As filed with the Securities and Exchange Commission on February 28, 1997.
Registration Nos. 33-54642 and 811-7342.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 31
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 32
The JPM Institutional Funds
(Exact Name of Registrant as Specified in Charter)
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(617) 557-0700
John E. Pelletier
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to:
Stephen K. West, Esq.
Sullivan & Cromwell
125 Broad Street, New York, New York 10004
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[X] on February 28, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has previously registered an indefinite number of its shares
under the Securities Act of 1933, as amended, pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. The Registrant has filed Rule 24f-2
notices with respect to its series as follows: Tax Exempt Money Market and Tax
Exempt Bond Funds (for their fiscal years ended August 31, 1996) on October 24,
1996; International Bond Fund (for its fiscal year ended September 30, 1996) on
November 27, 1996; Federal Money Market, Short Term Bond, Bond, Emerging Markets
Equity and International Equity Funds (for their fiscal years ended October 31,
1996) on December 20, 1996; Money Market Fund
<PAGE>
(for its fiscal year ended November 30, 1996) on January 17, 1997; European
Equity, Japan Equity and Asia Growth Funds (for their fiscal years ended
December 31, 1996) on February 27, 1997; New York Total Return Bond Fund (for
its fiscal year ended March 31, 1996) on May 30, 1996; Selected U.S. Equity and
U.S. Small Company Funds (for their fiscal years ended May 31, 1996) on July 30,
1996; and Diversified Fund (for its fiscal year ended June 30, 1996) on August
28, 1996. The Registrant has not filed Rule 24f-2 notices with respect to its
International Opportunities Fund (for its fiscal year ended November 30, 1996)
because the Registrant has not sold any securities to the public with respect to
that series during the fiscal year indicated. The Registrant expects to file
Rule 24f-2 notices with respect to its Japan Equity, European Equity and Asia
Growth Funds (for their fiscal years ending December 31, 1996) on or before
February 28, 1997, International Opportunities Fund (for its fiscal year ending
November 30, 1997) on or before January 29, 1998, and Disciplined Equity Fund
(for its fiscal year ending May 1, 1996) on or before May 1, 1996.
The Money Market Portfolio, The Tax Exempt Money Market Portfolio, The Federal
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, The Series Portfolio and The
Global Strategic Income Portfolio have also executed this Registration
Statement.
<PAGE>
THE JPM INSTITUTIONAL FUNDS
(ALL FUNDS EXCEPT DISCIPLINED EQUITY, INTERNATIONAL
OPPORTUNITIES, AND GLOBAL STRATEGIC INCOME 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 Investment Structure; Organization; Appendix.
5. MANAGEMENT OF THE FUND: Management of the Trust and the Portfolios;
Shareholder Servicing; Additional Information.
5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE: Not Applicable.
6. CAPITAL STOCK AND OTHER SECURITIES: Special Information Concerning
Investment Structure; Shareholder Servicing; Net Asset Value; Purchase
of Shares; Taxes; Dividends and Distributions; Organization.
7. PURCHASE OF SECURITIES BEING OFFERED: Purchase of Shares; Exchange of
Shares; Investors for Whom the Funds are Designed; Dividends and
Distributions; Net Asset Value.
8. REDEMPTION OR REPURCHASE: Redemption of Shares; Exchange of Shares; Net
Asset Value.
9. PENDING LEGAL PROCEEDINGS: Not Applicable.
PART B ITEM NUMBER: Statement of Additional Information Headings.
10. COVER PAGE: Cover Page.
11. TABLE OF CONTENTS: Table of Contents.
12. GENERAL INFORMATION AND HISTORY: General.
13. INVESTMENT OBJECTIVES AND POLICIES: Investment Objectives and Policies;
Additional Investments; Investment Restrictions; Quality and
Diversification Requirements; Appendices A, B and C.
14. MANAGEMENT OF THE FUND: Trustees and Officers.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES: Description of
Shares.
16. INVESTMENT ADVISORY AND OTHER SERVICES: Investment Advisor; Distributor;
Co-Administrator; Services Agent; Custodian and Transfer Agent;
Shareholder Servicing; Independent Accountants; Expenses.
17. BROKERAGE ALLOCATION AND OTHER PRACTICES: Portfolio Transactions.
18. CAPITAL STOCK AND OTHER SECURITIES: Massachusetts Trust; Description of
Shares.
<PAGE>
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: 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>
THE JPM INSTITUTIONAL FUNDS
(DISCIPLINED EQUITY, INTERNATIONAL OPPORTUNITIES
AND GLOBAL STRATEGIC INCOME FUNDS)
CROSS-REFERENCE SHEET
(As Required by Rule 495)
PART A ITEM NUMBER: Prospectus Headings.
1. COVER PAGE: Cover Page.
2. SYNOPSIS: Who May Be a Suitable Investor in the Fund.
3. CONDENSED FINANCIAL INFORMATION: Not Applicable.
4. GENERAL DESCRIPTION OF REGISTRANT: Information About the Master-Feeder
Structure; Who May Be a Suitable Investor in the Fund; Investment
Objective and Policies; Additional Investment Practices and Risks;
Organization.
5. MANAGEMENT OF THE FUND: Management of the Fund and the Portfolio;
Organization; Shareholder Inquiries and Services; Additional
Information.
5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE: Not Applicable.
6. CAPITAL STOCK AND OTHER SECURITIES: Information About the Master-Feeder
Structure; Shareholder Inquiries and Services; Net Asset Value; Taxes;
Dividends and Distributions; Organization.
7. PURCHASE OF SECURITIES BEING OFFERED: Purchase of Shares; Exchange of
Shares; Who May Be a Suitable Investor in the Fund; 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;
Distributor; Co-Administrator; Services Agent; Custodian and Transfer
Agent; Shareholder Servicing; Independent Accountants; Expenses.
17. BROKERAGE ALLOCATION AND OTHER PRACTICES: Portfolio Transactions.
18. CAPITAL STOCK AND OTHER SECURITIES: Massachusetts Trust; Description of
Shares.
<PAGE>
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: 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. 31 (the "Amendment") to the
Registrant's registration statement on Form N-1A (File No. 33-54642) (the
"Registration Statement") is being filed to (i) update the Registrant's
disclosure in the standalone Prospectuses relating to each of The JPM
Institutional Money Market, Federal Money Market, Bond, Short Term Bond,
International Equity, and Emerging Markets Equity Funds and Statement of
Additional Information with financial information for the fiscal year ended
October 31 and November 30, 1996 and (ii) make non-material changes to The JPM
Institutional Global Strategic Income Fund Prospectus and the Statement of
Additional Information and file final forms thereof in the Registration
Statement. Each of the Registrant's currently effective Prospectuses for each
other series of shares of the Registrant is incorporated herein by reference as
most recently filed pursuant to Rule 497 under the Securities Act of 1933, as
amended.
<PAGE>
PROSPECTUS
The JPM Institutional Money Market Fund
60 State Street
Boston, Massachusetts 02109
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 A TWO-TIER MASTER-FEEDER INVESTMENT FUND STRUCTURE. SEE SPECIAL
INFORMATION CONCERNING INVESTMENT STRUCTURE ON PAGE 3.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or "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 February 28, 1997 (as supplemented from time to time). This information
is incorporated herein by reference and is available without charge upon
written request from the Fund's Distributor, Funds Distributor, Inc. ("FDI"),
60 State Street, Suite 1300, Boston, Massachusetts 02109, Attention: The JPM
Institutional Funds, or by calling (800) 221-7930.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.
SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
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 FEBRUARY 28, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund is Designed.................................... 1
Financial Highlights....................................................... 3
Special Information Concerning Investment Structure........................ 3
Investment Objective and Policies.......................................... 4
Additional Investment Information and Risk
Factors................................................................... 6
Investment Restrictions.................................................... 8
Management of the Trust and the Portfolio.................................. 8
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Shareholder Servicing...................................................... 10
Purchase of Shares......................................................... 11
Redemption of Shares....................................................... 12
Exchange of Shares......................................................... 12
Dividends and Distributions................................................ 13
Net Asset Value............................................................ 13
Organization............................................................... 14
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 may 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 in a two-tier master-feeder invest-
ment structure. The Trustees believe that the Fund may achieve economies of
scale over time by utilizing this investment structure.
The following table illustrates that investors in the Fund incur no shareholder
transaction expenses; their investment in the Fund is subject only to the oper-
ating expenses set forth below for the Fund and the Portfolio, as a percentage
of average net assets of the Fund. The Trustees of the Trust believe that the
aggregate per share expenses of the Fund and the Portfolio will be approxi-
mately equal to and may be less than the expenses that the Fund would incur if
it retained the services of an investment adviser and invested its assets di-
rectly in portfolio securities. Fund and Portfolio expenses are discussed below
under the headings Management of the Trust and the Portfolio and Shareholder
Servicing.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases*........................................... None
Sales Load Imposed on Reinvested Dividends................................. None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
- -------
* Certain Eligible Institutions (defined below) may impose fees in connection
with the purchase of the Fund's shares through such institutions.
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>
* Fees and expenses are expressed as a percentage of average net assets of the
Fund for its most recent fiscal year and after expense reimbursement through
March 31, 1998. See Management of the Trust and the Portfolio. Without reim-
bursements, Other Expenses and Total Operating Expenses were 0.19% and 0.31%,
respectively, for the most recently completed fiscal year.
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, organization expenses, the fees paid to Pierpont Group, Inc.
under the Fund Services Agreements, the fees paid to FDI under the Co-Adminis-
tration 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
should be read in conjunction with the financial statements and related notes
which are contained in the Fund's annual report and are incorporated by refer-
ence into the Statement of Additional Information. The following selected data
have been audited by independent accountants. The Fund's annual report includes
a discussion of those factors, strategies and techniques that materially af-
fected the Fund's performance during the period of the report, as well as cer-
tain 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
1996 1995 1994 NOVEMBER 30, 1993
---------- -------- -------- -------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- --------
Income From Investment
Operations
Net Investment Income.. 0.0529 0.0577 0.0385 0.0120
Net Realized Gain
(Loss) on Investment.. 0.0001 0.0003 (0.0000)(a) 0.0000(a)
---------- -------- -------- --------
Total From Investment
Operations............. 0.0530 0.0580 0.0385 0.0120
---------- -------- -------- --------
Less Distributions to
Shareholders From
Net Investment Income.. (0.0529) (0.0577) (0.0385) (0.0120)
Net Realized Gain...... (0.0003) -- -- 0.0000(a)
---------- -------- -------- --------
Total Distributions to
Shareholders........... (0.0532) (0.0577) (0.0385) (0.0120)
---------- -------- -------- --------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ========
Total Return............ 5.46% 5.93% 3.92% 1.21%(b)
Ratios and Supplemental
Data
Net Assets at end of
Period (In Thousands). $1,220,401 $999,746 $584,867 $ 27,188
Ratio to Average Net
Assets:
Expenses.............. 0.20% 0.20% 0.21% 0.30%(c)
Net Investment Income. 5.28% 5.77% 4.42% 2.88%(c)
Decrease Reflected in
Expense Ratio due to
Expense
Reimbursement........ 0.11% 0.15% 0.31% 1.10%(c)
</TABLE>
- -------
(a) Less than $0.0001.
(b) Not Annualized.
(c) Annualized.
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own portfolio
of securities, the Fund is an open-end management investment company which
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio, a separate registered investment company with the same
investment objective as the Fund. The investment objective of the Fund or Port-
folio may be changed only with the approval of the holders of the outstanding
shares of the Fund and the Portfolio. The master-feeder investment fund struc-
ture has been developed relatively recently, so shareholders should carefully
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 bear 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 Morgan at
(800) 766-7722.
The Trust may withdraw the investment of the Fund from the Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trust-
ees 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 in-
vestment objective and restrictions as the Fund or the retaining of an invest-
ment 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
Portfolio's investment objective or restrictions, may require withdrawal of
the Fund's interest in the Portfolio. Any such withdrawal could result in a
distribution in kind of portfolio securities (as opposed to a cash distribu-
tion) from the Portfolio which may or may not be readily marketable. The dis-
tribution 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 re-
demption 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 con-
trol 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 operation of the Portfolio upon the withdrawal of another in-
vestor 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.
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 Re-
strictions.
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 397 calendar days or less. The Portfolio's ability to
achieve maximum current income is affected by its high quality standards (dis-
cussed 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 or other asset-backed securities collateralized by such assets. As-
set-backed securities provide periodic payments that generally consist of both
interest and principal payments. Consequently, the life of an asset-backed se-
curity varies with the prepayment experience of the underlying obligations.
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 Objective and Policies in the Statement of Additional Informa-
tion. These standards must be satisfied at
5
<PAGE>
the time an investment is made. If the quality of the investment later de-
clines 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 inter-
est.
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 lend 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 for fixed income securities no interest or in-
come accrues to the Portfolio until settlement. At the time of settlement a
when-issued security may be valued at less than its purchase price. The Port-
folio maintains with the Custodian a separate account with a segregated port-
folio of securities in an amount at least equal to these commitments. When en-
tering into a when-issued or delayed delivery transaction, the Portfolio will
rely on the other party to consummate the transaction; if the other party
fails to do so, the Portfolio may be disadvantaged. It is the current policy
of the Portfolio not to enter into when-issued commitments exceeding in the
aggregate 15% of the market value of the Portfolio's total assets less liabil-
ities 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 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.
Loans of portfolio securities may be considered extensions of credit by the
Portfolio. The risks to the Portfolio with respect to borrowers of its portfo-
lio securities are similar to the risks to the Portfolio with respect to sell-
ers in repurchase
6
<PAGE>
agreement transactions. See Repurchase Agreements above. 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. See Investment Restrictions for investment limita-
tions applicable to reverse repurchase agreements and other borrowings. 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.
SYNTHETIC INSTRUMENTS. The Portfolio may invest in certain synthetic instru-
ments. Such instruments generally involve the deposit of asset-backed securi-
ties in a trust arrangement and the issuance of certificates evidencing inter-
ests in the trust. The certificates are generally sold in private placements
in reliance on Rule 144A. The Advisor will review the structure of synthetic
instruments to identify credit and liquidity risks and will monitor those
risks. See Illiquid Investments; Privately Placed and other Unregistered Secu-
rities.
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 Portfolio's net assets would be in illiquid investments.
Subject to this fundamental policy limitation, the Portfolio may acquire in-
vestments that are illiquid or have limited liquidity, such as private place-
ments 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 val-
ued by the Portfolio. The price the Portfolio pays for illiquid securities or
receives upon resale may be lower than the price paid or received for similar
securities with a more liquid market. Accordingly the valuation of these secu-
rities 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.
7
<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
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 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) 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 securi-
ties, negotiable certificates of deposit, time deposits, and bankers' accept-
ances 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 Re-
strictions in the Statement of Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the
Portfolio, the Trustees decide upon matters of general policy and review the
actions of the Advisor 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................. Former Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast
Group
</TABLE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust, the Portfolio
and The JPM
8
<PAGE>
Pierpont Funds, up to and including creating a separate board of trustees. See
Trustees and Officers in the Statement of Additional Information for more in-
formation 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 to the Trust, the Portfolio and
certain other registered investment companies subject to similar agreements
with Pierpont Group, Inc. 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 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 $197 billion (of which the
Advisor advises over $30 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 1992) and Daniel B. Mulvey, Vice President (since January, 1995, em-
ployed by Morgan since 1992).
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 administrative and related
services to the Fund and the Portfolio and shareholder services to sharehold-
ers of the Fund. See Administrative Services Agent and Shareholder Servicing
below. INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER
BANK.
CO-ADMINISTRATOR. Pursuant to Co-Administration Agreements with the Trust and
the Portfolio, Funds Distributor, Inc. ("FDI") serves as the Co-Administrator
for the Fund and the Portfolio. FDI (i) provides office space, equipment and
clerical personnel for maintaining the organization and books and records of
the Fund and the Portfolio; (ii) provides officers for the Trust and the Port-
folio; (iii) prepares and files documents required for notification of state
securities administrators; (iv) reviews and files marketing and sales litera-
ture; (v) files Portfolio regulatory documents and mails Portfolio communica-
tions to Trustees and investors; and (vi) maintains related books and records.
9
<PAGE>
For its services under the Co-Administration Agreements, each of the Fund and
the Portfolio has agreed to pay FDI fees equal to its allocable share of an
annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the Fund or the Portfolio is based on the ratio of its net
assets to the aggregate net assets of the Trust and certain other registered
investment companies subject to similar agreements with FDI.
ADMINISTRATIVE SERVICES AGENT. Pursuant to Administrative Services Agreements
with the Trust and the Portfolio, Morgan provides administrative and related
services to the Fund and the Portfolio, including services related to tax com-
pliance, preparation of financial statements, calculation of performance data,
oversight of service providers and certain regulatory and Board of Trustees
matters.
Under the Administrative Services Agreements, each of the Fund and the Portfo-
lio has agreed to pay Morgan fees equal to its allocable share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate
net assets of the Trust and certain other registered investment companies man-
aged by the Advisor in accordance with the following annual schedule: 0.09% on
the first $7 billion of their aggregate average daily net assets and 0.04% of
their aggregate average daily net assets in excess of $7 billion, less the
complex-wide fees payable to FDI.
DISTRIBUTOR. FDI, a registered broker-dealer, also serves as the Distributor
of shares of the Fund and as exclusive placement agent for the Portfolio. FDI
is a wholly owned indirect subsidiary of Boston Institutional Group, Inc.
FDI's principal business address is 60 State Street, Suite 1300, Boston, Mas-
sachusetts 02109.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Fund's and the Portfolio's
custodian and fund accounting and transfer agent and the Fund's dividend dis-
bursing agent. State Street also keeps the books of account for the Fund and
the Portfolio.
EXPENSES. In addition to the fees payable to Morgan, FDI and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor, Co-Admin-
istrator and Administrative Services Agent above and Shareholder Servicing be-
low, the Fund and the Portfolio are responsible for usual and customary ex-
penses associated with their respective operations. Such expenses include or-
ganization expenses, legal fees, accounting and audit 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 disbursement costs, the expenses of printing and mailing reports,
notices and proxy statements to Fund shareholders, and filing 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 include 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.
SHAREHOLDER SERVICING
Pursuant to a Shareholder Servicing Agreement with the Trust, Morgan acts as
shareholder servicing agent for its customers and other Fund investors who are
customers of an eligible institution which is a customer of Morgan (an "Eligi-
ble Institution"). The Fund pays Morgan for these services at an annual rate
(expressed as a percentage of the average daily net asset value of Fund shares
owned by or for shareholders for whom Morgan is acting as shareholder servic-
ing 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.
10
<PAGE>
The Fund may be sold to or through Eligible Institutions, including financial
institutions and broker-dealers, that may be paid fees by Morgan or its affil-
iates for services provided to their clients that invest in the Fund. See Eli-
gible Institutions. Organizations that provide recordkeeping or other services
to certain employee benefit or retirement plans that include the Fund as an
investment alternative may also be paid a fee.
Shareholders should address all inquiries to J.P. Morgan Funds Services, Mor-
gan Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York
10036 or call (800) 766-7722.
The business days of the Fund and the Portfolio are the days the New York
Stock Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Mor-
gan as shareholder servicing agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Distribu-
tor. Investors must be either customers of Morgan or of an Eligible Institu-
tion or 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 pur-
pose of Fund transactions. There are no charges associated with becoming a
Morgan customer for this purpose. Morgan reserves the right to determine the
customers that it will accept, and the Trust 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 investors, including investors for whom the Advisor is a
fiduciary, who maintain related accounts with the Fund, other JPM Institu-
tional Funds or the Advisor, who make investments for a group of clients, such
as financial advisors, trust companies and investment advisors, or who main-
tain retirement accounts with the Funds.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous ba-
sis without a sales charge at the net asset value per share next determined
after receipt of an order. Prospective investors may purchase shares with the
assistance of an Eligible Institution that may establish its own terms, condi-
tions and charges.
To purchase shares in the Fund, investors should request their Morgan repre-
sentative (or a representative of their Eligible Institution) to assist them
in placing a purchase order with the Fund's Distributor and to transfer imme-
diately 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
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 infor-
11
<PAGE>
mation and performing such other services as Morgan or the Eligible Institu-
tion's clients may reasonably request and agree upon with the Eligible Insti-
tution. Eligible Institutions may separately establish their own terms, condi-
tions and charges for providing the aforementioned services and for providing
other services.
Although there is no sales charge levied directly by the Fund, Eligible Insti-
tutions may establish their own terms and conditions for providing their serv-
ices and may charge investors a transaction-based or other fee for their serv-
ices. Such charges may vary among Eligible Institutions but in all cases will
be retained by the Eligible Institution and not remitted to the Fund or Mor-
gan.
