthew Healey, Chairman
and Chief Executive Officer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Kathleen H. Tripp
Kathleen H. Tripp, Vice
President
FFASKJP1
5
<PAGE>
SCHEDULE A
ADMINISTRATIVE SERVICES FEES
THE JPM INSTITUTIONAL FUNDS (THE "TRUST")
The annual financial, fund accounting and 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 (collectively the
"Master Portfolios") in which the Funds, The Pierpont Funds or The JPM Advisor
Funds invest and in accordance with the following annual schedule:
0.06% on the first $7 billion of the Master Portfolios'
aggregate average daily net assets; and 0.03% of the Master
Portfolios' aggregate average daily net assets in excess of $7
billion
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.
FFASKJP1
Approved:December 26, 1995
Effective December 29, 1995
CONSENTS OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 21 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
March 24, 1995, relating to the statements of assets and liabilities of The Asia
Growth Portfolio, The European Equity Portfolio and The Japan Equity Portfolio,
which appear in such Statement of Additional Information, and which constitute
part of this Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated May 23, 1995, relating to the financial
statements and financial highlights of The JPM Institutional New York Total
Return Bond Fund and the financial statements and supplementary data of The
New York Total Return Bond Portfolio appearing in the March 31,
1995 Annual Report, which is also incorporated by reference into the
Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated July 26, 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 Poftfolio
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.
<PAGE>
Consents of Independent Accountants
Page 2
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 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 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 and 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 and 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 report 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 also consent to the references to us under the heading "Independent
Accountants" and "Financial Statements" in the Statement of Additional
Information.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 21, 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> 0
<OTHER-INCOME> 36,679,628
<EXPENSES-NET> 84,445
<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> 3,007,260,093
<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> 1,052,334
<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 information extracted from the August
31, 1995 JPM Institutional Tax Exempt Money Market Fund Annual Report and is
qualified in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 007
<NAME> THE JPM INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 100,418,334
<INVESTMENTS-AT-VALUE> 100,418,334
<RECEIVABLES> 83,247
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 32,233
<TOTAL-ASSETS> 100,533,814
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 391,892
<TOTAL-LIABILITIES> 391,892
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100,164,382
<SHARES-COMMON-STOCK> 100,164,716
<SHARES-COMMON-PRIOR> 46,084,794
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (22,460)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100,141,922
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,156,104
<OTHER-INCOME> 0
<EXPENSES-NET> 86,361
<NET-INVESTMENT-INCOME> 3,069,743
<REALIZED-GAINS-CURRENT> (21,359)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,048,384
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,069,743
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 302,212,433
<NUMBER-OF-SHARES-REDEEMED> 250,850,852
<SHARES-REINVESTED> 2,718,341
<NET-CHANGE-IN-ASSETS> 54,058,563
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,101)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 334
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 218,596
<AVERAGE-NET-ASSETS> 87,885,045
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> (0.000)
<PER-SHARE-DIVIDEND> .04
<PER-SHARE-DISTRIBUTIONS> 0
<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 schedule contains summary financial data extracted from the Oct. 31, 1995
Annual Report for The JPM Institutional Treasury 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> 001
<NAME> THE JPM INSTITUTIONAL TREASURY MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 145,780,547
<INVESTMENTS-AT-VALUE> 145,780,547
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 47,384
<TOTAL-ASSETS> 145,827,931
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 720,222
<TOTAL-LIABILITIES> 720,222
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 145,071,925
<SHARES-COMMON-STOCK> 145,071,925
<SHARES-COMMON-PRIOR> 80,148,692
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 35,784
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 145,107,709
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,405,117
<OTHER-INCOME> (187,771)
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 5,217,346
<REALIZED-GAINS-CURRENT> 38,279
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,255,625
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,217,346
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 438,967,460
<NUMBER-OF-SHARES-REDEEMED> 376,090,767
<SHARES-REINVESTED> 2,046,540
<NET-CHANGE-IN-ASSETS> 64,961,512
<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> 0
<AVERAGE-NET-ASSETS> 93,833,839
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .055
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .055
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .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 Oct. 31, 1995
Annual Report for The JPM Institutional Short Term Bond Fund and is qualified in
its entirety by reference to such Annual Report.
</LEGEND>
<CIK>0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 002
<NAME> THE JPM INSTITUTIONAL SHORT TERM BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-1-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 19,087,841
<INVESTMENTS-AT-VALUE> 18,927,251
<RECEIVABLES> 15,767
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 29,393
<TOTAL-ASSETS> 18,972,411
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 56,801
<TOTAL-LIABILITIES> 56,801
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,230,298
<SHARES-COMMON-STOCK> 1,923,840
<SHARES-COMMON-PRIOR> 4,965,521
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (10,716)
<ACCUMULATED-NET-GAINS> (446,429)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 142,457
<NET-ASSETS> 18,915,610
<DIVIDEND-INCOME> 52,321
<INTEREST-INCOME> 3,180,772
<OTHER-INCOME> (201,998)
<EXPENSES-NET> 20,559
<NET-INVESTMENT-INCOME> 3,010,536
<REALIZED-GAINS-CURRENT> 331,910
<APPREC-INCREASE-CURRENT> 917,422
<NET-CHANGE-FROM-OPS> 4,259,868
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,024,230
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,447,762
<NUMBER-OF-SHARES-REDEEMED> 5,796,583
<SHARES-REINVESTED> 307,140
<NET-CHANGE-IN-ASSETS> (28,763,038)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 10,716
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 20,559
<AVERAGE-NET-ASSETS> 49,457,080
<PER-SHARE-NAV-BEGIN> 9.60
<PER-SHARE-NII> .58
<PER-SHARE-GAIN-APPREC> .24
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .59
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.83
<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 Oct. 31, 1995
Annual Report for The JPM Institutional Bond Fund and is qualified in its
entirety by reference to such Annual Report.
</LEGEND>
<CIK>0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 003
<NAME> THE JPM INSTITUTIONAL BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 436,915,411
<INVESTMENTS-AT-VALUE> 438,784,743
<RECEIVABLES> 1,222,527
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 30,576
<TOTAL-ASSETS> 440,037,846
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,427,411
<TOTAL-LIABILITIES> 1,427,411
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 423,830,946
<SHARES-COMMON-STOCK> 43,963,712
<SHARES-COMMON-PRIOR> 27,417,659
<ACCUMULATED-NII-CURRENT> 432,830
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,262,194
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,084,465
<NET-ASSETS> 438,610,435
<DIVIDEND-INCOME> 97,142
<INTEREST-INCOME> 22,691,163
<OTHER-INCOME> (1,252,787)
<EXPENSES-NET> 254,599
<NET-INVESTMENT-INCOME> 21,280,919
<REALIZED-GAINS-CURRENT> 6,128,348
<APPREC-INCREASE-CURRENT> 18,701,915
<NET-CHANGE-FROM-OPS> 46,111,182
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 21,287,883
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20,689,217
<NUMBER-OF-SHARES-REDEEMED> 5,143,975
<SHARES-REINVESTED> 1,000,811
<NET-CHANGE-IN-ASSETS> 185,436,849
<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> 254,599
<AVERAGE-NET-ASSETS> 322,023,901
<PER-SHARE-NAV-BEGIN> 9.23
<PER-SHARE-NII> .63
<PER-SHARE-GAIN-APPREC> .75
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .63
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.98
<EXPENSE-RATIO> .47
<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 AUGUST 31, 1995
ANNUAL REPORT FOR THE JPM INSTITUTIONAL TAX EXEMPT BOND FUND AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER>006
<NAME> THE JPM INSTITUTIONAL TAX EXEMPT BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 58,254,745
<INVESTMENTS-AT-VALUE> 59,966,936
<RECEIVABLES> 27,113
<ASSETS-OTHER> 27,874
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60,021,923
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 155,196
<TOTAL-LIABILITIES> 155,196
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 58,134,504
<SHARES-COMMON-STOCK> 5,981,643
<SHARES-COMMON-PRIOR> 1,682,747
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,032
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,712,191
<NET-ASSETS> 59,866,727
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,994,342
<OTHER-INCOME> 0
<EXPENSES-NET> 29,931
<NET-INVESTMENT-INCOME> 1,964,411
<REALIZED-GAINS-CURRENT> 84,801
<APPREC-INCREASE-CURRENT> 1,865,868
<NET-CHANGE-FROM-OPS> 3,915,080
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,964,411
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 58,554,177
<NUMBER-OF-SHARES-REDEEMED> 18,469,239
<SHARES-REINVESTED> 1,416,511