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, or a shareholder's ac-
count balance does not achieve the required minimum investment within the pre-
scribed time period, the Fund may redeem the remaining shares in the account
60 days after written notice to the shareholder unless the account is in-
creased to the 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, JPM Pierpont Fund or shares of JPM Series Trust 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
that fund's minimum investment amount.
12
<PAGE>
Shareholders should read the prospectus of the fund into which they are ex-
changing and may only exchange between fund accounts that are registered in the
same name, address and taxpayer identification number. Shares are exchanged on
the basis of relative net asset value per share. Exchanges are in effect re-
demptions 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, The JPM Pierpont Funds and JPM
Series Trust. 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 for the
Fund on the holidays listed under Net Asset Value in the Statement of Addi-
tional Information and may be computed at earlier times as set forth in the
Statement of Additional Information.
13
<PAGE>
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 nineteen 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.
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. The Trustees may call meetings of shareholders for ac-
tion by shareholder vote as may be required by either the 1940 Act or the Dec-
laration of Trust. The Trustees will call a meeting of shareholders to vote on
removal of a Trustee upon the written request of the record holders of ten
percent of Trust shares and will assist shareholders in communicating with
each other as prescribed in Section 16(c) of the 1940 Act. For further organi-
zation information, including certain shareholder rights, see Description of
Shares in the Statement of Additional Information.
The Portfolio 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 com-
pany separate accounts and common and commingled trust funds) will each be li-
able for all obligations of the Portfolio. However, the risk of the Fund in-
curring financial loss on account of such liability is limited to circum-
stances in which both inadequate insurance existed and the Portfolio itself
was unable to meet its obligations. Accordingly, the Trustees of the Trust be-
lieve 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 feder-
al, state or local taxes. See Taxes in the Statement of Additional Informa-
tion. 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 Internal Revenue Code of 1986, as amended. For
the Fund to qualify as a regulated investment company, the Portfolio, in addi-
tion to other requirements, limits its investments so that at the close of
each quarter of its taxable year (a) no more than 25% of its total assets are
invested in the securities of any one issuer, except U.S. Government securi-
ties, and (b) with regard to 50% to its total assets, no more than 5% of its
total assets are invested in the securities of a single issuer, except U.S.
Government securities. As a regulated investment company, the Fund should not
be subject to federal income taxes or federal excise taxes if all of its net
investment income and capital gains less any available capital loss
carryforwards are distributed to shareholders within allowable time limits.
The Portfolio intends to qualify as an association treated as a partnership
for federal income tax purposes. As such, the Portfolio should not be subject
to tax. The Fund's status as a regulated investment company is dependent on,
among other things, the Portfolio's continued qualification as a partnership
for federal income tax purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to non-corporate shareholders.
14
<PAGE>
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. The Fund does not expect to realize long-term capital gains and thus
does not contemplate paying distributions taxable to shareholders who are sub-
ject 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
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. In addition, no loss will be allowed on the redemption
or exchange of shares of the Fund if, within a period beginning 30 days before
the date of such redemption or exchange and ending 30 days after such date,
the shareholder acquires (such as through dividend reinvestment) securities
that are substantially identical to shares of the Fund.
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. Shareholders may
obtain performance information by calling Morgan at (800) 766-7722.
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.
PROS390-972
The
JPM Institutional Money Market Fund
PROSPECTUS
February 28, 1997
<PAGE>
PROSPECTUS
The JPM Institutional Federal Money Market Fund
60 State Street
Boston, Massachusetts 02109
For information call (800) 766-7722
The JPM Institutional Federal Money Market Fund (formerly 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 (FORMERLY
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 A TWO-TIER
MASTER-FEEDER INVESTMENT FUND STRUCTURE. SEE SPECIAL INFORMATION CONCERNING
INVESTMENT STRUCTURE ON PAGE 3.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or "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 February 28, 1997 (as supplemented from time to time). This information
is incorporated herein by reference and is available without charge upon
written request from the Fund's Distributor, Funds Distributor, Inc. ("FDI"),
60 State Street, Suite 1300, Boston, Massachusetts 02109, Attention: The JPM
Institutional Funds, or by calling (800) 221-7930.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.
SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
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 FEBRUARY 28, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund is Designed.................................... 1
Financial Highlights....................................................... 3
Special Information Concerning Investment Structure........................ 3
Investment Objective and Policies.......................................... 4
Additional Investment Information and Risk Factors......................... 5
Investment Restrictions.................................................... 6
Management of the Trust and the Portfolio.................................. 7
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Shareholder Servicing...................................................... 9
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 Federal 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 Federal Money Market 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 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 may 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 in a two-tier master-feeder invest-
ment structure. The Trustees believe that the Fund may achieve economies of
scale over time by utilizing this investment structure.
The following table illustrates that investors in the Fund incur no shareholder
transaction expenses; their investment in the Fund is subject only to the oper-
ating expenses set forth below for the Fund and the Portfolio, as a percentage
of average net assets of the Fund. The Trustees of the Trust believe that the
aggregate per share expenses of the Fund and the Portfolio will be approxi-
mately equal to and may be less than the expenses that the Fund would incur if
it retained the services of an investment adviser and invested its assets di-
rectly in portfolio securities. Fund and Portfolio expenses are discussed below
under the headings Management of the Trust and the Portfolio and Shareholder
Servicing.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases*........................................... None
Sales Load Sales on Reinvested Dividends................................... None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
- -------
* Certain Eligible Institutions (defined below) may impose fees in connection
with the purchase of the Fund's shares through such institutions.
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>
* Fees and expenses are expressed as a percentage of average net assets of the
Fund for its most recent fiscal year and after expense reimbursement through
February 28, 1998. See Management of the Trust and the Portfolio. Without
reimbursements, Other Expenses and Total Operating Expenses were 0.26% and
0.46%, respectively, for the most recently completed fiscal year.
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, organization expenses, the fees paid to Pierpont Group, Inc.
under the Fund Services Agreements, the fees paid to FDI under the Co-Adminis-
tration 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
should be read in conjunction with the financial statements and related notes
which are contained in the Fund's annual report and are incorporated by refer-
ence into the Statement of Additional Information. The following selected data
have been audited by independent accountants. The Fund's annual report includes
a discussion of those factors, strategies and techniques that materially af-
fected the Fund's performance during the period of the report, as well as cer-
tain related information. A copy of the Fund's annual report will be made
available without charge upon request.
<TABLE>
<CAPTION>
FOR THE PERIOD
1/4/93
FOR THE FISCAL YEAR ENDED OCTOBER 31, (COMMENCEMENT
------------------------------------- OF OPERATIONS) TO
1996 1995 1994 10/31/93
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ --------
Income From Investment
Operations
Net Investment Income.. 0.0508 0.0555 0.0354 0.0220
Net Realized Gain
(Loss) on Investment.. 0.0006 0.0003 (0.0000)(a) -0-(a)
------------ ------------ ------------ --------
Total From Investment
Operations............. 0.0514 0.0558 0.0354 0.0220
------------ ------------ ------------ --------
Less Distributions to
Shareholders From
Net Investment Income.. (0.0508) (0.0555) (0.0354) (0.0220)
Net Realized Gain...... (0.0003) -0- (0.0001) -0-
------------ ------------ ------------ --------
Total Distributions to
Shareholders........... (0.0511) (0.0555) (0.0355) (0.0220)
------------ ------------ ------------ --------
Net Asset Value, End of
Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ========
Total Return............ 5.23% 5.69% 3.61% 2.23%(b)
Ratios and Supplemental
Data
Net Assets at end of
Period (In Thousands). $109,050 $145,108 $ 80,146 $ 25,477
Ratio to Average Net
Assets:
Expenses.............. 0.20% 0.20% 0.20% 0.27%(c)
Net Investment Income. 5.09% 5.56% 3.81% 2.81%(c)
Decrease Reflected in
Expense Ratio due to
Expense
Reimbursement........ 0.26% 0.31% 0.47% 0.76%(c)
</TABLE>
- -------
(a) Less than $0.0001 per share.
(b) Not annualized.
(c) Annualized.
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own portfolio
of securities, the Fund is an open-end management investment company which
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio, a separate registered investment company with the same
investment objective as the Fund. The investment objective of the Fund or Port-
folio may be changed only with the approval of the holders of the outstanding
shares of the Fund and the Portfolio. The master-feeder investment fund struc-
ture has been developed relatively recently, so shareholders should carefully
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 bear 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 Morgan at
(800) 766-7722.
The Trust may withdraw the investment of the Fund from the Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trust-
ees 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 in-
vestment objective and restrictions as the Fund or the retaining of an invest-
ment 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
Portfolio's investment objective or restrictions, may require withdrawal of
the Fund's interest in the Portfolio. Any such withdrawal could result in a
distribution in kind of portfolio securities (as opposed to a cash distribu-
tion) from the Portfolio which may or may not be readily marketable. The dis-
tribution 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 re-
demption 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 con-
trol 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 operation of the Portfolio upon the withdrawal of another in-
vestor 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.
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 Re-
strictions.
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 dol-
lar-weighted average portfolio maturity of not more than 90 days and invests
in the following securities which have effective maturities of 397 calendar
days or less.
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
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.
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 for fixed income securities no interest or in-
come accrues to the Portfolio until settlement. At the time of settlement a
when-issued security may be valued at less than its purchase price. The Port-
folio maintains with the Custodian a separate account with a segregated port-
folio of securities in an amount at least equal to these commitments. When en-
tering into a when-issued or delayed delivery transaction, the Portfolio will
rely on the other party to consummate the transaction; if the other party
fails to do so, the Portfolio may be disadvantaged. It is the current policy
of the Portfolio not to enter into when-issued commitments exceeding in the
aggregate 15% of the market value of the Portfolio's total assets less liabil-
ities 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
involving Treasury Securities and Permitted Agency Securities and under ordi-
nary market conditions does not expect to enter into repurchase agreements in-
volving more than 5% of its net assets. The term of these agreements is usu-
ally 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 Portfo-
lio always receives securities as collateral with a market value at least
equal to the purchase 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.
Loans of portfolio securities may be considered extensions of credit by the
Portfolio. The risks to the Portfolio with respect to borrowers of its portfo-
lio securities are similar to the risks to the Portfolio with respect to sell-
ers in repurchase agreement transactions. See Repurchase Agreements above. The
Portfolio will not lend its securities to any officer, Trustee, Director, em-
ployee 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. See Investment Restrictions for investment limita-
tions applicable to reverse repurchase agreements and other borrowings. 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 Portfolio's net assets would be in illiquid investments.
Subject to this fundamental policy limitation, the Portfolio may acquire in-
vestments that are illiquid or have limited liquidity, such as private place-
ments 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 val-
ued by the Portfolio. The price the Portfolio pays for illiquid securities or
receives upon resale may be lower than the price paid or received for similar
securities with a more liquid market. Accordingly the valuation of these secu-
rities 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................. Former Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast
Group
</TABLE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust, the Portfolio and
The JPM Pierpont Funds, up to and including creating a separate board of trust-
ees. 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 to the Trust, the Portfolio and
certain other registered investment companies subject to similar agreements
with Pierpont Group, Inc. 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 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 $197 billion (of which the
Advisor advises over $30 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): Robert R. Johnson, Vice
President (since January 1993, employed by Morgan since prior to 1992) and
Daniel B. Mulvey, Vice President (since October 1996, employed by Morgan since
1992).
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 administrative and related
services to the Fund and the Portfolio and shareholder services to sharehold-
ers of the Fund. See Administrative Services Agent and Shareholder Servicing
below. INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER
BANK.
CO-ADMINISTRATOR. Pursuant to Co-Administration Agreements with the Trust and
the Portfolio, Funds Distributor, Inc. ("FDI") serves as the Co-Administrator
for the Fund and the Portfolio. FDI (i) provides office space, equipment and
clerical personnel for maintaining the organization and books and records of
the Fund and the Portfolio; (ii) provides officers for the Trust and the Port-
folio; (iii) prepares and files documents required for notification of state
securities administrators; (iv) reviews and files marketing and sales litera-
ture; (v) files Portfolio regulatory documents and mails Portfolio communica-
tions to Trustees and investors; and (vi) maintains related books and records.
For its services under the Co-Administration Agreements, each of the Fund and
the Portfolio has agreed to pay FDI fees equal to its allocable share of an
annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
8
<PAGE>
amount allocable to the Fund or the Portfolio is based on the ratio of its net
assets to the aggregate net assets of the Trust and certain other registered
investment companies subject to similar agreements with FDI.
ADMINISTRATIVE SERVICES AGENT. Pursuant to Administrative Services Agreements
with the Trust and the Portfolio, Morgan provides administrative and related
services to the Fund and the Portfolio, including services related to tax com-
pliance, preparation of financial statements, calculation of performance data,
oversight of service providers and certain regulatory and Board of Trustees
matters.
Under the Administrative Services Agreements, each of the Fund and the Portfo-
lio has agreed to pay Morgan fees equal to its allocable share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate
net assets of the Trust and certain other registered investment companies man-
aged by the Advisor in accordance with the following annual schedule: 0.09% on
the first $7 billion of their aggregate average daily net assets and 0.04% of
their aggregate average daily net assets in excess of $7 billion, less the
complex-wide fees payable to FDI.
DISTRIBUTOR. FDI, a registered broker-dealer, also serves as the Distributor
of shares of the Fund and as exclusive placement agent for the Portfolio. FDI
is a wholly owned indirect subsidiary of Boston Institutional Group, Inc.
FDI's principal business address is 60 State Street, Suite 1300, Boston, Mas-
sachusetts 02109.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Fund's and the Portfolio's
custodian and fund accounting and transfer agent and the Fund's dividend dis-
bursing agent. State Street also keeps the books of account for the Fund and
the Portfolio.
EXPENSES. In addition to the fees payable to Morgan, FDI and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor Co-Admin-
istrator and Administrative Services Agent above and Shareholder Servicing be-
low, the Fund and the Portfolio are responsible for usual and customary ex-
penses associated with their respective operations. Such expenses include or-
ganization expenses, legal fees, accounting and audit 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 disbursement costs, the expenses of printing and mailing reports,
notices and proxy statements to Fund shareholders, and filing fees under state
securities laws. For the Portfolio, such expenses also include custodian fees
and brokerage expenses.
Morgan has agreed that it will reimburse the Fund through at least February
28, 1997 to the extent necessary to maintain the Fund's total operating ex-
penses (which include 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.
SHAREHOLDER SERVICING
Pursuant to a Shareholder Servicing Agreement with the Trust, Morgan acts as
shareholder servicing agent for its customers and other Fund investors who are
customers of an eligible institution which is a customer of Morgan (an "Eligi-
ble Institution"). The Fund pays Morgan for these services at an annual rate
(expressed as a percentage of the average daily net asset value of Fund shares
owned by or for shareholders for whom Morgan is acting as shareholder servic-
ing 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.
The Fund may be sold to or through Eligible Institutions, including financial
institutions and broker-dealers, that may be paid fees by Morgan or its affil-
iates for services provided to their clients that invest in the Fund. See Eli-
gible Institutions. Organizations that provide recordkeeping or other services
to certain employee benefit or retirement plans that include the Fund as an
investment alternative may also be paid a fee.
9
<PAGE>
Shareholders should address all inquiries to J.P. Morgan Funds Services, Mor-
gan Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York
10036 or call (800) 766-7722.
The business days of the Fund and the Portfolio are the days the New York
Stock Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Mor-
gan as shareholder servicing agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Distribu-
tor. Investors must be either customers of Morgan or of an Eligible Institu-
tion or 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 pur-
pose of Fund transactions. There are no charges associated with becoming a
Morgan customer for this purpose. Morgan reserves the right to determine the
customers that it will accept, and the Trust 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 investors, including investors for whom the Advisor is a
fiduciary, who maintain related accounts with the Fund, other JPM Institu-
tional Funds or the Advisor, who make investments for a group of clients, such
as financial advisors, trust companies and investment advisors, or who main-
tain retirement accounts with the Funds.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous ba-
sis without a sales charge at the net asset value per share next determined
after receipt of an order. Prospective investors may purchase shares with the
assistance of an Eligible Institution that may establish its own terms, condi-
tions and charges.
To purchase shares in the Fund, investors should request their Morgan repre-
sentative (or a representative of their Eligible Institution) to assist them
in placing a purchase order with the Fund's Distributor and to transfer imme-
diately 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
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
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.
Although there is no sales charge levied directly by the Fund, Eligible Insti-
tutions may establish their own terms and conditions for providing their serv-
ices and may charge investors a transaction-based or other fee for their serv-
ices. Such
10
<PAGE>
charges may vary among Eligible Institutions but in all cases will be retained
by the Eligible Institution and not remitted to the Fund or Morgan.
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 or a shareholder's account
balance does not achieve the required minimum investment within the prescribed
time period, the Fund may redeem the remaining shares in the account 60 days
after written notice to the shareholder unless the account is increased to the
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, JPM Pierpont Fund or shares of JPM Series Trust without charge. An ex-
change 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
that fund's minimum investment amount. Shareholders should read the prospectus
of the fund into which they are exchanging and may only exchange between fund
accounts that are registered in the same name, address and taxpayer identifi-
cation number. 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, The JPM Pierpont Funds and JPM Series Trust. See also Additional Infor-
mation below for an explanation of the telephone exchange policy of The JPM
Institutional Funds.
11
<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 for the
Fund on the holidays listed under Net Asset Value in the Statement of Addi-
tional Information and may be computed at earlier times as set forth 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 nineteen 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.
12
<PAGE>
The Declaration of Trust for the Trust provides that no Trustee, shareholder,
officer, employee, or agent of the Fund shall be held to any personal liabili-
ty, nor shall resort be had to their private property for the satisfaction of
any obligation or claim or otherwise in connection with the affairs of the
Fund, but that the Trust property only shall be liable.
Shareholders of the Fund are entitled to one vote for each share and to the
appropriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and 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 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 com-
pany separate accounts and common and commingled trust funds) will each be li-
able for all obligations of the Portfolio. However, the risk of the Fund in-
curring financial loss on account of such liability is limited to circum-
stances in which both inadequate insurance existed and the Portfolio itself
was unable to meet its obligations. Accordingly, the Trustees of the Trust be-
lieve 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 feder-
al, state or local taxes. See Taxes in the Statement of Additional Informa-
tion. 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 Internal Revenue Code of 1986, as amended. For
the Fund to qualify as a regulated investment company, the Portfolio, in addi-
tion to other requirements, limits its investments so that at the close of
each quarter of its taxable year (a) no more than 25% of its total assets are
invested in the securities of any one issuer, except U.S. Government securi-
ties, and (b) with regard to 50% to its total assets, no more than 5% of its
total assets are invested in the securities of a single issuer, except U.S.
Government securities. As a regulated investment company, the Fund should not
be subject to federal income taxes or federal excise taxes if all of its net
investment income and capital gains less any available capital loss
carryforwards are distributed to shareholders within allowable time limits.
The Portfolio intends to qualify as an association treated as a partnership
for federal income tax purposes. As such, the Portfolio should not be subject
to tax. The Fund's status as a regulated investment company is dependent on,
among other things, the Portfolio's continued qualification as a partnership
for federal income tax purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to 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 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
13
<PAGE>
shareholders are not eligible for the dividends-received deduction. The Fund
does not expect to realize long-term capital gains and thus does not contem-
plate 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. In addition,
no loss will be allowed on the redemption or exchange of shares of the Fund if,
within a period beginning 30 days before the date of such redemption or ex-
change and ending 30 days after such date, the shareholder acquires (such as
through dividend reinvestment) securities that are substantially identical to
shares of the Fund.
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. Shareholders may obtain perfor-
mance information by calling Morgan at (800) 766-7722.
14
<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.
PROS373-972
The
JPM Institutional
Federal Money Market Fund
PROSPECTUS
February 28, 1997
<PAGE>
PROSPECTUS
The JPM Institutional Short Term Bond Fund
60 State Street
Boston, Massachusetts 02109
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 A TWO-TIER MASTER-FEEDER INVESTMENT FUND STRUCTURE. SEE
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE ON PAGE 3.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or "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 February 28, 1997 (as supplemented from time to time). This information
is incorporated herein by reference and is available without charge upon
written request from the Fund's Distributor, Funds Distributor, Inc. ("FDI"),
60 State Street, Suite 1300, Boston, Massachusetts 02109, Attention: The JPM
Institutional Funds, or by calling (800) 221-7930.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.
SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
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 FEBRUARY 28, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund is Designed.................................... 1
Financial Highlights....................................................... 3
Special Information Concerning Investment
Structure................................................................. 3
Investment Objective and Policies.......................................... 4
Additional Investment Information and Risk Factors......................... 6
Investment Restrictions.................................................... 10
Management of the Trust and the Portfolio.................................. 11
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............................................................ 16
Organization............................................................... 16
Taxes...................................................................... 16
Additional Information..................................................... 17
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, options, forward contracts on foreign currencies and
certain privately placed securities. For further information about these in-
vestments and investment techniques, see Investment Objective and Policies dis-
cussed below.
The Fund requires a minimum initial investment of $5 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 $5 million for more than 30
days, the investment may 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 in a two-tier master-feeder invest-
ment fund structure. The Trustees believe that the Fund may achieve economies
of scale over time by utilizing this investment structure.
The following table illustrates that investors in the Fund incur no shareholder
transaction expenses; their investment in the Fund is subject only to the oper-
ating expenses set forth below for the Fund and the Portfolio, as a percentage
of average net assets of the Fund. The Trustees of the Trust believe that the
aggregate per share expenses of the Fund and the Portfolio will be approxi-
mately equal to and may be less than the expenses that the Fund would incur if
it retained the services of an investment adviser and invested its assets di-
rectly in portfolio securities. Fund and Portfolio expenses are discussed below
under the headings Management of the Trust and the Portfolio and Shareholder
Servicing.
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>
- -------
* Certain Eligible Institutions (defined below) may impose fees in connection
with the purchase of the Fund's shares through such institutions.
1
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees............................................................. 0.25%
Rule 12b-1 Fees........................................................... None
Other Expenses (after expense reimbursement).............................. 0.00%
-----
Total Operating Expenses (after expense reimbursement).................... 0.25%
</TABLE>
* Fees and expenses are expressed as a percentage of average net assets of the
Fund for its most recent fiscal year and after expense reimbursement through
February 28, 1998. See Management of the Trust and the Portfolio. Without re-
imbursements, Other Expenses and Total Operating Expenses were 1.12% and
1.37%, respectively, for the most recently completed fiscal year.
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...................................................................... $ 3
3 Years..................................................................... $ 8
5 Years..................................................................... $14
10 Years.................................................................... $32
</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, organization expenses, the fees paid to Pierpont Group, Inc.
under the Fund Services Agreements, the fees paid to FDI under the Co-Adminis-
tration 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
should be read in conjunction with the financial statements and related notes
which are contained in the Fund's annual report and are incorporated by refer-
ence into the Statement of Additional Information. The following selected data
have been audited by independent accountants. The Fund's annual report in-
cludes a discussion of those factors, strategies and techniques that materi-
ally affected the Fund's 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 8, 1993
ENDED OCTOBER 31, (COMMENCEMENT OF
------------------------- OPERATIONS) THROUGH
1996 1995 1994 OCTOBER 31, 1993
------- ------- ------- -------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period......................... $ 9.83 $ 9.60 $ 9.99 $ 10.00
------- ------- ------- -------
Income from Investment
Operations
Net Investment Income.......... 0.55 0.58 0.47 0.11
Net Realized and Unrealized
Gain (Loss) on Investment..... 0.02 0.24 (0.39) (0.01)
------- ------- ------- -------
Total From Investment
Operations..................... 0.57 0.82 0.08 0.10
------- ------- ------- -------
Less Distributions to
Shareholders From
Net Investment Income.......... (0.55) (0.59) (0.47) (0.11)
------- ------- ------- -------
Net Asset Value, End of Period.. $ 9.85 $ 9.83 $ 9.60 $ 9.99
======= ======= ======= =======
Total Return.................... 6.01% 8.81% 0.87% 1.01%(a)
Ratios and Supplemental Data
Net Assets, End of Period (in
Thousands).................... $17,810 $18,916 $47,679 $27,605
Ratio to Average Net Assets:
Expenses...................... 0.37% 0.45% 0.45% 0.46%(b)
Net Investment Income......... 5.69% 6.09% 4.96% 3.92%(b)
Decrease Reflected in Expense
Ratio due to Expense
Reimbursement................ 1.00% 0.22% 0.33% 0.84%(b)
</TABLE>
- -------
(a) Not annualized.
(b) Annualized.
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own portfo-
lio of securities, the Fund is an open-end management investment company which
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio, a separate registered investment company with the
same investment objective as the Fund. The investment objective of the Fund or
Portfolio may be changed only with the approval of the holders of the out-
standing shares of the Fund and the Portfolio. The master-feeder investment
fund structure has been developed relatively recently, so shareholders should
carefully consider this investment approach.
In addition to selling a beneficial interest to the Fund, the Portfolio may
sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions
and will bear a proportionate share of the Portfolio's expenses. However, the
other investors investing in the Portfolio may sell shares of their 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 Morgan at
(800) 766-7722.
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 Advisor intends to manage the Portfolio actively in pursuit of its invest-
ment objective. Portfolio transactions are undertaken principally to accomplish
the Portfolio's objective in relation to expected movements in the general
level of interest rates, but the Portfolio may also engage in short-term trad-
ing consistent with its objective. To the extent the Portfolio engages in
short-term trading, it may incur increased transaction costs. See Taxes below.
The portfolio turnover rate for the Portfolio for the fiscal year ended October
31, 1996 was 191%.
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 up to 20% of its total assets in debt securities denominated in
foreign currencies of developed countries. The Portfolio does not expect to in-
vest more than 25% of its assets in securities of foreign issuers. See Addi-
tional Investment Information and Risk Factors for further information on for-
eign 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 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 sources. How-
ever, the Portfolio will invest only in municipal obligations that have been
issued on a taxable basis or have an attractive yield excluding tax considera-
tions. In addition, the Portfolio may invest in debt securities of foreign
governments and governmental entities denominated in the U.S. dollar and other
currencies. See Additional Investment Information 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. It is the current policy of the Portfolio that under nor-
mal circumstances at least 90% of total assets will consist of securities that
at the time of purchase are rated Baa or better by Moody's Investors Service,
Inc. ("Moody's") or BBB or better by Standard & Poor's Ratings Group ("Stan-
dard & Poor's"), of which at least 75% of total assets will be rated A or bet-
ter. The remaining 10% of total assets may be invested in securities that are
rated B or better by Moody's or Standard & Poor's. In each case, the Portfolio
may invest in securities which are unrated if in Morgan's opinion such securi-
ties 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. Securities rated Ba or B by Moody's and BB or B 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 Additional Investment
Information and Risk Factors.
The Portfolio may also purchase obligations on a when-issued or delayed deliv-
ery basis, enter into repurchase and reverse repurchase agreements, lend its
portfolio securities, purchase privately placed securities and enter into cer-
tain hedging transactions that may involve options on securities and securi-
ties indexes, futures contracts, options on futures contracts and forward con-
tracts on foreign currencies. For a discussion of these investments and in-
vestment 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.
6
<PAGE>
BELOW INVESTMENT GRADE DEBT. Certain lower rated securities purchased by the
Portfolio, such as those rated Ba or B by Moody's or BB or B by Standard &
Poor's (commonly known as junk bonds), may be subject to certain risks with
respect to the issuing entity's ability to make scheduled payments of princi-
pal and interest and to greater market fluctuations. While generally providing
higher coupons or interest rates than investments in higher quality securi-
ties, lower quality fixed income securities involve greater risk of loss of
principal and income, including the possibility of default or bankruptcy of
the issuers of such securities, and have greater price volatility, especially
during periods of economic uncertainty or change. These lower quality fixed
income securities tend to be affected by economic changes and short-term cor-
porate and industry developments to a greater extent than higher quality secu-
rities, which react primarily to fluctuations in the general level of interest
rates. To the extent that the Portfolio invests in such lower quality securi-
ties, the achievement of its investment objective may be more dependent on the
Advisor's own credit analysis.
Lower quality fixed income securities are affected by the market's perception
of their credit quality, especially during times of adverse publicity, and the
outlook for economic growth. Economic downturns or an increase in interest
rates may cause a higher incidence of default by the issuers of these securi-
ties, especially issuers that are highly leveraged. The market for these lower
quality fixed income securities is generally less liquid than the market for
investment grade fixed income securities. It may be more difficult to sell
these lower rated securities to meet redemption requests, to respond to
changes in the market, or to value accurately the Portfolio's portfolio secu-
rities for purposes of determining the Fund's net asset value. See Appendix A
in the Statement of Additional Information for more detailed information on
these ratings.
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 securities no interest or in-
come accrues to the Portfolio until settlement. At the time of settlement a
when-issued security may be valued at less than its purchase price. The Port-
folio maintains with the Custodian a separate account with a segregated port-
folio of securities in an amount at least equal to these commitments. When en-
tering into a when-issued or delayed delivery transaction, the Portfolio will
rely on the other party to consummate the transaction; if the other party
fails to do so, the Portfolio may be disadvantaged. It is the current policy
of the Portfolio not to enter into when-issued commitments exceeding in the
aggregate 15% of the market value of the Portfolio's total assets less liabil-
ities 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. Bor-
7
<PAGE>
rowed 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 consider all facts and circumstances,
including the creditworthiness of the borrowing financial institution, and the
Portfolio will not make any loans in excess of one year.
Loans of portfolio securities may be considered extensions of credit by the
Portfolio. The risks to the Portfolio with respect to borrowers of its
portfolio securities are similar to the risks to the Portfolio with respect to
sellers in repurchase agreement transactions. See Repurchase Agreements above.
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. See Investment Restrictions for investment limita-
tions applicable to reverse repurchase agreements and other borrowings. For
more information, see Investment Objective and Policies in the Statement of
Additional Information.
FOREIGN INVESTMENT INFORMATION. The Portfolio may invest in certain foreign
securities denominated in the U.S. dollar and other currencies. Investment in
securities of foreign issuers and in obligations of foreign branches of domes-
tic 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 gen-
erally subject to uniform accounting, auditing and financial standards and re-
quirements comparable to those applicable to domestic companies. Dividends and
interest paid by foreign issuers may be subject to withholding and other for-
eign taxes which may decrease the net return on foreign investments as com-
pared 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.
In addition, while the volume of transactions effected on foreign exchanges
has increased in recent years, in most cases it remains appreciably below that
of domestic security exchanges. Accordingly, the Portfolio's foreign invest-
ments may be less liquid and their prices may be more volatile than comparable
investments in securities of U.S. 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 addition, there is generally
less government supervision and regulation of securities exchanges, brokers
and issuers located in foreign countries than in the United States.
The Portfolio may invest in securities of foreign issuers directly or in the
form of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") or other similar securities of foreign issuers. These securities may
8
<PAGE>
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 may buy and sell
securities and receive interest in currencies other than the U.S. dollar, the
Portfolio may enter from time to time into foreign currency exchange transac-
tions. The Portfolio either enters into these transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange mar-
ket or uses forward contracts to purchase or sell foreign currencies. The cost
of the Portfolio's spot currency exchange transactions is generally the dif-
ference 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 contract. These contracts are
entered into in the interbank market directly between currency traders (usu-
ally large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. The Portfolio will not enter into forward contracts
for speculative purposes. Neither spot transactions nor forward foreign cur-
rency exchange contracts eliminate fluctuations in the prices of the Portfo-
lio's securities or in foreign exchange rates, or prevent loss if the prices
of these securities should decline.
The Portfolio may enter into foreign currency exchange transactions in an at-
tempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or antici-
pated securities transactions. The Portfolio may also enter into forward con-
tracts to hedge against a change in foreign currency exchange rates that would
cause a decline in the value of existing investments denominated or princi-
pally traded in a foreign currency. To do this, the Portfolio would enter into
a forward contract to sell the foreign currency in which the investment is de-
nominated or principally traded in exchange for U.S. dollars or in exchange
for another foreign currency. The Portfolio will only enter into forward con-
tracts to sell a foreign currency in exchange for another foreign currency if
the Advisor expects the foreign currency purchased to appreciate against the
U.S. dollar.
Although these transactions are intended to minimize the risk of loss due to a
decline in the value of the hedged 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 against the hedged currency
and the U.S. dollar. The precise matching of the forward contract amounts and
the value of the securities involved will not generally be possible because
the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The projec-
tion of currency market movements is extremely difficult, and the successful
execution of a hedging strategy is highly uncertain.
9
<PAGE>
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 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 illiq-
uid 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 securities
or receives upon resale may be lower than the price paid or received for simi-
lar 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.
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
total assets, except this limitation shall not apply to investments in
U.S. Government securities; (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
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 obligations represented by the bank borrowings and reverse re-
purchase agreements), or purchase securities while borrowings exceed 5% of its
total assets; or mortgage, pledge or hypothecate any assets except in connec-
tion with any such borrowings in amounts not to exceed 30% of the value of the
Portfolio's net assets at the time of borrowing; or (iii) enter into reverse
repurchase agreements 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 Re-
strictions in the Statement of Additional Information.
10
<PAGE>
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the
Portfolio, the Trustees decide upon matters of general policy and review the
actions of the Advisor 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................. Former Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast
Group
</TABLE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust, the Portfolio
and The JPM 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 to the Trust, the Portfolio and
certain other registered investment companies subject to similar agreements
with Pierpont Group, Inc. 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 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 $197 billion (of which the
Advisor advises over $30 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
quantitive and credit analysis. Morgan has managed portfolios of domestic
fixed income securities on behalf of its clients for over fifty years. The
11
<PAGE>
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
1992), 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 administrative and related
services to the Fund and the Portfolio and shareholder services to sharehold-
ers of the Fund. See Administrative Services Agent and Shareholder Servicing
below. INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER
BANK.
CO-ADMINISTRATOR. Pursuant to Co-Administration Agreements with the Trust and
the Portfolio, Funds Distributor, Inc. ("FDI") serves as the Co-Administrator
for the Fund and the Portfolio. FDI (i) provides office space, equipment and
clerical personnel for maintaining the organization and books and records of
the Fund and the Portfolio; (ii) provides officers for the Trust and the Port-
folio; (iii) prepares and files documents required for notification of state
securities administrators; (iv) reviews and files marketing and sales litera-
ture; (v) files Portfolio regulatory documents and mails Portfolio communica-
tions to Trustees and investors; and (vi) maintains related books and records.
For its services under the Co-Administration Agreements, each of the Fund and
the Portfolio has agreed to pay FDI fees equal to its allocable share of an
annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the Fund or the Portfolio is based on the ratio of its net
assets to the aggregate net assets of the Trust and certain other registered
investment companies subject to similar agreements with FDI.
ADMINISTRATIVE SERVICES AGENT. Pursuant to Administrative Services Agreements
with the Trust and the Portfolio, Morgan provides administrative and related
services to the Fund and the Portfolio, including services related to tax com-
pliance, preparation of financial statements, calculation of performance data,
oversight of service providers and certain regulatory and Board of Trustees
matters.
Under the Administrative Services Agreements, each of the Fund and the Portfo-
lio has agreed to pay Morgan fees equal to its allocable share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate
net assets of the Trust and certain other registered investment companies man-
aged by the Advisor in accordance with the following annual schedule: 0.09% on
the first $7 billion of their aggregate average daily net assets and 0.04% of
their aggregate average daily net assets in excess of $7 billion, less the
complex-wide fees payable to FDI.
DISTRIBUTOR. FDI, a registered broker-dealer, also serves as the Distributor
of shares of the Fund and as exclusive placement agent for the Portfolio. FDI
is a wholly owned indirect subsidiary of Boston Institutional Group, Inc.
FDI's principal business address is 60 State Street, Suite 1300, Boston, Mas-
sachusetts 02109.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Fund's and the Portfolio's
custodian and fund accounting and transfer agent and the Fund's dividend dis-
bursing agent. State Street also keeps the books of account for the Fund and
the Portfolio.
12
<PAGE>
EXPENSES. In addition to the fees payable to Morgan, FDI and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor, Co-Admin-
istrator and Administrative Services Agent above and Shareholder Servicing be-
low, the Fund and the Portfolio are responsible for usual and customary ex-
penses associated with their respective operations. Such expenses include or-
ganization expenses, legal fees, accounting and audit 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 disbursement costs, the expenses of printing and mailing reports,
notices and proxy statements to Fund shareholders, and filing fees under state
securities laws. For the Portfolio, such expenses also include registration
fees under foreign securities laws, custodian fees and brokerage expenses.
Effective July 1, 1996, through at least February 28, 1998 Morgan will reim-
burse the Fund to the extent necessary to maintain the Fund's total operating
expenses (which include expenses of the Fund and the Portfolio) at the annual
rate of 0.25% 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.
SHAREHOLDER SERVICING
Pursuant to a Shareholder Servicing Agreement with the Trust, Morgan acts as
shareholder servicing agent for its customers and other Fund investors who are
customers of an eligible institution which is a customer of Morgan (an "Eligi-
ble Institution"). The Fund pays Morgan for these services at an annual rate
(expressed as a percentage of the average daily net asset value of Fund shares
owned by or for shareholders for whom Morgan is acting as shareholder servic-
ing agent) of 0.075% of the Fund's average daily net assets. Under the terms
of the Shareholder Servicing Agreement with the Fund, Morgan may delegate one
or more of its responsibilities to other entities at Morgan's expense.
The Fund may be sold to or through Eligible Institutions, including financial
institutions and broker-dealers, that may be paid fees by Morgan or its affil-
iates for services provided to their clients that invest in the Fund. See Eli-
gible Institutions. Organizations that provide recordkeeping or other services
to certain employee benefit or retirement plans that include the Fund as an
investment alternative may also be paid a fee.
Shareholders should address all inquiries to J.P. Morgan Funds Services, Mor-
gan Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York
10036 or call (800) 766-7722.
The business days of the Fund and the Portfolio are the days the New York
Stock Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Mor-
gan as shareholder servicing agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Distribu-
tor. Investors must be either customers of Morgan or of an Eligible Institu-
tion or 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 pur-
pose of Fund transactions. There are no charges associated with becoming a
Morgan customer for this purpose. Morgan reserves the right to determine the
customers that it will accept, and the Trust reserves the right to determine
the purchase orders that it will accept.
The Fund requires a minimum initial investment of $5 million and a minimum
subsequent investment of $25,000. These minimum investment requirements may be
waived for certain investors, including investors for whom the Advisor is a
fiduciary, who maintain related accounts with the Fund, other JPM Institu-
tional Funds or the Advisor, who make invest -
13
<PAGE>
ments for a group of clients, such as financial advisors, trust companies and
investment advisors, or who maintain retirement accounts with the Funds.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous ba-
sis without a sales charge at the net asset value per share next determined
after receipt of an order. Prospective investors may purchase shares with the
assistance of an Eligible Institution that may establish its own terms, condi-
tions and charges.
To purchase shares in the Fund, investors should request their Morgan repre-
sentative (or a representative of their Eligible Institution) to assist them
in placing a purchase order with the Fund's Distributor. Any shareholder may
also call J.P. Morgan Funds Services at (800) 766-7722 for assistance with
placing an order for Fund shares. If the Fund or its agent 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 or its agent receives a purchase order after 4:00 P.M. New
York time, the purchase is effective and is made at net asset value determined
on the next business day. All purchase orders for Fund shares must be accompa-
nied by instructions to Morgan (or an Eligible Institution) to transfer imme-
diately available funds to the Fund's Distributor on settlement date. The set-
tlement date is generally the business day after the purchase is effective.
The purchaser will begin to receive the daily dividends on the settlement
date. See Dividends and Distributions.
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.
Although there is no sales charge levied directly by the Fund, Eligible Insti-
tutions may establish their own terms and conditions for providing their serv-
ices and may charge investors a transaction-based or other fee for their serv-
ices. Such charges may vary among Eligible Institutions but in all cases will
be retained by the Eligible Institution and not remitted to the Fund or Mor-
gan.
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 or its agent prior to 4:00 P.M. New
York time is effective on that day. A redemption request received after that
time becomes effective on the next business day. Proceeds of an effective re-
demption are generally deposited on settlement date in immediately available
funds to the shareholder's account at Morgan or at his or her Eligible Insti-
tution or, in the case of certain Morgan customers, are mailed by check or
wire transferred in accordance with the customer's instructions. The redeemer
will continue to receive dividends on these shares through the day before the
settlement date. Settlement date is generally the next business day after a
redemption is effective and, subject to Further Redemption Information below,
in any event is within seven days. See Dividends and Distributions.
14
<PAGE>
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 $5 million for
more than 30 days because of a redemption of shares, the Fund may redeem the
remaining shares in the account 60 days after written notice to the shareholder
unless the account is increased to the 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 income
tax on dividends, distributions and redemption of proceeds when non-corporate
investors have not provided a certified taxpayer identification number. In ad-
dition, if a shareholder sends a check for the purchase of Fund shares and
shares are purchased before the check has cleared, the transmittal of redemp-
tion proceeds from the shares will occur upon clearance of the check which may
take up to 15 days.
The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other 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 the Fund into any other JPM Institutional
Fund, JPM Pierpont Fund or shares of JPM Series Trust without charge. An ex-
change 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 that
fund's minimum investment amount. Shareholders should read the prospectus of
the fund into which they are exchanging and may only exchange between fund ac-
counts that are registered in the same name, address and taxpayer identifica-
tion number. Shares are exchanged on the basis of relative net asset value per
share. Exchanges are in effect redemptions from one fund and purchases of an-
other 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,
The JPM Pierpont Funds and JPM Series Trust. 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, accrued
but unpaid dividends are paid with the redemption proceeds. The net investment
income of the Fund for dividend purposes consists of its pro rata share of the
net income of the 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 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 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.
15
<PAGE>
NET ASSET VALUE
Net asset value per share for the Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in the
Portfolio and other assets) the amount of its liabilities and dividing the re-
mainder by the number of its outstanding shares, rounded to the nearest cent.
Expenses, including the fees payable to Morgan, are accrued daily. See Net As-
set Value in the Statement of Additional Information for information on valua-
tion of portfolio securities for the Portfolio.
The Fund computes its net asset value once daily at 4:15 P.M. New York time on
Monday through Friday, except that the net asset value is not computed for the
Fund on the holidays listed under Net Asset Value in the Statement of
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, nineteen 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 is organized as a trust under the laws of the State of New York.
The Portfolio's Declaration of Trust provides that the Fund and other entities
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable
for all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in
which both inadequate insurance existed and the Portfolio itself was unable to
meet its obligations. Accordingly, the Trustees of the Trust believe that nei-
ther the Fund nor its shareholders will be adversely affected by reason of the
Fund's investing in the Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are sub-
ject to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to feder-
al, state or local taxes. See Taxes in the Statement of Additional Information.
Annual statements as to the current federal tax status of distributions, if ap-
plicable, are mailed to shareholders after the end of the taxable year for the
Fund.
16
<PAGE>
The Trust intends to qualify the Fund as a separate regulated investment com-
pany under Subchapter M of the Internal Revenue Code of 1986, as amended. For
the Fund to qualify as a regulated investment company, the Portfolio, in addi-
tion to other requirements, limits its investments so that at the close of each
quarter of its taxable year (a) no more than 25% of its total assets are in-
vested in the securities of any one issuer, except U.S. Government securities,
and (b) with regard to 50% to its total assets, no more than 5% of its total
assets are invested in the securities of a single issuer, except U.S. Govern-
ment securities. As a regulated investment company, the Fund should not be sub-
ject to federal income taxes or federal excise taxes if all of its net invest-
ment income and capital gains less any available capital loss carryforwards are
distributed to shareholders within allowable time limits. The Portfolio intends
to qualify as an association treated as a partnership for federal income tax
purposes. As such, the Portfolio should not be subject to tax. The Fund's sta-
tus as a regulated investment company is dependent on, among other things, the
Portfolio's continued qualification as a partnership for federal income tax
purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to 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.
Any distribution of capital gains will have the effect of reducing the net as-
set value of Fund shares held by a shareholder by the same amount as the dis-
tribution. If the net asset value of the shares is reduced below a sharehold-
er's cost as a result of such a distribution, the distribution, although con-
stituting a return of capital to the shareholder, will be taxable as described
above.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term cap-
ital gain or loss if the shares have been held for more than one year, and oth-
erwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect
to such shares. In addition, no loss will be allowed on the redemption or ex-
change of shares of the Fund if, within a period beginning 30 days before the
date of such redemption or exchange and ending 30 days after such date, the
shareholder acquires (such as through dividend reinvestment) securities that
are substantially identical to shares of the Fund.
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
17
<PAGE>
APPENDIX
The Portfolio may (a) purchase exchange traded and over-the-counter (OTC) put
and call options on fixed income securities and indexes of fixed income securi-
ties, (b) purchase and sell futures contracts on fixed 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 secu-
rities.
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 and buying calls, tend to increase market ex-
posure. Options and futures contracts may be combined with each other or with
forward contracts in order to adjust the risk and return characteristics of the
Portfolio's overall strategy in a manner deemed appropriate to the Advisor and
consistent with the Portfolio's objective and policies. Because combined op-
tions 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.
OPTIONS ON INDEXES. The Portfolio may purchase put and call options on any se-
curities index based on securities in which the Portfolio may invest. Options
on securities indexes are similar to options on securities, except that the ex-
ercise of securities index options is settled by cash payment and does not in-
volve the actual purchase or sale of securities. In addition, these options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security. The
Portfolio, in purchasing index options, is subject to the risk that the value
of its portfolio securities may not change as much as an index because the
Portfolio's investments generally will not match the composition of an index.
For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Portfolio may incur additional
losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When the Portfolio purchases a futures contract, it agrees to purchase a speci-
fied quantity of an underlying instrument at a specified future date or to make
a cash payment based on the value of a securities index. When the Portfolio
sells a futures contract, it agrees to sell a specified quantity of the under-
lying instrument at a specified future date or to receive a cash payment based
on the value of a securities index. The price at which the purchase and sale
will take place is fixed when the Portfolio enters into the contract. Futures
can be held until their delivery dates or the position can be (and normally is)
closed out before then. There is no assurance, however, that a liquid market
will exist when the Portfolio wishes to close out a particular position.
When the Portfolio purchases a futures contract, the value of the futures con-
tract tends to increase and decrease in tandem with the value of its underlying
instrument. Therefore, purchasing futures contracts will tend to increase the
Portfolio's exposure to positive and negative price fluctuations in the under-
lying instrument, much as if it had purchased the underlying instrument direct-
ly. When the Portfolio sells a futures contract, by contrast, the value of its
futures position will tend to move in a direction contrary to the value of the
underlying instrument. Selling futures contracts, therefore, will tend to off-
set both positive and negative market price changes, much as if the underlying
instrument had been sold.
The purchaser or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, when the Portfolio buys or sells a futures contract it will be
required to deposit "initial margin" with its Custodian in a segregated account
in the name of its futures broker, known as a futures commission merchant
(FCM). Initial margin deposits are typically equal to a small percentage of the
contract's value. If the value of either party's position declines, that party
will be required to make additional "variation margin" payments equal to the
change in value on a daily basis. The party that has a gain may be entitled to
receive all or a portion of this amount. The Portfolio may be obligated to make
payments of variation margin at a time when it is disadvantageous to
A-2
<PAGE>
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 Portfo-
lio will be obligated to continue to pay variation margin. Initial and varia-
tion 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.
PROS378-972
The
JPM Institutional Short Term Bond Fund
PROSPECTUS
February 28, 1997
<PAGE>
PROSPECTUS
The JPM Institutional Bond Fund
60 State Street
Boston, Massachusetts 02109
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 A TWO-TIER MASTER-FEEDER INVESTMENT FUND STRUCTURE. SEE
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE ON PAGE 3.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or "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 February 28, 1997 (as supplemented from time to time). This information
is incorporated herein by reference and is available without charge upon
written request from the Fund's Distributor, Funds Distributor, Inc. ("FDI"),
60 State Street, Suite 1300, Boston, Massachusetts 02109, Attention: The JPM
Institutional Funds, or by calling (800) 221-7930.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.
SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
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 FEBRUARY 28, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund is Designed.................................... 1
Financial Highlights....................................................... 3
Special Information Concerning Investment Structure........................ 3
Investment Objective and Policies.......................................... 4
Additional Investment Information and Risk Factors......................... 7
Investment Restrictions.................................................... 10
Management of the Trust and the Portfolio.................................. 11
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 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, options, forward contracts on foreign currencies and
certain privately placed securities. For further information about these in-
vestments and investment techniques, see Investment Objective and Policies dis-
cussed below.
The Fund requires a minimum initial investment of $5 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 $5 million for more than 30
days, the investment may 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 in a two-tier master-feeder invest-
ment fund structure. The Trustees believe that the Fund may achieve economies
of scale over time by utilizing this investment structure.
The following table illustrates that investors in the Fund incur no shareholder
transaction expenses; their investment in the Fund is subject only to the oper-
ating expenses set forth below for the Fund and the Portfolio, as a percentage
of average net assets of the Fund. The Trustees of the Trust believe that the
aggregate per share expenses of the Fund and the Portfolio will be approxi-
mately equal to and may be less than the expenses that the Fund would incur if
it retained the services of an investment adviser and invested its assets di-
rectly in portfolio securities. Fund and Portfolio expenses are discussed below
under the headings Management of the Trust and the Portfolio and Shareholder
Servicing.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases*........................................... None
Sales Load Imposed on Reinvested Dividends................................. None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
- -------
* Certain Eligible Institutions (defined below) may impose fees in connection
with the purchase of the Fund's shares through such institutions.
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>
- -------
* Fees and expenses are expressed as a percentage of average net assets of the
Fund for its most recent fiscal year and after expense reimbursement through
February 28, 1998. See Management of the Trust and the Portfolio. Without re-
imbursements, Other Expenses and Total Operating Expenses were 0.23% and
0.53%, respectively, for the most recently completed fiscal year.
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, organization expenses, the fees paid to Pierpont Group, Inc.
under the Fund Services Agreements, the fees paid to FDI under the Co-Adminis-
tration 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
should be read in conjunction with the financial statements and related notes
which are contained in the Fund's annual report and are incorporated by refer-
ence into the Statement of Additional Information. The following selected data
have been audited by independent accountants. The Fund's annual report in-
cludes a discussion of those factors, strategies and techniques that materi-
ally affected the Fund's 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 12, 1993
FOR THE FISCAL YEAR ENDED OCTOBER 31, (COMMENCEMENT OF
---------------------------------------- OPERATIONS) THROUGH
1996 1995 1994 OCTOBER 31, 1993
------------ ------------ ------------ -------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 9.98 $ 9.23 $ 10.14 $ 10.00
------------ ------------ ------------ -------
Income From Investment
Operations
Net Investment Income.. 0.61 0.63 0.55 0.15
Net Realized and
Unrealized Gain (Loss)
on Investment......... (0.11) 0.75 (0.88) 0.14
------------ ------------ ------------ -------
Total From Investment
Operations............. 0.50 1.38 (0.33) 0.29
------------ ------------ ------------ -------
Less Distributions to
Shareholders From
Net Investment Income.. (0.61) (0.63) (0.55) (0.15)
Net Realized Gain...... (0.03) -0- (0.03) -0-
------------ ------------ ------------ -------
Total Distributions to
Shareholders........... (0.64) (0.63) (0.58) (0.15)
------------ ------------ ------------ -------
Net Asset Value, End of
Period................. $ 9.84 $ 9.98 $ 9.23 $ 10.14
============ ============ ============ =======
Total Return............ 5.21% 15.50% (3.33)% 2.90%(a)
Ratios and Supplemental
Data
Net Assets, End of
Period (In Thousands). $ 836,066 $ 438,610 $253,174 $43,711
Ratios to Average Net
Assets:
Expenses.............. 0.50% 0.47% 0.50% 0.50%(b)
Net Investment Income. 6.28% 6.62% 6.00% 4.83%(b)
Decrease Reflected in
Expense Ratio due to
Expense
Reimbursement........ 0.03% 0.05% 0.19% 0.39%(b)
</TABLE>
- -------
(a) Not annualized.
(b) Annualized.
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own portfo-
lio of securities, the Fund is an open-end management investment company which
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio, a separate registered investment company with the
same investment objective as the Fund. The investment objective of the Fund or
Portfolio may be changed only with the approval of the holders of the out-
standing shares of the Fund and the Portfolio. The master-feeder investment
fund structure has been developed relatively recently, so shareholders should
carefully consider this investment approach.
In addition to selling a beneficial interest to the Fund, the Portfolio may
sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions
and will bear a 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 Morgan at (800) 766-7722.
The Trust may withdraw the investment of the Fund from the Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same invest-
ment objective and restrictions as the Fund or the retaining of an investment
adviser to manage the Fund's assets in accordance with the investment policies
described below with respect to the Portfolio.
Certain changes in the Portfolio's investment objective, policies or restric-
tions, or a failure by the Fund's shareholders to approve a change in the Port-
folio's investment objective or restrictions, may require withdrawal of the
Fund's interest in the Portfolio. Any such withdrawal could result in a distri-
bution in kind of portfolio securities (as opposed to a cash distribution) from
the Portfolio which may or may not be readily marketable. The distribution in
kind may result in the Fund having a less diversified portfolio of investments
or adversely affect the Fund's liquidity, and the Fund could incur brokerage,
tax or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in the Portfolio may be materially affected by the ac-
tions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns. Addition-
ally, because the Portfolio would become smaller, it may become less diversi-
fied, resulting in potentially increased portfolio risk (however, these possi-
bilities also exist for traditionally structured funds which have large or in-
stitutional investors who may withdraw from a fund). Also, funds with a greater
pro rata ownership in the Portfolio could have effective voting control of the
operations of the Portfolio. Whenever the Fund is requested to vote on matters
pertaining to the Portfolio (other than a vote by the Fund to continue the op-
eration of the Portfolio upon the withdrawal of another investor in the Portfo-
lio), the Trust will hold a meeting of shareholders of the Fund and will cast
all of its votes proportionately as instructed by the Fund's shareholders. The
Trust will vote the shares held by Fund shareholders who do not give voting in-
structions in the same proportion as the shares of Fund shareholders who do
give voting instructions. Shareholders of the Fund who do not vote will have no
effect on the outcome of such matters.
For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Additional Investment In-
formation and Risk Factors and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment Restric-
tions.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and the Portfolio is described below, to-
gether with the policies they employ in their efforts to achieve this objec-
tive. Additional information about the investment policies of the Fund and the
Portfolio appears in the Statement of Additional Information under Investment
Objectives and Policies. There can be no assurance that the investment objec-
tive of the Fund or the Portfolio will be achieved.
The Fund's investment objective is to provide a high 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 Advisor intends to manage the Portfolio actively in pursuit of its invest-
ment objective. Portfolio transactions are undertaken principally to accomplish
the Portfolio's objective in relation to expected movements in the general
level of interest rates, but the Portfolio may also engage in short-term trad-
ing consistent with its objective. To the extent the Portfolio engages in
short-term trading, it may incur increased transaction costs. See Taxes below.
The portfolio turnover rate for the Portfolio for the fiscal year ended October
31, 1996 was 186%.
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 up to 20% of its total assets in debt securities denominated in
foreign currencies of developed countries. The Portfolio does not expect to in-
vest more than 25% of its assets in securities of foreign issuers. See Addi-
tional Investment Information and Risk Factors for further information on for-
eign investments 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 sources. How-
ever, the Portfolio will invest only in municipal obligations that have been
issued on a taxable basis or have an attractive yield excluding tax considera-
tions. In addition, the Portfolio may invest in debt securities of foreign
governments and governmental entities denominated in the U.S. dollar and other
currencies. See Additional Investment Information 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 the current policy of the Portfolio that under nor-
mal circumstances at least 75% of total assets will consist of securities that
at the time of purchase are rated Baa or better by Moody's Investors Service,
Inc. ("Moody's') or BBB or better by Standard & Poor's Ratings Group ("Stan-
dard & Poor's), of which at least 65% of total assets will be rated A or bet-
ter. The remaining 25% of total assets may be invested in securities that are
rated B or better by Moody's or Standard & Poor's. In each case, the Portfolio
may invest in securities which are unrated if in Morgan's opinion such securi-
ties 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. Securities rated Ba or B by Moody's or BB or B 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 Additional Investment
Information and Risk Factors.
The Portfolio may also purchase obligations on a when-issued or delayed deliv-
ery basis, enter into repurchase and reverse repurchase agreements, lend 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, options on futures contracts and for-
ward contracts on foreign currency. For a discussion of these investments and
investment techniques, see Additional Investment 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.
BELOW INVESTMENT GRADE DEBT. Certain lower rated securities purchased by the
Portfolio, such as those rated Ba or B by Moody's or BB or B by Standard &
Poor's (commonly known as junk bonds), may be subject to certain risks with
respect to the issuing entity's ability to make scheduled payments of princi-
pal and interest and to greater market fluctuations. While generally providing
higher coupons or interest rates than investments in higher quality securi-
ties, lower quality fixed income securities involve greater risk of loss of
principal and income, including the possibility of default or bankruptcy of
the issuers of such securities, and have greater price volatility, especially
during periods of economic uncertainty or change. These lower quality fixed
income securities tend to be affected by economic changes and short-term cor-
porate and industry developments to a greater extent than higher quality secu-
rities, which react primarily to fluctuations in the general level of interest
rates. To the extent that the Portfolio invests in such lower quality securi-
ties, the achievement of its investment objective may be more dependent on the
Advisor's own credit analysis.
Lower quality fixed income securities are affected by the market's perception
of their credit quality, especially during times of adverse publicity, and the
outlook for economic growth. Economic downturns or an increase in interest
rates may cause a higher incidence of default by the issuers of these securi-
ties, especially issuers that are highly leveraged. The market for these lower
quality fixed income securities is generally less liquid than the market for
investment grade fixed income securities. It may be more difficult to sell
these lower rated securities to meet redemption requests, to respond to
changes in the market, or to value accurately the Portfolio's portfolio secu-
rities for purposes of determining the Fund's net asset value. See Appendix A
in the Statement of Additional Information for more detailed information on
these ratings.
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 securities no interest accrues
to the Portfolio until settlement. At the time of settlement a when-issued se-
curity may be valued at less than its purchase price. The Portfolio maintains
with the Custodian a separate account with a segregated portfolio of securi-
ties in an amount at least equal to these commitments. When entering into a
when-issued or delayed delivery transaction, the Portfolio will rely on the
other party to consummate the transaction; if the other party fails to do so,
the Portfolio may be disadvantaged. It is the current policy of the Portfolio
not to enter into when-issued commitments exceeding in the aggregate 15% of
the market value of the Portfolio's total assets less liabilities other than
the 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.
7
<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.
Loans of portfolio securities may be considered extensions of credit by the
Portfolio. The risks to the Portfolio with respect to borrowers of its
portfolio securities are similar to the risks to the Portfolio with respect to
sellers in repurchase agreement transactions. See Repurchase Agreements above.
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. See Investment Restrictions for investment limita-
tions applicable to reverse repurchase agreements and other borrowings. For
more information, see Investment Objectives and Policies in the Statement of
Additional Information.
FOREIGN INVESTMENT INFORMATION. The Portfolio may invest in certain foreign
securities denominated in the U.S. dollar and other currencies. Investment in
securities of foreign issuers and in obligations of foreign branches of domes-
tic 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 gen-
erally subject to uniform accounting, auditing and financial standards and re-
quirements comparable to those applicable to domestic companies. Dividends and
interest paid by foreign issuers may be subject to withholding and other for-
eign taxes which may decrease the net return on foreign investments as com-
pared 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.
In addition, while the volume of transactions effected on foreign exchanges
has increased in recent years, in most cases it remains appreciably below that
of domestic security exchanges. Accordingly, the Portfolio's foreign invest-
ments may be
8
<PAGE>
less liquid and their prices may be more volatile than comparable investments
in securities of U.S. 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 addition, there is generally less govern-
ment supervision and regulation of securities exchanges, brokers and issuers
located in foreign countries than in the United States.
The Portfolio may invest in securities of foreign issuers directly or in the
form of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") or other similar securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities they
represent. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying foreign securities. Certain such insti-
tutions issuing ADRs may not be sponsored by the issuer of the underlying for-
eign securities. A non-sponsored depository may not provide the same share-
holder information that a sponsored depository is required to provide under
its contractual arrangements with the issuer of the underlying foreign securi-
ties. EDRs are receipts issued by a European financial institution evidencing
a similar arrangement. Generally, ADRs, in registered form, are designed for
use in the U.S. securities markets, and EDRs, in bearer form, are designed for
use in European securities markets.
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 may buy and sell
securities and receive interest in currencies other than the U.S. dollar, the
Portfolio may enter from time to time into foreign currency exchange transac-
tions. The Portfolio either enters into these transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange mar-
ket or uses forward contracts to purchase or sell foreign currencies. The cost
of the Portfolio's spot currency exchange transactions is generally the dif-
ference 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 contract. These contracts are
entered into in the interbank market directly between currency traders (usu-
ally large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. The Portfolio will not enter into forward contracts
for speculative purposes. Neither spot transactions nor forward foreign cur-
rency exchange contracts eliminate fluctuations in the prices of the Portfo-
lio's securities or in foreign exchange rates, or prevent loss if the prices
of these securities should decline.