<NET-CHANGE-IN-ASSETS> 43,452,118
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (64,769)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 112,937
<AVERAGE-NET-ASSETS> 38,619,677
<PER-SHARE-NAV-BEGIN> 9.75
<PER-SHARE-NII> .49
<PER-SHARE-GAIN-APPREC> .26
<PER-SHARE-DIVIDEND> .49
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.01
<EXPENSE-RATIO> .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> (437,242)
<EXPENSES-NET> 124,246
<NET-INVESTMENT-INCOME> 116,641
<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> 17,854,121
<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> 124,246
<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> 9,551
<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> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1,280,655
<EXPENSES-NET> 112,232
<NET-INVESTMENT-INCOME> 1,168,423
<REALIZED-GAINS-CURRENT> 9,980,789
<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> 117,164
<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 Oct. 31, 1995
Annual Report for The JPM Institutional International Equity Fund and is
qualified in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 004
<NAME> THE JPM INSTITUTIONAL INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 475,925,533
<INVESTMENTS-AT-VALUE> 466,666,552
<RECEIVABLES> 951,356
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 35,074
<TOTAL-ASSETS> 467,652,982
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 141,807
<TOTAL-LIABILITIES> 141,807
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 461,300,519
<SHARES-COMMON-STOCK> 44,764,901
<SHARES-COMMON-PRIOR> 19,681,492
<ACCUMULATED-NII-CURRENT> 5,480,092
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,989,545
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (9,258,981)
<NET-ASSETS> 467,511,175
<DIVIDEND-INCOME> 6,139,947
<INTEREST-INCOME> 1,144,100
<OTHER-INCOME> (2,749,262)
<EXPENSES-NET> 368,180
<NET-INVESTMENT-INCOME> 4,166,605
<REALIZED-GAINS-CURRENT> 10,917,615
<APPREC-INCREASE-CURRENT> (16,631,988)
<NET-CHANGE-FROM-OPS> (1,547,768)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 2,540,846
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 30,753,019
<NUMBER-OF-SHARES-REDEEMED> 5,897,843
<SHARES-REINVESTED> 228,233
<NET-CHANGE-IN-ASSETS> 254,392,613
<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> 3,180,672
<AVERAGE-NET-ASSETS> 337,131,000
<PER-SHARE-NAV-BEGIN> 10.83
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> (.33)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .12
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.44
<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 JUNE 30, 1995
ANNUAL REPORT FOR THE JPM INSTITUTIONAL DIVERSIFIED FUND AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 009
<NAME>THE JPM INSTITUTIONAL DIVERSIFIED FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 164,669,691
<RECEIVABLES> 207,591
<ASSETS-OTHER> 31,360
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 164,908,642
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 53,791
<TOTAL-LIABILITIES> 53,791
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 148,338,007
<SHARES-COMMON-STOCK> 14,642,108
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2,371,590
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,060,219
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,085,035
<NET-ASSETS> 164,854,851
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,928,305
<OTHER-INCOME> 0
<EXPENSES-NET> 388
<NET-INVESTMENT-INCOME> 3,927,917
<REALIZED-GAINS-CURRENT> 2,813,143
<APPREC-INCREASE-CURRENT> 13,138,541
<NET-CHANGE-FROM-OPS> 19,879,601
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,047,598
<DISTRIBUTIONS-OF-GAINS> 384,123
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,493,081
<NUMBER-OF-SHARES-REDEEMED> 1,078,435
<SHARES-REINVESTED> 243,338
<NET-CHANGE-IN-ASSETS> 88,184,740
<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> 220,607
<AVERAGE-NET-ASSETS> 106,060,362
<PER-SHARE-NAV-BEGIN> 9.90
<PER-SHARE-NII> .31
<PER-SHARE-GAIN-APPREC> 1.37
<PER-SHARE-DIVIDEND> .26
<PER-SHARE-DISTRIBUTIONS> .06
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.26
<EXPENSE-RATIO> .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 NOV. 31, 1995
ANNUAL REPORT FOR THE JPM INSTITUTIONAL EMERGING MARKETS EQUITY FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 005
<NAME> THE JPM INSTITUTIONAL EMERGING MARKETS EQUITY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 185,698,314
<RECEIVABLES> 450,000