The Portfolio may enter into foreign currency exchange transactions in an at-
tempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or antici-
pated securities transactions. The Portfolio may also enter into forward con-
tracts to hedge against a change in foreign currency exchange rates that would
cause a decline in the value of existing investments denominated or princi-
pally traded in a foreign currency. To do this, the Portfolio would enter into
a forward contract to sell the foreign currency in which the investment is de-
nominated or principally traded in exchange for U.S. dollars or in exchange
for another foreign currency. The Portfolio will only enter into forward con-
tracts to sell a foreign currency in exchange for another foreign currency if
the Advisor expects the foreign currency purchased to appreciate against the
U.S. dollar.
Although these transactions are intended to minimize the risk of loss due to a
decline in the value of the hedged 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 against the hedged currency
and the U.S.
9
<PAGE>
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 projection 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 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 illiq-
uid 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 securities
or receives upon resale may be lower than the price paid or received for simi-
lar 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.
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
total assets, except this limitation shall not apply to investments in U.S.
Government securities; (ii) enter into reverse repurchase agreements 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; 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 pur-
chase 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.
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.
10
<PAGE>
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the
Portfolio, the Trustees decide upon matters of general policy and review the
actions of the Advisor 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................. Former Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast
Group
</TABLE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust, the Portfolio
and The JPM 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 to the Trust, the Portfolio and
certain other registered investment companies subject to similar agreements
with Pierpont Group, Inc. 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 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 $197 billion (of which the
Advisor advises over $30 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.
11
<PAGE>
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 1992).
As compensation for the services rendered and related expenses borne by Morgan
under the Investment Advisory Agreement with the Portfolio, the Portfolio has
agreed to pay Morgan a fee, which is computed daily and may be paid monthly,
at the annual rate of 0.30% of the Portfolio's average daily net assets.
Under separate agreements, Morgan also provides administrative and related
services to the Fund and the Portfolio and shareholder services to sharehold-
ers of the Fund. See Administrative Services Agent and Shareholder Servicing
below. INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER
BANK.
CO-ADMINISTRATOR. Pursuant to Co-Administration Agreements with the Trust and
the Portfolio, Funds Distributor, Inc. ("FDI") serves as the Co-Administrator
for the Fund and the Portfolio. FDI (i) provides office space, equipment and
clerical personnel for maintaining the organization and books and records of
the Fund and the Portfolio; (ii) provides officers for the Trust and the Port-
folio; (iii) prepares and files documents required for notification of state
securities administrators; (iv) reviews and files marketing and sales litera-
ture; (v) files Portfolio regulatory documents and mails Portfolio communica-
tions to Trustees and investors; and (vi) maintains related books and records.
For its services under the Co-Administration Agreements, each of the Fund and
the Portfolio has agreed to pay FDI fees equal to its allocable share of an
annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the Fund or the Portfolio is based on the ratio of its net
assets to the aggregate net assets of the Trust and certain other registered
investment companies subject to similar agreements with FDI.
ADMINISTRATIVE SERVICES AGENT. Pursuant to Administrative Services Agreements
with the Trust and the Portfolio, Morgan provides administrative and related
services to the Fund and the Portfolio, including services related to tax com-
pliance, preparation of financial statements, calculation of performance data,
oversight of service providers and certain regulatory and Board of Trustees
matters.
Under the Administrative Services Agreements, each of the Fund and the Portfo-
lio has agreed to pay Morgan fees equal to its allocable share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate
net assets of the Trust and certain other registered investment companies man-
aged by the Advisor in accordance with the following annual schedule: 0.09% on
the first $7 billion of their aggregate average daily net assets and 0.04% of
their aggregate average daily net assets in excess of $7 billion, less the
complex-wide fees payable to FDI.
DISTRIBUTOR. FDI, a registered broker-dealer, also serves as the Distributor
of shares of the Fund and as exclusive placement agent for the Portfolio. FDI
is a wholly owned indirect subsidiary of Boston Institutional Group, Inc.
FDI's principal business address is 60 State Street, Suite 1300, Boston, Mas-
sachusetts 02109.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Fund's and the Portfolio's
custodian and fund accounting and transfer agent and the Fund's dividend dis-
bursing agent. State Street also keeps the books of account for the Fund and
the Portfolio.
EXPENSES. In addition to the fees payable to Morgan, FDI and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor, Co-Admin-
istrator and Administrative Services Agent above and Shareholder Servicing
12
<PAGE>
below, the Fund and the Portfolio are responsible for usual and customary ex-
penses associated with their respective operations. Such expenses include or-
ganization expenses, legal fees, accounting and audit 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 disbursement costs, the expenses of printing and mailing reports,
notices and proxy statements to Fund shareholders, and filing 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, 1998 to the extent necessary to maintain the Fund's total operating ex-
penses (which include 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 extraordinary expenses during the period. There is no assurance that
Morgan will continue this waiver beyond the specified period.
SHAREHOLDER SERVICING
Pursuant to a Shareholder Servicing Agreement with the Trust, Morgan acts as
shareholder servicing agent for its customers and other Fund investors who are
customers of an eligible institution which is a customer of Morgan (an "Eligi-
ble Institution"). The Fund pays Morgan for these services at an annual rate
(expressed as a percentage of the average daily net asset value of Fund shares
owned by or for shareholders for whom Morgan is acting as shareholder servic-
ing agent) of 0.075% of the Fund's average daily net assets. Under the terms
of the Shareholder Servicing Agreement with the Fund, Morgan may delegate one
or more of its responsibilities to other entities at Morgan's expense.
The Fund may be sold to or through Eligible Institutions, including financial
institutions and broker-dealers, that may be paid fees by Morgan or its affil-
iates for services provided to their clients that invest in the Fund. See Eli-
gible Institutions. Organizations that provide recordkeeping or other services
to certain employee benefit or retirement plans that include the Fund as an
investment alternative may also be paid a fee.
Shareholders should address all inquiries to J.P. Morgan Funds Services, Mor-
gan Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York
10036 or call (800) 766-7722.
The business days of the Fund and the Portfolio are the days the New York
Stock Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Mor-
gan as shareholder servicing agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Distribu-
tor. Investors must be either customers of Morgan or of an Eligible Institu-
tion or 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 pur-
pose of Fund transactions. There are no charges associated with becoming a
Morgan customer for this purpose. Morgan reserves the right to determine the
customers that it will accept, and the Trust reserves the right to determine
the purchase orders that it will accept.
The Fund requires a minimum initial investment of $5 million and a minimum
subsequent investment of $25,000. These minimum investment requirements may be
waived for certain investors, including investors for whom the Advisor is a
fiduciary, who maintain related accounts with the Fund, other JPM Institu-
tional Funds or the Advisor, who make investments for a group of clients, such
as financial advisors, trust companies and investment advisors, or who main-
tain retirement accounts with the Funds.
13
<PAGE>
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous ba-
sis without a sales charge at the net asset value per share next determined
after receipt of an order. Prospective investors may purchase shares with the
assistance of an Eligible Institution that may establish its own terms, condi-
tions and charges.
To purchase shares in the Fund, investors should request their Morgan repre-
sentative (or a representative of their Eligible Institution) to assist them
in placing a purchase order with the Fund's Distributor. Any shareholder may
also call J.P. Morgan Funds Services at (800) 766-7722 for assistance with
placing an order for Fund shares. If the Fund or its agent 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 or its agent receives a purchase order after 4:00 P.M. New
York time, the purchase is effective and is made at net asset value determined
on the next business day. All purchase orders for Fund shares must be accompa-
nied by instructions to Morgan (or an Eligible Institution) to transfer imme-
diately available funds to the Fund's Distributor on settlement date. The set-
tlement date is generally the business day after the purchase is effective.
The purchaser will begin to receive the daily dividends on the settlement
date. See Dividends and Distributions.
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.
Although there is no sales charge levied directly by the Fund, Eligible Insti-
tutions may establish their own terms and conditions for providing their serv-
ices and may charge investors a transaction-based or other fee for their serv-
ices. Such charges may vary among Eligible Institutions but in all cases will
be retained by the Eligible Institution and not remitted to the Fund or Mor-
gan.
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 or its agent prior to 4:00 P.M. New
York time is effective on that day. A redemption request received after that
time becomes effective on the next business day. Proceeds of an effective re-
demption are generally deposited on settlement date in immediately available
funds to the shareholder's account at Morgan or at his or her Eligible Insti-
tution or, in the case of certain Morgan customers, are mailed by check or
wire transferred in accordance with the customer's instructions. The redeemer
will continue to receive dividends on these shares through the day before the
settlement date. Settlement date is generally the next business day after a
redemption is 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 Fund's initial investment amount of $5 million for
more than 30 days because of a redemption of shares, the Fund may redeem
14
<PAGE>
the remaining shares in the account 60 days after written notice to the share-
holder unless the account is increased to the 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 income
tax on dividends, distributions and redemption proceeds when non-corporate in-
vestors have not provided a certified taxpayer identification number. In addi-
tion, 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 pro-
ceeds 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 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 the Fund into any other JPM Institutional
Fund, JPM Pierpont Fund or shares of JPM Series Trust without charge. An ex-
change 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 that
fund's minimum investment amount. Shareholders should read the prospectus of
the fund into which they are exchanging and may only exchange between fund ac-
counts that are registered in the same name, address and taxpayer identifica-
tion number. Shares are exchanged on the basis of relative net asset value per
share. Exchanges are in effect redemptions from one fund and purchases of an-
other 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,
The JPM Pierpont Funds and JPM Series Trust. See Additional Information below
for an explanation 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, accrued
but unpaid dividends are paid with the redemption proceeds. The net investment
income of the Fund for dividend purposes consists of its pro rata share of the
net income of the 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 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 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
15
<PAGE>
number of its outstanding shares, rounded to the nearest cent. Expenses, in-
cluding the fees payable to Morgan, are accrued daily. See Net Asset Value in
the Statement of Additional Information for information on valuation of portfo-
lio securities for the Portfolio.
The Fund computes its net asset value once daily at 4:15 P.M. New York time on
Monday through Friday, except that the net asset value is not computed for the
Fund on the holidays listed under Net Asset Value in the Statement of Addi-
tional Information.
ORGANIZATION
The Trust was organized on November 4, 1992 as an unincorporated business trust
under Massachusetts law and is an entity commonly known as a "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, nineteen 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 is organized as a trust under the laws of the State of New York.
The Portfolio's Declaration of Trust provides that the Fund and other entities
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable
for all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in
which both inadequate insurance existed and the Portfolio itself was unable to
meet its obligations. Accordingly, the Trustees of the Trust believe that nei-
ther the Fund nor its shareholders will be adversely affected by reason of the
Fund's investing in the Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are sub-
ject to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to feder-
al, state or local taxes. See Taxes in the Statement of Additional Information.
Annual statements as to the current federal tax status of distributions, if ap-
plicable, are mailed to shareholders after the end of the taxable year for the
Fund.
The Trust intends to qualify the Fund as a separate regulated investment com-
pany under Subchapter M of the Internal Revenue Code of 1986, as amended. For
the Fund to qualify as a regulated investment company, the Portfolio, in addi-
tion to other requirements, limits its investments so that at the close of each
quarter of its taxable year (a) no more than
16
<PAGE>
25% of its total assets are invested in the securities of any one issuer, ex-
cept U.S. Government securities, and (b) with regard to 50% to its total as-
sets, no more that 5% of its total assets are invested in the securities of a
single issuer, except U.S. Government securities. As a regulated investment
company, the Fund should not be subject to federal income taxes or federal ex-
cise taxes if all of its net investment income and capital gains less any
available capital loss carryforwards are distributed to shareholders within al-
lowable time limits. The Portfolio intends to qualify as an association treated
as a partnership for federal income tax purposes. As such, the Portfolio should
not be subject to tax. The Fund's status as a regulated investment company is
dependent on, among other things, the Portfolio's continued qualification as a
partnership for federal income tax purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to 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.
Any distribution of capital gains will have the effect of reducing the net as-
set value of Fund shares held by a shareholder by the same amount as the dis-
tribution. If the net asset value of the shares is reduced below a sharehold-
er's cost as a result of such a distribution, the distribution, although con-
stituting a return of capital to the shareholder, will be taxable as described
above.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term cap-
ital gain or loss if the shares have been held for more than one year, and oth-
erwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect
to such shares. In addition, no loss will be allowed on the redemption or ex-
change of shares of the Fund if, within a period beginning 30 days before the
date of such redemption or exchange and ending 30 days after such date, the
shareholder acquires (such as through dividend reinvestment) securities that
are substantially identical to shares of the Fund.
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.
17
<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 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.
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. Shareholders may
obtain performance information by calling Morgan at (800) 766-7722.
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<PAGE>
APPENDIX
The Portfolio may (a) purchase exchange traded and over-the-counter (OTC) put
and call options on fixed income securities and indexes of fixed income securi-
ties, (b) purchase and sell futures contracts on fixed 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 secu-
rities.
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 and buying calls, tend to increase market ex-
posure. Options and futures contracts may be combined with each other or with
forward contracts in order to adjust the risk and return characteristics of the
Portfolio's overall strategy in a manner deemed appropriate to the Advisor and
consistent with the Portfolio's objective and policies. Because combined op-
tions 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.
OPTIONS ON INDEXES. The Portfolio may purchase put and call options on any se-
curities index based on securities in which the Portfolio may invest. Options
on securities indexes are similar to options on securities, except that the ex-
ercise of securities index options is settled by cash payment and does not in-
volve the actual purchase or sale of securities. In addition, these options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security. The
Portfolio, in purchasing index options, is subject to the risk that the value
of its portfolio securities may not change as much as an index because the
Portfolio's investments generally will not match the composition of an index.
For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Portfolio may incur additional
losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When the Portfolio purchases a futures contract, it agrees to purchase a speci-
fied quantity of an underlying instrument at a specified future date or to make
a cash payment based on the value of a securities index. When the Portfolio
sells a futures contract, it agrees to sell a specified quantity of the under-
lying instrument at a specified future date or to receive a cash payment based
on the value of a securities index. The price at which the purchase and sale
will take place is fixed when the Portfolio enters into the contract. Futures
can be held until their delivery dates or the position can be (and normally is)
closed out before then. There is no assurance, however, that a liquid market
will exist when the Portfolio wishes to close out a particular position.
When the Portfolio purchases a futures contract, the value of the futures con-
tract tends to increase and decrease in tandem with the value of its underlying
instrument. Therefore, purchasing futures contracts will tend to increase the
Portfolio's exposure to positive and negative price fluctuations in the under-
lying instrument, much as if it had purchased the underlying instrument direct-
ly. When the Portfolio sells a futures contract, by contrast, the value of its
futures position will tend to move in a direction contrary to the value of the
underlying instrument. Selling futures contracts, therefore, will tend to off-
set both positive and negative market price changes, much as if the underlying
instrument had been sold.
The purchaser or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, when the Portfolio buys or sells a futures contract it will be
required to deposit "initial margin" with its Custodian in a segregated account
in the name of its futures broker, known as a futures commission merchant
(FCM). Initial margin deposits are typically equal to a small percentage of the
contract's value. If the value of either party's position declines, that party
will be required to make additional "variation margin" payments equal to the
change in value on a daily basis. The party that has a gain may be entitled to
receive all or a portion of this amount. The Portfolio may be obligated to make
payments of variation margin at a time when it is disadvantageous to
A-2
<PAGE>
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 Portfo-
lio will be obligated to continue to pay variation margin. Initial and varia-
tion 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.
PROS391-972
The JPM Institutional Bond Fund
PROSPECTUS
February 28, 1997
<PAGE>
PROSPECTUS
The JPM Institutional International Equity Fund
60 State Street
Boston, Massachusetts 02109
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 A TWO-TIER MASTER-FEEDER INVESTMENT FUND STRUCTURE. SEE
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE ON PAGE 3.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or "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 February 28, 1997 (as supplemented from time to time). This information
is incorporated herein by reference and is available without charge upon
written request from the Fund's Distributor, Funds Distributor, Inc. ("FDI"),
60 State Street, Suite 1300, Boston, Massachusetts 02109, Attention: The JPM
Institutional Funds, or by calling (800) 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 FEBRUARY 28, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund is Designed.................................... 1
Financial Highlights....................................................... 3
Special Information Concerning Investment Structure........................ 3
Investment Objective and Policies.......................................... 4
Additional Investment Information and Risk Factors......................... 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..................................................... 18
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. 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 $1 million for more than 30
days, the investment may 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 JPM Institutional International Equity
Fund to enable investors to decide if the Fund suits their needs. The Fund op-
erates in a two-tier master-feeder investment fund structure. The Trustees be-
lieve that the Fund may achieve economies of scale over time by utilizing this
investment structure.
The following table illustrates that investors in the Fund incur no shareholder
transaction expenses; their investment in the Fund is subject only to the oper-
ating expenses set forth below for the Fund and the Portfolio, as a percentage
of average net assets of the Fund. The Trustees of the Trust believe that the
aggregate per share expenses of the Fund and the Portfolio will be approxi-
mately equal to and may be less than the expenses that the Fund would incur if
it retained the services of an investment adviser and invested its assets di-
rectly in portfolio securities. Fund and Portfolio expenses are discussed below
under the headings Management of the Trust and the Portfolio and Shareholder
Servicing.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases*........................................... None
Sales Load Imposed on Reinvested Dividends................................. None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
- -------
* Certain Eligible Institutions (defined below) may impose fees in connection
with the purchase of the Fund's shares through such institutions.
1
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees............................................................. 0.60%
Rule 12b-1 Fees........................................................... None
Other Expenses (after expense reimbursement).............................. 0.35%
-----
Total Operating Expenses (after expense reimbursement).................... 0.95%
</TABLE>
* Fees and expenses are expressed as a percentage of average net assets of the
Fund for its most recent fiscal year and after expense reimbursement through
February 28, 1998. See Management of the Trust and the Portfolio. Without re-
imbursements, Other Expenses and Total Operating Expenses were 0.36% and
0.96%, respectively, for the most recently completed fiscal year.
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.................................................................... $ 30
5 Years.................................................................... $ 53
10 Years................................................................... $117
</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, organization expenses, the fees paid to Pierpont Group, Inc.
under the Fund Services Agreements, the fees paid to FDI under the Co-Adminis-
tration 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
should be read in conjunction with the financial statements and related notes
which are contained in the Fund's annual report and are incorporated by refer-
ence into the Statement of Additional Information. The following selected data
have been audited by independent accountants. The Fund's annual report includes
a discussion of those factors, strategies and techniques that materially af-
fected the Fund's performance during the period of the report, as well as cer-
tain 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 OCTOBER 4, 1993
ENDED OCTOBER 31, (COMMENCEMENT OF
---------------------------- OPERATIONS) THROUGH
1996 1995 1994 OCTOBER 31, 1993
-------- -------- -------- -------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period....................... $ 10.44 $ 10.83 $ 10.20 $10.00
-------- -------- -------- ------
Income From Investment
Operations
Net Investment Income....... 0.12 0.06 0.06 --
Net Realized and Unrealized
Gain (Loss) on Investment
and Foreign Currency
Allocated from Portfolio... 1.17 (0.33) 0.57 0.20
-------- -------- -------- ------
Total From Investment
Operations................... 1.29 (0.27) 0.63 0.20
-------- -------- -------- ------
Distributions to Shareholders
From
Net Realized Income......... (0.24) -- -- --
Net Realized Gain........... (0.06) (0.12) -- --
-------- -------- -------- ------
Net Asset Value, End of
Period....................... $ 11.43 $ 10.44 $ 10.83 $10.20
======== ======== ======== ======
Total Return.................. 12.54% (2.46)% 6.18% 2.00%(a)
Ratios and Supplemental Data
Net Assets, End of Period
(In Thousands)............. $726,864 $467,511 $213,119 $ -- (b)
Ratio to Average Net Assets:
Expenses.................. 0.95% 0.92% 1.00% 0.00%(c)
Net Investment Income..... 1.24% 1.24% 0.95% 0.00%(c)
Decrease Reflected in
Expense Ratio due to
Expense Reimbursement.... 0.01% 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 INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own portfolio
of securities, the Fund is an open-end management investment company which
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio, a separate registered investment company with the same
investment objective as the Fund. The investment objective of the Fund or Port-
folio may be changed only with the approval of the holders of the outstanding
shares of the Fund and the Portfolio. The master-feeder investment fund struc-
ture has been developed relatively recently, so shareholders should carefully
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 bear 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 Morgan at
(800) 766-7722.
The Trust may withdraw the investment of the Fund from the Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trust-
ees 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 in-
vestment objective and restrictions as the Fund or the retaining of an invest-
ment 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
Portfolio's investment objective or restrictions, may require withdrawal of
the Fund's interest in the Portfolio. Any such withdrawal could result in a
distribution in kind of portfolio securities (as opposed to a cash distribu-
tion) from the Portfolio which may or may not be readily marketable. The dis-
tribution 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 re-
demption 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 con-
trol 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 operation of the Portfolio upon the withdrawal of another in-
vestor 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.
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 Re-
strictions.
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 October 31, 1996, the approximate Japan weighting was 38% in
the EAFE Index and 33% 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 Advisor intends to manage the portfolio actively in pursuit of its invest-
ment 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. The portfolio turnover rate for the Portfolio for the fiscal year
ended October 31, 1996 was 57%.
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, lend 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 securities no interest accrues
to the Portfolio until settlement. At the time of settlement a when-issued se-
curity may be valued at less than its purchase price. The Portfolio maintains
with the Custodian a separate account with a segregated portfolio of securi-
ties in an amount at least equal to these commitments. When entering into a
when-issued or delayed delivery transaction, the Portfolio will rely on the
other party to consummate the transaction; if the other party fails to do so,
the Portfolio may be disadvantaged. It is the current policy of the Portfolio
not to enter into when-issued commitments exceeding in the aggregate 15% of
the market value of the Portfolio's total assets less liabilities other than
the 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.
Loans of portfolio securities may be considered extensions of credit by the
Portfolio. The risks to the Portfolio with respect to borrowers of its portfo-
lio securities are similar to the risks to the Portfolio with respect to sell-
ers in repurchase agreement transactions. See Repurchase Agreements above. The
Portfolio will not lend its securities to any officer, Trustee, Director, em-
ployee 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.
7
<PAGE>
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-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 rele-
vant national interests; 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.
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
8
<PAGE>
currency. To do this, the Portfolio would enter into a forward contract to
sell the foreign currency in which the investment is denominated or princi-
pally traded in exchange for U.S. dollars or in exchange for another foreign
currency. The Portfolio will only enter into forward contracts to sell a for-
eign 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 against the hedged currency
and the U.S. dollar. The precise matching of the forward contract amounts and
the value of the securities involved will not generally be possible because
the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The projec-
tion of currency market movements is extremely difficult, and the successful
execution of a hedging strategy is highly uncertain.
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. See Investment Restrictions for investment limita-
tions applicable to reverse repurchase agreements and other borrowings. 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 Portfolio's net assets would be invested in illiquid in-
vestments. 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 illiquid
securities or receives upon resale may be lower than the price paid or re-
ceived for similar securities with a more liquid market. Accordingly the valu-
ation 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.
9
<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'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.
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................. Former Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast
Group
</TABLE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust, the Portfolio and
The JPM
10
<PAGE>
Pierpont Funds, up to and including creating a separate board of trustees. See
Trustees and Officers in the Statement of Additional Information for more in-
formation 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 to the Trust, the Portfolio and
certain other registered investment companies subject to similar agreements
with Pierpont Group, Inc. 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 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 $197 billion (of which the
Advisor advises over $30 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,
previously Vice President, Citibank), Thomas P. Madsen, Managing Director
(since April, 1993, employed by Morgan since prior to 1991) and Anne H.
Richards, Vice President (since January, 1997, employed by Morgan since May,
1994, employed by Alliance Capital Ltd. from September, 1992 to April, 1994).
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 administrative and related
services to the Fund and the Portfolio and shareholder services to sharehold-
ers of the Fund. See Administrative Services Agent and Shareholder Servicing
below. INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER
BANK.
11
<PAGE>
CO-ADMINISTRATOR. Pursuant to Co-Administration Agreements with the Trust and
the Portfolio, Funds Distributor, Inc. ("FDI") serves as the Co-Administrator
for the Fund and the Portfolio. FDI (i) provides office space, equipment and
clerical personnel for maintaining the organization and books and records of
the Fund and the Portfolio; (ii) provides officers for the Trust and the Port-
folio; (iii) prepares and files documents required for notification of state
securities administrators; (iv) reviews and files marketing and sales litera-
ture; (v) files Portfolio regulatory documents and mails Portfolio communica-
tions to Trustees and investors; and (vi) maintains related books and records.
For its services under the Co-Administration Agreements, each of the Fund and
the Portfolio has agreed to pay FDI fees equal to its allocable share of an
annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the Fund or the Portfolio is based on the ratio of its net
assets to the aggregate net assets of the Trust and certain other registered
investment companies subject to similar agreements with FDI.
ADMINISTRATIVE SERVICES AGENT. Pursuant to Administrative Services Agreements
with the Trust and the Portfolio, Morgan provides administrative and related
services to the Fund and the Portfolio, including services related to tax com-
pliance, preparation of financial statements, calculation of performance data,
oversight of service providers and certain regulatory and Board of Trustees
matters.
Under the Administrative Services Agreements, each of the Fund and the Portfo-
lio has agreed to pay Morgan fees equal to its allocable share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate
net assets of the Trust and certain other registered investment companies man-
aged by the Advisor in accordance with the following annual schedule: 0.09% on
the first $7 billion of their aggregate average daily net assets and 0.04% of
their aggregate average daily net assets in excess of $7 billion, less the
complex-wide fees payable to FDI.
DISTRIBUTOR. FDI, a registered broker-dealer, also serves as the Distributor
of shares of the Fund and as exclusive placement agent for the Portfolio. FDI
is a wholly owned indirect subsidiary of Boston Institutional Group, Inc.
FDI's principal business address is 60 State Street, Suite 1300, Boston, Mas-
sachusetts 02109.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Fund's and the Portfolio's
custodian and fund accounting and transfer agent and the Fund's dividend dis-
bursing agent. State Street also keeps the books of account for the Fund and
the Portfolio.
EXPENSES. In addition to the fees payable to Morgan, FDI and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor, Co-Admin-
istrator and Administrative Services Agent above and Shareholder Servicing be-
low, the Fund and the Portfolio are responsible for usual and customary ex-
penses associated with their respective operations. Such expenses include or-
ganization expenses, legal fees, accounting and audit 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 disbursement costs, the expenses of printing and mailing reports,
notices and proxy statements to Fund shareholders, and registration fees under
state securities laws. For the Portfolio, such expenses also include filing
fees under foreign securities laws, custodian fees and brokerage expenses.
Morgan has agreed that it will reimburse the Fund through at least February
28, 1998 to the extent necessary to maintain the Fund's total operating ex-
penses (which include 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 extraordinary increases during the period. There is no assurance that
Morgan will continue this waiver beyond the specified period.
12
<PAGE>
SHAREHOLDER SERVICING
Pursuant to a Shareholder Servicing Agreement with the Trust, Morgan acts as
shareholder servicing agent for its customers and other Fund investors who are
customers of an eligible institution which is a customer of Morgan (an "Eligi-
ble Institution"). The Fund pays Morgan for these services at an annual rate
(expressed as a percentage of the average daily net asset value of Fund shares
owned by or for shareholders for whom Morgan is acting as shareholder servic-
ing agent) of 0.10% 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.
The Fund may be sold to or through Eligible Institutions, including financial
institutions and broker-dealers, that may be paid fees by Morgan or its affil-
iates for services provided to their clients that invest in the Fund. See Eli-
gible Institutions. Organizations that provide recordkeeping or other services
to certain employee benefit or retirement plans that include the Fund as an
investment alternative may also be paid a fee.
Shareholders should address all inquiries to J.P. Morgan Funds Services, Mor-
gan Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York
10036 or call (800) 766-7722.
The business days of the Fund and the Portfolio are the days the New York
Stock Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Mor-
gan as shareholder servicing agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Distribu-
tor. Investors must be either customers of Morgan or of an Eligible Institu-
tion or 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 pur-
pose of Fund transactions. There are no charges associated with becoming a
Morgan customer for this purpose. Morgan reserves the right to determine the
customers that it will accept, and the Trust reserves the right to determine
the purchase orders that it will accept.
The Fund requires a minimum initial investment of $1 million and a minimum
subsequent investment of $25,000. These minimum investment requirements may be
waived for certain investors, including investors for whom the Advisor is a
fiduciary, who maintain related accounts with the Fund, other JPM Institu-
tional Funds or the Advisor, who make investments for a group of clients, such
as financial advisors, trust companies and investment advisors, or who main-
tain retirement accounts with the Funds.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous ba-
sis without a sales charge at the net asset value per share next determined
after receipt of an order. Prospective investors may purchase shares with the
assistance of an Eligible Institution that may establish its own terms, condi-
tions and charges.
To purchase shares in the Fund, investors should request their Morgan repre-
sentative (or a representative of their Eligible Institution) to assist them
in placing a purchase order with the Fund's Distributor 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 or its agent re-
ceives 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 business day upon the Fund's receipt of payment. If the Fund or its
agent receives a purchase order after 4:00 P.M. New York time, the
13
<PAGE>
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
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.
Although there is no sales charge levied directly by the Fund, Eligible Insti-
tutions may establish their own terms and conditions for providing their serv-
ices and may charge investors a transaction-based or other fee for their serv-
ices. Such charges may vary among Eligible Institutions but in all cases will
be retained by the Eligible Institution and not remitted to the Fund or Mor-
gan.
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 or its agent prior to 4:00 P.M. New
York time is effective on that day. A redemption request received after that
time becomes effective on the next business day. Proceeds of an effective re-
demption are generally deposited the next business day in immediately avail-
able funds to the shareholder's account at Morgan or at his Eligible Institu-
tion 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
the Fund falls below the Fund's initial investment amount of $1 million for
more than 30 days because of a redemption of shares or a shareholder's account
balance does not achieve the required minimum investment within the prescribed
time period, the Fund may redeem the remaining shares in the account 60 days
after written notice to the shareholder unless the account is increased to the
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.
14
<PAGE>
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 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 the Fund into any other JPM Institutional
Fund or, JPM Pierpont Fund or shares of JPM Series Trust without charge. An ex-
change 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 that
fund's minimum investment amount. Shareholders should read the prospectus of
the fund into which they are exchanging and may only exchange between fund ac-
counts that are registered in the same name, address and taxpayer identifica-
tion number. Shares are exchanged on the basis of relative net asset value per
share. Exchanges are in effect redemptions from one fund and purchases of an-
other 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,
The JPM Pierpont Funds and JPM Series Trust. 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
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 additional
dividend of net investment income in a given year to the extent necessary 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 for the
Fund on the holidays listed under Net Asset Value in the Statement of Addi-
tional Information.
ORGANIZATION
The Trust was organized on November 4, 1992 as an unincorporated business trust
under Massachusetts law and is an entity commonly known as a "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, nineteen 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 is organized as a trust under the laws of the State of New York.
The Portfolio's Declaration of Trust provides that the Fund and other entities
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable
for all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in
which both inadequate insurance existed and the Portfolio itself was unable to
meet its obligations. Accordingly, the Trustees of the Trust believe that nei-
ther the Fund nor its shareholders will be adversely affected by reason of the
Fund's investing in the Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are sub-
ject to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to feder-
al, state or local taxes. See Taxes in the Statement of Additional Information.
Annual statements as to the current federal tax status of distributions, if ap-
plicable, are mailed to shareholders after the end of the taxable year for the
Fund.
The Trust intends to qualify the Fund as a separate regulated investment com-
pany under Subchapter M of the Internal Revenue Code of 1986, as amended. For
the Fund to qualify as a regulated investment company, the Portfolio, in addi-
tion to other requirements, limits its investments so that at the close of each
quarter of its taxable year (a) no more than 25% of its total assets are in-
vested in the securities of any one issuer, except U.S. Government securities,
and (b) with regard to 50% to its total assets, no more than 5% of its total
assets are invested in the securities of a single issuer, except U.S. Govern-
ment securities. As a regulated investment company, the Fund should not be sub-
ject to federal
16
<PAGE>
income taxes or federal excise taxes if all of its net investment income and
capital gains less any available capital loss carryforwards are distributed to
shareholders within allowable time limits. The Portfolio intends to qualify as
an association treated as a partnership for federal income tax purposes. As
such, the Portfolio should not be subject to tax. The Fund's status as a regu-
lated investment company is dependent on, among other things, the Portfolio's
continued qualification as a partnership for federal income tax purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to 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 will not qualify for the dividends- received deduc-
tion because 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 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 net investment income or capital gains will have the ef-
fect of reducing the net asset value of Fund shares held by a shareholder by
the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder,
will be taxable as described above.
Any gain or loss realized on the redemption or exchange of 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. In addition, no loss will be allowed on the re-
demption or exchange of shares of the Fund if, within a period beginning 30
days before the date of such redemption or exchange and ending 30 days after
such date, the shareholder acquires (such as through dividend reinvestment)
securities that are substantially identical to shares of the Fund.
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.)
17
<PAGE>
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The finan-
cial statements appearing in annual reports are audited by independent accoun-
tants. Shareholders also will be sent confirmations of each purchase and re-
demption and monthly statements, reflecting all other account activity, in-
cluding dividends and any distributions reinvested in additional shares or
credited as cash.
All shareholders are given the privilege to initiate transactions automati-
cally by telephone upon opening an account. However, an investor should be
aware that a transaction authorized by telephone and reasonably believed to be
genuine by the Fund, Morgan, his Eligible Institution or the Distributor may
subject the investor to risk of loss if such instruction is subsequently found
not to be genuine. The Fund will employ reasonable procedures, including re-
quiring investors to give their Personal Identification Number and tape re-
cording of telephone instructions, to confirm that instructions communicated
from investors by telephone are genuine; if it does not, 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. Shareholders may obtain perfor-
mance information by calling Morgan at (800) 766-7722.
18
<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 and buying calls, tend to increase market ex-
posure. Options and futures contracts may be combined with each other or with
forward contracts in order to adjust the risk and return characteristics of the
Portfolio's overall strategy in a manner deemed appropriate to the Advisor and
consistent with the Portfolio's objective and policies. Because combined op-
tions 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.
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 index options,
is subject to the risk that the value of its portfolio securities may not
change as much as an index because the Portfolio's investments generally will
not match the composition of an index.
For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Portfolio may incur additional
losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When the Portfolio purchases a futures contract, it agrees to purchase a speci-
fied quantity of an underlying instrument at a specified future date or to make
a cash payment based on the value of a securities index. When the Portfolio
sells a futures contract, it agrees to sell a specified quantity of the under-
lying instrument at a specified future date or to receive a cash payment based
on the value of a securities index. The price at which the purchase and sale
will take place is fixed when the Portfolio enters into the contract. Futures
can be held until their delivery dates or the position can be (and normally is)
closed out before then. There is no assurance, however, that a liquid market
will exist when the Portfolio wishes to close out a particular position.
When the Portfolio purchases a futures contract, the value of the futures con-
tract tends to increase and decrease in tandem with the value of its underlying
instrument. Therefore, purchasing futures contracts will tend to increase the
Portfolio's exposure to positive and negative price fluctuations in the under-
lying instrument, much as if it had purchased the underlying instrument direct-
ly. When the Portfolio sells a futures contract, by contrast, the value of its
futures position will tend to move in a direction contrary to the value of the
underlying instrument. Selling futures contracts, therefore, will tend to off-
set both positive and negative market price changes, much as if the underlying
instrument had been sold.
The purchaser or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, when the Portfolio buys or sells a futures contract it will be
required to deposit "initial margin" with its Custodian in a segregated account
in the name of its futures broker, known as a futures commission merchant
(FCM). Initial margin deposits are typically equal to a small percentage of the
contract's value. If the value of either party's position declines, that party
will be required to make additional "variation margin" payments equal to the
change in value on a daily basis. The party that has a gain may be entitled to
receive all or a portion of this amount. The Portfolio may be obligated to make
payments of variation margin at a time when it is disadvantageous to do so.
Furthermore, it may not always be possible for the Portfolio to close out its
futures positions. Until it closes out a futures position, the Portfolio will
be obligated to continue to pay variation margin. Initial and variation margin
payments do not constitute purchasing on margin for purposes of the Portfolios'
investment restrictions. In the event of the
A-2
<PAGE>
bankruptcy of an FCM that holds margin on behalf of the Portfolio, the Portfo-
lio 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>
---------------------------------------
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.
PROS375-972
The JPM InstitutionalInternationalEquity Fund
PROSPECTUS
February 28, 1997
<PAGE>
PROSPECTUS
The JPM Institutional Emerging Markets Equity Fund
60 State Street
Boston, Massachusetts 02109
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 A TWO-TIER MASTER-FEEDER INVESTMENT FUND STRUCTURE. SEE SPE-
CIAL INFORMATION CONCERNING INVESTMENT STRUCTURE 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 February 28, 1997 (as supplemented from time to time). This information
is incorporated herein by reference and is available without charge upon
written request from the Fund's Distributor, Funds Distributor, Inc. ("FDI"),
60 State Street, Suite 1300, Boston, Massachusetts 02109, Attention: The JPM
Institutional Funds, or by calling (800) 221-7930.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.
SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE IN-
VESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE
HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 28, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund is Designed.................................... 1
Financial Highlights....................................................... 3
Special Information Concerning Investment Structure........................ 3
Investment Objective and Policies.......................................... 4
Additional Investment Information and Risk
Factors................................................................... 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..................................................... 18
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. 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 $500,000 for more than 30 days,
the investment may be subject to mandatory redemption. See Redemption of
Shares--Mandatory Redemption by the Fund.
This Prospectus describes the investment objective and policies, management and
operation of the Fund to enable investors to decide if the Fund suits their
needs. The Fund operates in a two-tier master-feeder investment fund structure.
The Trustees believe that the Fund may achieve economies of scale over time by
utilizing this investment structure.
The following table illustrates that investors in the Fund incur no shareholder
transaction expenses; their investment in the Fund is subject only to the oper-
ating expenses set forth below for the Fund and the Portfolio, as a percentage
of average net assets of the Fund. The Trustees of the Trust believe that the
aggregate per share expenses of the Fund and the Portfolio will be approxi-
mately equal to and may be less than the expenses that the Fund would incur if
it retained the services of an investment adviser and invested its assets di-
rectly in portfolio securities. Fund and Portfolio expenses are discussed below
under the headings Management of the Trust and 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>
- -------
* Certain Eligible Institutions (defined below) may impose fees in connection
with the purchase of the Fund's shares through such institutions.
1
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees............................................................. 1.00%
Rule 12b-1 Fees........................................................... None
Other Expenses............................................................ 0.41%
-----
Total Operating Expenses.................................................. 1.41%
=====
</TABLE>
* Fees and expenses are expressed as a percentage of average net assets of the
Fund for its most recent fiscal year. See Management of the Trust and the
Portfolio.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year..................................................................... $ 14
3 Years.................................................................... $ 45
5 Years.................................................................... $ 77
10 Years................................................................... $169
</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, organization expenses, the fees paid to Pierpont Group, Inc.
under the Fund Services Agreements, the fees paid to FDI under the Co-Adminis-
tration Agreements, the fees paid to State Street Bank and Trust Company as
custodian and transfer agent, and other usual and customary expenses of the
Fund and the Portfolio. For a more detailed description of contractual fee ar-
rangements, see Management of the Trust and the Portfolio and Shareholder Ser-
vicing. In connection with the above example, please note that $1,000 is less
than the Fund's minimum investment requirement and that there are no redemp-
tion or exchange fees of any kind. See Purchase of Shares and Redemption of
Shares. THE EXAMPLE IS HYPOTHETICAL; IT IS INCLUDED SOLELY FOR ILLUSTRATIVE
PURPOSES. IT SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE PERFORMANCE;
ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following selected data for a share outstanding for the indicated period
should be read in conjunction with the financial statements and related notes
which are contained in the Fund's annual report and are incorporated by refer-
ence into the Statement of Additional Information. The following selected data
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 materi-
ally affected the Fund's 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 NOVEMBER 15, 1993
ENDED OCTOBER 31, (COMMENCEMENT OF
-------------------- OPERATIONS) THROUGH
1996 1995 OCTOBER 31, 1994
--------- --------- -------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period. $ 9.71 $ 12.47 $ 10.00
--------- --------- --------
Income From Investment Operations:
Net Investment Income.............. 0.08 0.08 0.04
Net Realized and Unrealized Gain
(Loss) on Investment and Foreign
Currency Allocated................ 0.56 (2.66) 2.43
--------- --------- --------
Total From Investment Operations..... 0.64 (2.58) 2.47
--------- --------- --------
Distributions to Shareholders from
Net Investment Income.............. (0.08) (0.05) --
Net Realized Gain.................. -- (0.13) --
--------- --------- --------
Total Distributions to Shareholders.. (0.08) (0.18) --
--------- --------- --------
Net Asset Value, End of Period....... $ 10.27 $ 9.71 $ 12.47
========= ========= ========
Total Return......................... 6.64% (20.81)% 24.70%(a)
Ratios and Supplemental Data:
Net Assets at End of Period (in
Thousands)........................ $293,594 $186,023 $146,667
Ratios to Average Net Assets:
Expenses......................... 1.41% 1.43% 1.46%(b)
Net Investment Income............ 0.96% 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 INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own portfo-
lio of securities, the Fund is an open-end management investment company which
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio, a separate registered investment company with the
same investment objective as the Fund. The investment objective of the Fund or
Portfolio may be changed only with the approval of the holders of the out-
standing shares of the Fund and the Portfolio. The master-feeder investment
fund structure has been developed relatively recently, so shareholders should
carefully consider this investment approach.