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 31,867
<TOTAL-ASSETS> 186,180,181
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 157,562
<TOTAL-LIABILITIES> 157,562
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 209,513,826
<SHARES-COMMON-STOCK> 19,161,873
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 1,320,147
<ACCUMULATED-NET-GAINS> (7,762,924)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (17,048,431)
<NET-ASSETS> 186,022,619
<DIVIDEND-INCOME> 3,123,164
<INTEREST-INCOME> 660,992
<OTHER-INCOME> (2,075,433)
<EXPENSES-NET> 186,930
<NET-INVESTMENT-INCOME> 1,521,794
<REALIZED-GAINS-CURRENT> (7,762,979)
<APPREC-INCREASE-CURRENT> (25,801,629)
<NET-CHANGE-FROM-OPS> (32,042,815)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 646,000
<DISTRIBUTIONS-OF-GAINS> 1,584,864
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 117,116,563
<NUMBER-OF-SHARES-REDEEMED> 45,525,284
<SHARES-REINVESTED> 2,038,394
<NET-CHANGE-IN-ASSETS> 39,355,995
<ACCUMULATED-NII-PRIOR> 1,320,147
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 186,930
<AVERAGE-NET-ASSETS> 158,762,034
<PER-SHARE-NAV-BEGIN> 12.47
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> (2.72)
<PER-SHARE-DIVIDEND> .18
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.65
<EXPENSE-RATIO> 1.43
<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 SEPTEMBER 30,
1995 SEMIANNUAL REPORT FOR THE JPM INSTITUTIONAL NEW YORK TOTAL RETURN BOND FUND
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMIANNUAL REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 008
<NAME> THE JPM INSTITUTIONAL NEW YORK TOTAL RETURN BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 38,912,914
<INVESTMENTS-AT-VALUE> 39,859,720
<RECEIVABLES> 35,690
<ASSETS-OTHER> 8,356
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39,903,786
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 82,483
<TOTAL-LIABILITIES> 82,483
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,783,943
<SHARES-COMMON-STOCK> 3,840,141
<SHARES-COMMON-PRIOR> 2,039,700
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 90,554
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 946,806
<NET-ASSETS> 39,821,303
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 715,790
<OTHER-INCOME> 0
<EXPENSES-NET> 5,232
<NET-INVESTMENT-INCOME> 710,558
<REALIZED-GAINS-CURRENT> 113,605
<APPREC-INCREASE-CURRENT> 564,430
<NET-CHANGE-FROM-OPS> 1,388,593
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 710,558
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,817,178
<NUMBER-OF-SHARES-REDEEMED> 75,194
<SHARES-REINVESTED> 58,457
<NET-CHANGE-IN-ASSETS> 19,200,363
<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> 106,478
<AVERAGE-NET-ASSETS> 29,641,509
<PER-SHARE-NAV-BEGIN> 10.11
<PER-SHARE-NII> .25
<PER-SHARE-GAIN-APPREC> .26
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .25
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.37
<EXPENSE-RATIO> .50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from the JPM
Institutional International Bond Fund Annual Report dated September 30, 1995 and
is qualified in its entirety by reference to such Annual Report.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 014
<NAME> THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 3,827,709
<INVESTMENTS-AT-VALUE> 4,280,811
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 58,837
<TOTAL-ASSETS> 4,339,648
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 106,648
<TOTAL-LIABILITIES> 106,648
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,742,814
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 37,084
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 453,102
<NET-ASSETS> 4,233,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 164,977
<OTHER-INCOME> 0
<EXPENSES-NET> 632
<NET-INVESTMENT-INCOME> 164,345
<REALIZED-GAINS-CURRENT> (28,335)
<APPREC-INCREASE-CURRENT> 453,102
<NET-CHANGE-FROM-OPS> 589,112
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 35,969
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,648,390
<NUMBER-OF-SHARES-REDEEMED> 1,270,878
<SHARES-REINVESTED> 3,022
<NET-CHANGE-IN-ASSETS> 4,232,900
<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> 65,557
<AVERAGE-NET-ASSETS> 3,390,843
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.49
<PER-SHARE-GAIN-APPREC> 0.78
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.15
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.12
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