In addition to selling a beneficial interest to the Fund, the Portfolio may
sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions
and will bear a proportionate share of the Portfolio's expenses. However, the
other investors investing in the Portfolio may sell shares of their
3
<PAGE>
own fund using a different pricing structure than the Fund. Such different
pricing structures may result in differences in returns experienced by invest-
ors in other funds that invest in the Portfolio. Such differences in returns
are not uncommon and are present in other mutual fund structures. Information
concerning other holders of interests in the Portfolio is available from Morgan
at (800) 766-7722.
The Trust may withdraw the investment of the Fund from the Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same invest-
ment objective and restrictions as the Fund or the retaining of an investment
adviser to manage the Fund's assets in accordance with the investment policies
described below with respect to the Portfolio.
Certain changes in the Portfolio's investment objective, policies or restric-
tions, or a failure by the Fund's shareholders to approve a change in the Port-
folio's investment objective or restrictions, may require withdrawal of the
Fund's interest in the Portfolio. Any such withdrawal could result in a distri-
bution in kind of portfolio securities (as opposed to a cash distribution) from
the Portfolio which may or may not be readily marketable. The distribution in
kind may result in the Fund having a less diversified portfolio of investments
or adversely affect the Fund's liquidity, and the Fund could incur brokerage,
tax or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in the Portfolio may be materially affected by the ac-
tions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns. Addition-
ally, because the Portfolio would become smaller, it may become less diversi-
fied, resulting in potentially increased portfolio risk (however, these possi-
bilities also exist for traditionally structured funds which have large or in-
stitutional investors who may withdraw from a fund). Also, funds with a greater
pro rata ownership in the Portfolio could have effective voting control of the
operations of the Portfolio. Whenever the Fund is requested to vote on matters
pertaining to the Portfolio (other than a vote by the Fund to continue the op-
eration of the Portfolio upon the withdrawal of another investor in the Portfo-
lio), the Trust will hold a meeting of shareholders of the Fund and will cast
all of its votes proportionately as instructed by the Fund's shareholders. The
Trust will vote the shares held by Fund shareholders who do not give voting in-
structions in the same proportion as the shares of Fund shareholders who do
give voting instructions. Shareholders of the Fund who do not vote will have no
effect on the outcome of such matters.
For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Additional Investment In-
formation and Risk Factors and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment Restric-
tions.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and the Portfolio is described below, to-
gether with the policies they employ in their efforts to achieve this objec-
tive. Additional information about the investment policies of the Fund and the
Portfolio appears in the Statement of Additional Information under Investment
Objectives and Policies. There can be no assurance that the investment objec-
tive of the Fund or the Portfolio will be achieved.
The Fund's investment objective is to 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 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.
4
<PAGE>
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 Adviser intends to manage the portfolio actively in pursuit of its invest-
ment objective. The Portfolio does not expect to trade in securities for short-
term profits; however, when circumstances warrant, securities may be sold with-
out 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.
The portfolio turnover rate for the Portfolio for the fiscal year ended October
31, 1996 was 31%.
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.
5
<PAGE>
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, lend
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 securities 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.
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
6
<PAGE>
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 bank-
ruptcy proceedings are commenced with respect to the seller, the Portfolio's
realization upon the disposition of collateral may be delayed or limited. In-
vestments in certain repurchase agreements and certain other investments which
may be considered illiquid are limited. See Illiquid 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.
Loans of portfolio securities may be considered extensions of credit by the
Portfolio. The risks to the Portfolio with respect to borrowers of its portfo-
lio securities are similar to the risks to the Portfolio with respect to sell-
ers in repurchase agreement transactions. See Repurchase Agreements above. The
Portfolio will not lend its securities to any officer, Trustee, Director, em-
ployee 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. See Investment Restrictions
for investment limitations applicable to reverse repurchase agreements and
other borrowings. 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.
7
<PAGE>
Investors should realize that the value of the Portfolio's investments in for-
eign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation, na-
tionalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or depre-
ciation of portfolio securities and could favorably or unfavorably affect the
Portfolio's operations. Furthermore, the economies of individual foreign na-
tions may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital re-
investment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign is-
suer. Any foreign investments made by the Portfolio must be made in compliance
with U.S. and foreign currency restrictions and tax laws restricting the
amounts and types of foreign investments.
In addition, while the volume of transactions effected on foreign stock ex-
changes has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, the Portfolio's for-
eign investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settle-
ment periods for foreign securities, which are often longer than those for se-
curities of U.S. issuers, may affect portfolio liquidity. In buying and sell-
ing securities on foreign exchanges, purchasers normally pay fixed commissions
that are generally higher than the negotiated commissions charged in the
United States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.
The Portfolio 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
8
<PAGE>
the Portfolio's spot currency exchange transactions is generally the differ-
ence 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 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 against the hedged currency
and the U.S. dollar. The precise matching of the forward contract amounts and
the value of the securities involved will not generally be possible because
the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The projec-
tion of currency market movements is extremely difficult, and the successful
execution of a hedging strategy is highly uncertain.
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 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 illiq-
uid 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 securities
or receives upon resale may be lower than the price paid or received for simi-
lar 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.
9
<PAGE>
MONEY MARKET INSTRUMENTS. The Portfolio is permitted to invest in money market
instruments although it intends to stay invested in equity securities to the
extent practical in light of its objective 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 the Portfolio include obligations of the U.S. Govern-
ment and its agencies and instrumentalities, other debt securities, commercial
paper, bank obligations and repurchase agreements. The Portfolio may also in-
vest in short-term obligations of sovereign foreign governments, their agen-
cies, instrumentalities and political subdivisions. For more detailed informa-
tion about these money market investments, see Investment Objectives and Poli-
cies in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio are
subject to the following fundamental limitations: (a) the Portfolio may not in-
vest more than 5% of its total assets in the securities of any one issuer, ex-
cept U.S. Government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer.
The investment objective of the Fund and the Portfolio, together with the in-
vestment restrictions described below and in the Statement of Additional Infor-
mation, except as noted, are deemed fundamental policies, i.e., they may be
changed only with the approval of the holders of a majority of the outstanding
voting securities of the Fund and the Portfolio. The Fund has the same invest-
ment restrictions as the Portfolio, except that the Fund may invest all of its
investable assets in another open-end investment company with the same invest-
ment objective and restrictions (such as the Portfolio). References below to
the Portfolio's investment restrictions also include the Fund's investment re-
strictions.
The Portfolio may not (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................. Former Senior Vice President, Capital
Cities/
ABC, Inc. and 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 JPM 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 to the Trust, the Portfolio and
certain other registered investment companies subject to similar agreements
subject to Pierpont Group, Inc. 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 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 $197 billion (of which the
Advisor advises over $30 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 1992);
Satyen Mehta, Vice President (since November, 1993, employed by Morgan since
prior to 1992); and Alejandro J. Baez-Sacasa, Vice President (since April,
1995, employed by Morgan since prior to 1992).
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.
11
<PAGE>
Under separate agreements, Morgan also provides administrative and related
services to the Fund and the Portfolio and shareholder services to sharehold-
ers of the Fund. See Administrative Services Agent and Shareholder Servicing
below. INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED OR ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER
BANK.
CO-ADMINISTRATOR. Pursuant to Co-Administration Agreements with the Trust and
the Portfolio, Funds Distributor, Inc. ("FDI") serves as the Co-Administrator
for the Fund and the Portfolio. FDI (i) provides office space, equipment and
clerical personnel for maintaining the organization and books and records of
the Fund and the Portfolio; (ii) provides officers for the Trust and the Port-
folio; (iii) prepares and files documents required for notification of state
securities administrators; (iv) reviews and files marketing and sales litera-
ture; (v) files Portfolio regulatory documents and mails Portfolio communica-
tions to Trustees and investors; and (vi) maintains related books and records.
For its services under the Co-Administration Agreements, each of the Fund and
the Portfolio has agreed to pay FDI fees equal to its allocable share of an
annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the Fund or the Portfolio is based on the ratio of its net
assets to the aggregate net assets of the Trust and certain other registered
investment companies subject to similar agreements with FDI.
ADMINISTRATIVE SERVICES AGENT. Pursuant to Administrative Services Agreements
with the Trust and the Portfolio, Morgan provides administrative and related
services to the Fund and the Portfolio, including services related to tax com-
pliance, preparation of financial statements, calculation of performance data,
oversight of service providers and certain regulatory and Board of Trustees
matters.
Under the Administrative Services Agreements, each of the Fund and the Portfo-
lio has agreed to pay Morgan fees equal to its allocable share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate
net assets of the Trust and certain other registered investment companies man-
aged by the Advisor in accordance with the following annual schedule: 0.09% on
the first $7 billion of their aggregate average daily net assets and 0.04% of
their aggregate average daily net assets in excess of $7 billion, less the
complex-wide fees payable to FDI.
DISTRIBUTOR. FDI, a registered broker-dealer, also serves as the Distributor
of shares of the Fund and as exclusive placement agent for the Portfolio. FDI
is a wholly owned indirect subsidiary of Boston Institutional Group, Inc.
FDI's principal business address is 60 State Street, Suite 1300, Boston, Mas-
sachusetts 02109.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Fund's and the Portfolio's
custodian and fund accounting and transfer agent and the Fund's dividend dis-
bursing agent. State Street also keeps the books of account for the Fund and
Portfolio.
EXPENSES. In addition to the fees payable to Morgan, FDI and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor, Co-Admin-
istrator and Administrative Services Agent above and Shareholder Servicing be-
low, the Fund and the Portfolio are responsible for usual and customary ex-
penses associated with their respective operations. Such expenses include or-
ganization expenses, legal fees, accounting and audit 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 disbursement costs, the expenses of printing and mailing reports,
notices and proxy statements to Fund shareholders, and registration fees under
state securities laws. For the Portfolio, such expenses also include filing
fees under foreign securities laws, custodian fees and brokerage expenses.
12
<PAGE>
SHAREHOLDER SERVICING
Pursuant to a Shareholder Servicing Agreement with the Trust, Morgan acts as
shareholder servicing agent for its customers and other Fund investors who are
customers of an eligible institution which is a customer of Morgan (an "Eligi-
ble Institution"). The Fund pays Morgan for these services at an annual rate
(expressed as a percentage of the average daily net asset value of Fund shares
owned by or for shareholders for whom Morgan is acting as shareholder servicing
agent) of 0.10% 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.
The Fund may be sold to or through Eligible Institutions, including financial
institutions and broker-dealers, that may be paid fees by Morgan or its affili-
ates for services provided to their clients that invest in the Fund. See Eligi-
ble Institutions. Organizations that provide recordkeeping or other services to
certain employee benefit or retirement plans that include the Fund as an in-
vestment alternative may also be paid a fee.
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 Distribu-
tor. Investors must be either customers of Morgan or of an Eligible Institution
or employer-sponsored retirement plans that have designated the Fund as an in-
vestment option for the plans. Prospective investors who are not already cus-
tomers of Morgan may apply to become customers of Morgan for the sole purpose
of Fund transactions. There are no charges associated with becoming a Morgan
customer for this purpose. Morgan reserves the right to determine the customers
that it will accept, and the Trust 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 certain investors, including investors for whom the Advisor is a fi-
duciary, who maintain related accounts with the Fund, other JPM Institutional
Funds or the Advisor, who make investments for a group of clients, such as fi-
nancial advisors, trust companies and investment advisors, or who maintain re-
tirement accounts with the Funds.
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.
13
<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 or its agent re-
ceives 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 business day upon the Fund's receipt of payment. If the Fund or its
agent 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 becomes 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.
Although there is no sales charge levied directly by the Fund, Eligible Insti-
tutions may establish their own terms and conditions for providing their serv-
ices and may charge investors a transaction-based or other fee for their serv-
ices. Such charges may vary among Eligible Institutions but in all cases will
be retained by the Eligible Institution and not remitted to the Fund or Mor-
gan.
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 or its agent prior to 4:00 P.M. New
York time is effective on that day. A redemption request received after that
time becomes effective on the next business day. Proceeds of an effective re-
demption are generally deposited the next business day in immediately avail-
able funds to the shareholder's account at Morgan or at his Eligible Institu-
tion 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 Fund's initial investment amount of $500,000 for more
than 30 days because of a redemption of shares, or a shareholder's account
balance does not achieve the required minimum investment within the prescribed
time period, the Fund may redeem the remaining shares in the account 60 days
after written notice to the shareholder unless the account is increased to the
minimum investment amount or more.
14
<PAGE>
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions from
the Fund may not be processed if a redemption request is not submitted in
proper form. To be in proper form, the Fund must have received the sharehold-
er's taxpayer identification number and address. As discussed under Taxes be-
low, the Fund may be required to impose "back-up" withholding of federal income
tax on dividends, distributions and redemption proceeds when non-corporate in-
vestors have not provided a certified taxpayer identification number. In addi-
tion, 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 pro-
ceeds 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 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 the Fund into any other JPM Institutional
Fund, JPM Pierpont Fund or shares of JPM Series Trust without charge. An ex-
change 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 that
fund's minimum investment amount. Shareholders should read the prospectus of
the fund into which they are exchanging and may only exchange between fund ac-
counts that are registered in the same name, address and taxpayer identifica-
tion number. Shares are exchanged on the basis of relative net asset value per
share. Exchanges are in effect redemptions from one fund and purchases of an-
other 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,
The JPM Pierpont Funds and JPM Series Trust. 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
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 additional
dividend of net investment income in a given year to the extent necessary to
avoid the imposition of federal excise tax on the Fund.
Substantially all the realized net capital gains, if any, of the Fund are de-
clared and paid on an annual basis, except that an additional capital gains
distribution may be made in a given year to the extent necessary to avoid the
imposition of federal excise tax on the Fund. Declared dividends and distribu-
tions are payable to shareholders of record on the record date.
Dividends and capital gains distributions paid by the Fund are automatically
reinvested in additional shares of the Fund unless the shareholder has elected
to have them paid in cash. Dividends and distributions to be paid in cash are
credited to the shareholder's account at Morgan or at his Eligible Institution
or, in the case of certain Morgan customers, are mailed by check in accordance
with the customer's instructions. The Fund reserves the right to discontinue,
alter or limit the automatic reinvestment privilege at any time.
NET ASSET VALUE
Net asset value per share for the Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in the
Portfolio and other assets) the amount of its liabilities and dividing the re-
mainder by the
15
<PAGE>
number of its outstanding shares, rounded to the nearest cent. Expenses, in-
cluding the fees payable to Morgan, are accrued daily. See Net Asset Value in
the Statement of Additional Information for information on valuation of portfo-
lio 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 for the
Fund 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, nineteen 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 is organized as a trust under the laws of the State of New York.
The Portfolio's Declaration of Trust provides that the Fund and other entities
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable
for all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in
which both inadequate insurance existed and the Portfolio itself was unable to
meet its obligations. Accordingly, the Trustees of the Trust believe that nei-
ther the Fund nor its shareholders will be adversely affected by reason of the
Fund's investing in the Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are sub-
ject to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to feder-
al, state or local taxes. See Taxes in the Statement of Additional Information.
Annual statements as to the current federal tax status of distributions, if ap-
plicable, are mailed to shareholders after the end of the taxable year for the
Fund.
The Trust intends to qualify the Fund as a separate regulated investment com-
pany under Subchapter M of the Internal Revenue Code of 1986, as amended. For
the Fund to qualify as a regulated investment company, the Portfolio, in
16
<PAGE>
addition to other requirements, limits its investments so that at the close of
each quarter of its taxable year (a) no more than 25% of its total assets are
invested in the securities of any one issuer, except U.S. Government securi-
ties, and (b) with regard to 50% to its total assets, no more than 5% of its
total assets are invested in the securities of a single issuer, except U.S.
Government securities. As a regulated investment company, the Fund should not
be subject to federal income taxes or federal excise taxes if all of its net
investment income and capital gains less any available capital loss
carryforwards are distributed to shareholders within allowable time limits.
The Portfolio intends to qualify as an association treated as a partnership
for federal income tax purposes. As such, the Portfolio should not be subject
to tax. The Fund's status as a regulated investment company is dependent on,
among other things, the Portfolio's continued qualification as a partnership
for federal income tax purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to 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 will not qualify for the dividends- received deduc-
tion because 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 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. In addition, no loss will be allowed on the redemption
or exchange of shares of the Fund if, within a period beginning 30 days before
the date of such redemption or exchange and ending 30 days after such date,
the shareholder acquires (such as through dividend reinvestment) securities
that are substantially identical to shares of the Fund.
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.)
17
<PAGE>
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The finan-
cial statements appearing in annual reports are audited by independent accoun-
tants. Shareholders also will be sent confirmations of each purchase and re-
demption and monthly statements, reflecting all other account activity, in-
cluding dividends and any distributions reinvested in additional shares or
credited as cash.
All shareholders are given the privilege to initiate transactions automati-
cally by telephone upon opening an account. However, an investor should be
aware that a transaction authorized by telephone and reasonably believed to be
genuine by the Fund, Morgan, his Eligible Institution or the Distributor may
subject the investor to risk of loss if such instruction is subsequently found
not to be genuine. The Fund will employ reasonable procedures, including re-
quiring investors to give their Personal Identification Number and tape re-
cording of telephone instructions, to confirm that instructions communicated
from investors by telephone are genuine; if it does not, 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 & 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. Shareholders may obtain perfor-
mance information by calling Morgan at (800) 766-7722.
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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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<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.
PROS379-972
The JPM Institutional Emerging Markets Equity Fund
PROSPECTUS
February 28, 1997
<PAGE>
PROSPECTUS
THE JPM INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND
60 State Street
Boston, Massachusetts 02109
For information call (800) 766-7722
The investment objective of The JPM Institutional Global Strategic Income Fund
(the "Fund") is high total return from a portfolio of fixed income securities of
foreign and domestic issuers. THE FUND SEEKS TO ACHIEVE ITS OBJECTIVE BY
INVESTING ALL OF ITS INVESTABLE ASSETS IN THE GLOBAL STRATEGIC INCOME PORTFOLIO
(THE "PORTFOLIO"), WHICH HAS THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND
INVESTS IN THE PORTFOLIO THROUGH A TWO-TIER MASTER-FEEDER INVESTMENT FUND
STRUCTURE. SEE INFORMATION ABOUT THE MASTER-FEEDER STRUCTURE ON PAGE 1.
The Portfolio invests primarily in the following sectors of the fixed income
market: mortgage-backed securities and direct mortgage obligations; below
investment grade debt obligations of U.S. and non-U.S. issuers; investment
grade U.S. dollar-denominated debt obligations of U.S. and non-U.S. issuers;
investment grade non-dollar denominated debt obligations of non-U.S. issuers;
and obligations of emerging market issuers.
THE PORTFOLIO INVESTS IN LOWER QUALITY DEBT INSTRUMENTS ("JUNK BONDS"), WHICH
ARE SUBJECT TO HIGHER RISKS OF UNTIMELY INTEREST AND PRINCIPAL PAYMENTS, DEFAULT
AND PRICE VOLATILITY THAN HIGHER QUALITY SECURITIES AND MAY PRESENT LIQUIDITY
AND VALUATION PROBLEMS. THE PORTFOLIO'S INVESTMENTS IN SECURITIES OF FOREIGN
ISSUERS, INCLUDING ISSUERS IN EMERGING MARKETS, INVESTMENTS IN UNRATED AND LOWER
RATED DEBT OBLIGATIONS AND INVESTMENTS DENOMINATED OR QUOTED IN FOREIGN
CURRENCIES, AS WELL AS THE PORTFOLIO'S USE OF INTEREST RATE AND CURRENCY
MANAGEMENT TECHNIQUES, ENTAIL RISKS IN ADDITION TO THOSE THAT ARE CUSTOMARILY
ASSOCIATED WITH INVESTING IN DOLLAR-DENOMINATED FIXED INCOME SECURITIES OF U.S.
ISSUERS. INVESTMENTS IN DIRECTLY PLACED MORTGAGES AND MORTGAGE-BACKED SECURITIES
MAY SUBJECT THE PORTFOLIO TO SOME OF THE RISKS ASSOCIATED WITH INVESTMENTS IN
REAL ESTATE. INTEREST RATE AND CURRENCY MANAGEMENT TECHNIQUES MAY BE UNAVAILABLE
OR INEFFECTIVE IN MITIGATING RISKS INHERENT IN THE PORTFOLIO. THE FUND MAY NOT
BE ABLE TO ACHIEVE ITS INVESTMENT OBJECTIVE. THE FUND IS INTENDED FOR INVESTORS
WHO CAN ACCEPT A HIGH DEGREE OF RISK AND IS NOT SUITABLE FOR ALL INVESTORS.
The Fund is a series of The JPM Institutional Funds, an open-end management
investment company organized as a Massachusetts business trust (the
"Trust").
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or the "Advisor").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing and should be retained for
future reference. Additional information has been filed with the Securities and
Exchange Commission in a Statement of Additional Information dated February 28,
1997, as amended or supplemented from time to time. This information is
incorporated herein by reference and is available without charge upon written
request from the Fund's Distributor or by calling (800) 221-7930. The Fund's
Distributor is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts 02109, Attention: The JPM Institutional Funds.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK. SHARES OF THE
FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. THE VALUE OF AN INVESTMENT
IN THE FUND MAY FLUCTUATE AND MAY, AT THE TIME IT IS REDEEMED, BE HIGHER OR
LOWER THAN THE AMOUNT ORIGINALLY INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 28, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
Expense Table.............................................. 1
Information About the Master-Feeder Structure.............. 1
Who May Be a Suitable Investor in the Fund................. 2
Investment Objective and Policies.......................... 2
Additional Investment Practices and Risks.................. 3
Management of the Fund and Portfolio.......................10
Shareholder Inquiries and Services.........................12
Purchase of Shares.........................................13
Redemption of Shares.......................................14
Exchange of Shares.........................................15
Dividends and Distributions................................15
Net Asset Value............................................15
Taxes......................................................15
Organization...............................................16
Additional Information.....................................16
<PAGE>
THE JPM INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND
EXPENSE TABLE
An investment in the Fund is not subject to any sales charges or redemption
fees. Operating expenses described below include the expenses of both the Fund
and the Portfolio. The Trustees believe that the Fund's operating expenses are
approximately equal to or less than would be the case if the Fund invested its
assets directly in securities instead of investing all of its investable assets
in the Portfolio.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases(1).................. None
Sales Charge Imposed on Reinvested Distributions.............. None
Deferred Sales Load........................................... None
Redemption Fees............................................... None
Exchange Fee.................................................. None
ANNUAL OPERATING EXPENSES(2)
Advisory Fees................................................. 0.45%
Rule 12b-1 Fees............................................... None
Other Expenses (after expense limitation)..................... 0.20%
----
Total Operating Expenses (after expense limitation)........... 0.65%
====
(1) Certain Eligible Institutions (defined below) may impose fees in connection
with the purchase of the Fund's shares through such institutions.
(2) These expenses are based on the estimated expenses and estimated average net
assets for the Fund's first fiscal year, and through November 30, 1997, after
applicable expense limitation. Without such expense limitation, the estimated
Other Expenses and Total Operating Expenses would be equal on an annual basis to
0.51% and 0.96%, respectively, of the average daily net assets of the Fund.
EXAMPLE
An investor would pay the following expenses on a hypothetical $1,000
investment, assuming a 5% annual return and redemption at the end of each time
period. (The Fund's minimum initial investment is greater than $1,000.)
1 Year........................................................ $ 7
3 Years....................................................... $21
The above expense table is designed to assist investors in understanding the
various estimated direct and indirect costs and expenses that investors in the
Fund bear. For a complete description of contractual arrangements and other
expenses applicable to the Fund and the Portfolio, see Management of the Fund
and Portfolio and Shareholder Inquiries and Services -- Shareholder Servicing.
THE EXAMPLE IS INCLUDED SOLELY FOR ILLUSTRATIVE PURPOSES AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF FUTURE PERFORMANCE OR EXPENSES. ACTUAL EXPENSES
MAY BE MORE OR LESS THAN THOSE SHOWN.
INFORMATION ABOUT THE MASTER-FEEDER STRUCTURE
The Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio, which has an identical investment objective.
The Fund is a feeder fund and the Portfolio is the master fund in a so-called
master-feeder structure.
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<PAGE>
In addition to the Fund, other feeder funds may invest in the Portfolio, and
information about these other feeder funds is available from the Fund's
Distributor. The other feeder funds invest in the Portfolio on the same terms as
the Fund and bear a proportionate share of the Portfolio's expenses. The other
feeder funds may sell shares on different terms and under a different pricing
structure than the Fund, which may produce different performance results.
There are certain risks associated with an investment in a master-feeder
structure. Large scale redemptions by other feeder funds in the Portfolio may
reduce the diversification of the Portfolio's investments, reduce economies of
scale and increase the Portfolio's operating expenses. If the Board of Trustees
of the Portfolio approves a change to the investment objective of the Portfolio
that is not approved by the Fund's Board of Trustees, the Fund would be required
to withdraw its investment in the Portfolio and engage the services of an
investment advisor or find a substitute master fund. Withdrawal of the Fund's
interest in the Portfolio might cause the Fund to incur expenses it would not
otherwise be required to pay.
If the Fund is requested to vote on a matter affecting the Portfolio, the Fund
will call a meeting of its shareholders to vote on the matter. The Fund will
vote on any matter at the meeting of the Portfolio's investors in the same
proportion that the Fund's shareholders voted on the matter. The Fund will vote
the shares held by Fund shareholders who do not vote in the same proportion as
the shares of Fund shareholders who do vote.
WHO MAY BE A SUITABLE INVESTOR IN THE FUND
An investment in the Fund may offer greater potential for gains and losses but
may be more volatile than an investment in a fund investing primarily in U.S.
investment grade fixed income securities. THE FUND IS INTENDED FOR INVESTORS WHO
CAN ACCEPT A HIGH DEGREE OF RISK AND IS NOT SUITABLE FOR ALL INVESTORS. THE FUND
DOES NOT REPRESENT A COMPLETE INVESTMENT PROGRAM.
Investments in high yield and emerging markets securities may be considered
speculative and involve risks not associated with investments in higher-rated
securities. Investments in securities of foreign issuers, including issuers in
emerging markets, investments in unrated and lower rated debt obligations and
investments denominated or quoted in foreign currencies, as well as the
Portfolio's use of interest rate and currency management techniques, entail
risks in addition to those that are customarily associated with investing in
dollar-denominated fixed income securities of U.S. issuers. Investments in
directly placed mortgages and mortgage-backed securities may subject the
Portfolio to some of the risks associated with investments in real estate.
Interest rate and currency management techniques may be unavailable or
ineffective in mitigating risks inherent in the Portfolio. The Fund may not be
able to achieve its investment objective.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is high total return from a portfolio of fixed
income securities of foreign and domestic issuers. The Fund seeks to achieve its
objective by investing all of its investable assets in the Portfolio, which has
the same investment objective as the Fund. Since the investment characteristics
of the Fund correspond directly to those of the Portfolio, the following is a
discussion of the investment policies and risks of the Portfolio.
PRIMARY INVESTMENTS. The Portfolio invests primarily in the following sectors
of foreign and domestic fixed income markets: mortgage-backed securities and
direct mortgage obligations; below investment grade debt obligations of U.S.
and non-U.S. issuers; investment grade U.S. dollar-denominated debt
obligations of U.S. and non-U.S. issuers; investment grade non-dollar
denominated debt obligations of non-U.S. issuers; and obligations of emerging
markets issuers. Within such sectors, the Portfolio may invest in a broad
range of issuers and securities with varying maturities. Under normal market
conditions, substantially all and at least 65% of the Portfolio's total assets
will be invested in fixed income securities in at least three countries,
including the United States.
2
<PAGE>
The Portfolio may invest up to 60% of its assets in fixed income securities
rated below investment grade by one or more internationally recognized rating
agencies such as Standard & Poor's Ratings Group ("S&P") or Moody's Investors
Service, Inc. ("Moody's") or in unrated securities determined to be of
comparable credit quality by the Advisor. The Portfolio will not invest in
securities rated below B by S&P or Moody's. The Portfolio is not required to
dispose of securities whose ratings fall below B. Below investment grade
securities, commonly called "junk bonds," are considered speculative and include
securities that are unrated or in default. See Additional Investment Practices
and Risks.
The Portfolio's non-U.S. investments include obligations of government and
corporate issuers in developed and emerging markets. These securities may be
denominated in foreign currencies or the U.S. dollar. The Portfolio generally
attempts to hedge into the U.S. dollar the currency risks resulting from its
investments in securities denominated in currencies of developed countries. The
Portfolio will not routinely hedge the currency exposure resulting from its
emerging market investments. The Advisor may from time to time decide to
maintain unhedged foreign currency positions in any currency or engage in
foreign currency transactions if the Advisor believes the foreign currency
exposure or transaction will benefit the Portfolio.
HOW INVESTMENTS ARE SELECTED. The Portfolio seeks to achieve its objective
through sector allocation and security selection. Under normal circumstances,
the Portfolio allocates its assets among the market sectors described above on
the basis of relative investment opportunities. Using a variety of analytical
tools and based on experienced judgment, the Advisor assesses the relative
attractiveness of each market sector and seeks to optimize the allocation among
them. Specific securities within the sectors which the Advisor believes are
undervalued are selected for purchase using fundamental and quantitative
analysis, analysis of credit and liquidity risk, the expertise of a dedicated
trading desk and the judgment of fixed income portfolio managers and analysts
specializing in each market sector.
The Portfolio's duration will generally be approximately equal to the duration
of the Lehman Brothers Aggregate Bond Index (the "Index"). In addition to
securities selection, the Advisor may use futures contracts to adjust the
Portfolio's duration. Currently the Index's duration is approximately four and
one-half years. The maturities of the securities in the Portfolio may vary
widely, however.
Duration is a measure of the weighted average maturity of the debt obligations
held by the Portfolio and the sensitivity of the Portfolio's market value to
changes in interest rates. Generally, the longer the duration of the Portfolio,
the more sensitive it will be to changes in interest rates.
ADDITIONAL INVESTMENT PRACTICES AND RISKS
Investments in fixed income securities entail certain risks, including adverse
income and principal value fluctuations associated with general economic
conditions affecting the fixed income securities markets, as well as adverse
interest rate changes and volatility of yields. The value of fixed income
securities generally will increase when interest rates decline and decline as
interest rates increase. As a result of this price volatility, an investment in
the Fund could go down in value.
INVESTMENT IN LOWER RATED FIXED INCOME SECURITIES. While generally providing
higher coupons or interest rates than investments in higher quality securities,
lower quality fixed income securities involve greater risk of loss of principal
and income, including the possibility of default or bankruptcy of the issuers of
such securities, and have greater price volatility, especially during periods of
economic uncertainty or change. These lower quality fixed income securities tend
to be affected by economic changes and short-term corporate and industry
developments to a greater extent than higher quality securities, which react
primarily to fluctuations in the general level of interest rates. To the extent
that the Portfolio invests in such lower quality securities, the achievement of
its investment objective may be more dependent on the Advisor's credit
analysis.
3
<PAGE>
Lower quality fixed income securities are affected by the market's perception of
their credit quality, especially during times of adverse publicity, and the
outlook for economic growth. Economic downturns or an increase in interest rates
may cause a higher incidence of default by the issuers of these securities,
especially issuers that are highly leveraged. The market for these lower quality
fixed income securities is generally less liquid than the market for investment
grade fixed income securities. It may be more difficult to sell these lower
rated securities to meet redemption requests, to respond to changes in the
market, or to value accurately the Portfolio's portfolio securities for purposes
of determining the Fund's net asset value.
MORTGAGES AND MORTGAGE-BACKED SECURITIES. Mortgages are debt instruments secured
by real property. Mortgage-backed securities represent direct or indirect
participations in, or are collateralized by and payable from, mortgage loans
secured by real property. Mortgagors can generally prepay interest or principal
on their mortgages whenever they choose. Therefore, mortgages and
mortgage-backed securities are often subject to more rapid repayment than their
stated maturity dates would indicate as a result of principal prepayments on the
underlying loans. This can result in significantly greater price and yield
volatility than with traditional fixed income securities. During periods of
declining interest rates, prepayments can be expected to accelerate and thus
impair the Portfolio's ability to reinvest the returns of principal at
comparable yields. Conversely, in a rising interest rate environment, a
declining prepayment rate will extend the average life of many mortgage-backed
securities and prevent the Portfolio from taking advantage of such higher
yields. Unlike mortgage-backed securities, which generally represent an interest
in a pool of mortgages, direct investments in mortgages involve prepayment and
credit risks of an individual issuer and real property. Consequently, these
investments require different investment and credit analysis by the Advisor.
The Portfolio may invest in publicly and privately issued mortgage-backed
securities including mortgage-backed securities issued or guaranteed by the U.S.
Government or any of its agencies, instrumentalities or sponsored enterprises,
including but not limited to Government National Mortgage Association ("Ginnie
Mae"), Federal National Mortgage Association ("Fannie Mae") and Federal Home
Loan Mortgage Corporation ("Freddie Mac"). Ginnie Mae securities are backed by
the full faith and credit of the U.S. Government, which means that the U.S.
Government guarantees that the interest and principal will be paid when due.
Fannie Mae securities and Freddie Mac securities are not backed by the full
faith and credit of the U.S. Government; however, these enterprises have the
ability to obtain financing from the U.S. Treasury.
The Portfolio may also invest in multiple class securities, including
collateralized mortgage obligations ("CMOs") and Real Estate Mortgage Investment
Conduit ("REMIC") pass-through or participation certificates. CMOs provide an
investor with a specified interest in the cash flow from a pool of underlying
mortgages or other mortgage-backed securities. CMOs are issued in multiple
classes, each with a specified fixed or floating interest rate and a final
scheduled distribution date. In most cases, payments of principal are applied to
the CMO classes in the order of their respective stated maturities, so that no
principal payments will be made on a CMO class until all other classes having an
earlier stated maturity date are paid in full. A REMIC is a CMO that qualifies
for special tax treatment under the Internal Revenue Code of 1986, as amended
(the "Code"), and invests in certain mortgages principally secured by interests
in real property and other permitted investments. The Portfolio does not intend
to purchase residual interests in REMICs.
Stripped mortgage-backed securities ("SMBS") are derivative multiple class
mortgage-backed securities. SMBS are usually structured with two different
classes: one that receives 100% of the interest payments and the other that
receives 100% of the principal payments from a pool of mortgage loans. If the
underlying mortgage loans experience different than anticipated prepayments of
principal, the Portfolio may fail to fully recoup its initial investment in
these securities. Although the market for SMBS is increasingly liquid, certain
SMBS may not be readily marketable and will be considered illiquid for purposes
of the Portfolio's limitation on investments in illiquid securities. The market
value of the class consisting entirely of principal payments generally is
unusually volatile in response to changes in interest rates. The yields on a
class of SMBS that receives all or most of the interest from mortgage loans are
generally higher than prevailing market yields on other mortgage-backed
securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped.
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The directly placed mortgages in which the Portfolio invests may include
residential mortgages, multifamily mortgages, mortgages on cooperative apartment
buildings, commercial mortgages, and sale-leasebacks. These investments are
backed by assets such as office buildings, shopping centers, retail stores,
warehouses, apartment buildings and single-family dwellings. In the event that
the Portfolio forecloses on any non-performing mortgage, and acquires a direct
interest in the real property, the Portfolio will be subject to the risks
generally associated with the ownership of real property. There may be
fluctuations in the market value of the foreclosed property and its occupancy
rates, rent schedules and operating expenses. There may also be adverse changes
in local, regional or general economic conditions, deterioration of the real
estate market and the financial circumstances of tenants and sellers,
unfavorable changes in zoning, building, environmental and other laws, increased
real property taxes, rising interest rates, reduced availability and increased
cost of mortgage borrowings, the need for unanticipated renovations, unexpected
increases in the cost of energy, environmental factors, acts of God and other
factors which are beyond the control of the Portfolio or the Advisor. Hazardous
or toxic substances may be present on, at or under the mortgaged property and
adversely affect the value of the property. In addition, the owners of property
containing such substances may be held responsible, under various laws, for
containing, monitoring, removing or cleaning up such substances. The presence of
such substances may also provide a basis for other claims by third parties.
Costs of clean-up or of liabilities to third parties may exceed the value of the
property. In addition, these risks may be uninsurable. In light of these and
similar risks, it may be impossible to dispose profitably of properties in
foreclosure.
MORTGAGE DOLLAR ROLLS. The Portfolio may enter into mortgage dollar rolls in
which the Portfolio sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase similar (same
type, coupon and maturity) but not identical securities on a specified future
date. During the roll period, the Portfolio loses the right to receive principal
(including prepayments of principal) and interest paid on the securities sold.
However, the Portfolio may benefit from the interest earned on the cash proceeds
of the securities sold until the settlement date of the forward purchase. The
Portfolio will hold and maintain in a segregated account until the settlement
date cash or liquid securities in an amount equal to the forward purchase price.
The benefits derived from the use of mortgage dollar rolls depend upon the
Advisor's ability to manage mortgage prepayments. There is no assurance that
mortgage dollar rolls can be successfully employed.
CORPORATE FIXED INCOME SECURITIES. The Portfolio may invest in publicly and
privately issued debt obligations of U.S. and non-U.S. corporations, including
obligations of industrial, utility, banking and other financial issuers. These
securities are subject to the risk of an issuer's inability to meet principal
and interest payments on the obligation and may also be subject to price
volatility due to such factors as market interest rates, market perception of
the creditworthiness of the issuer and general market liquidity.
The Portfolio may purchase privately issued corporate fixed income securities
pursuant to Rule 144A of the Securities Act of 1933 ("Rule 144A") or pursuant to
a directly negotiated agreement between the investors, including the Portfolio,
and the corporate issuer. At times, the Portfolio may be the only investor in a
privately issued fixed income security, or one of only a few institutional
investors. In this circumstance, there may be restrictions on the Portfolio's
ability to resell the privately issued fixed income security that result from
contractual limitations in the offering agreement and a limited trading market.
The Advisor will monitor the liquidity of privately issued fixed income
securities in accordance with guidelines established by the Advisor and
monitored by the Trustees. See Restricted and Illiquid Securities.
ASSET-BACKED SECURITIES. The principal and interest payments on asset-backed
securities are collateralized by pools of assets such as auto loans, credit card
receivables, leases, installment contracts and personal property. Such asset
pools are securitized through the use of special purpose trusts or corporations.
Principal and interest payments may be credit enhanced by a letter of credit, a
pool insurance policy or a senior/subordinated structure. Like mortgage-backed
securities, asset-backed securities are subject to more rapid prepayment of
principal than indicated by their stated maturity which may greatly increase
price and yield volatility.
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INVESTING IN FOREIGN SECURITIES. Investing in the securities of foreign issuers
involves risks that are not typically associated with investing in U.S.
dollar-denominated securities of domestic issuers. In addition to changes
affecting securities markets generally, these investments may be affected by
changes in currency exchange rates, changes in foreign or U.S. laws or
restrictions applicable to these investments and in exchange control regulations
(e.g., currency blockage). Transaction costs for foreign securities may be
higher than those for similar transactions in the United States. In addition,
clearance and settlement procedures may be different in foreign countries and,
in certain markets, these procedures have on occasion been unable to keep pace
with the volume of securities transactions, thus making it difficult to conduct
securities transactions.
Foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to U.S. issuers.
There may be less publicly available information about a foreign issuer than
about a U.S. issuer. In addition, there is generally less government regulation
of foreign markets, companies and securities dealers than in the United States.
Foreign securities markets may have substantially less volume than U.S.
securities markets and securities of many foreign issuers are less liquid and
more volatile than securities of comparable U.S. issuers. Furthermore, there is
a possibility of nationalization, expropriation or confiscatory taxation,
imposition of withholding taxes on interest payments, limitations on the removal
of funds or other assets, political or social instability or diplomatic
developments which could affect investments in certain foreign countries.
CURRENCY RISKS. The U.S. dollar value of securities denominated in a foreign
currency will vary with changes in currency exchange rates, which can be
volatile. Accordingly, changes in the value of the currencies in which the
Portfolio's investments are denominated relative to the U.S. dollar will affect
the Portfolio's net asset value. Exchange rates are generally affected by the
forces of supply and demand in the international currency markets, the relative
merits of investing in different countries and the intervention or failure to
intervene of U.S. or foreign governments and central banks. Some countries in
emerging markets also may have managed currencies, which are not free floating
against the U.S. dollar. In addition, emerging markets are subject to the risk
of restrictions upon the free conversion of their currencies into other
currencies. Any devaluations relative to the U.S. dollar in the currencies in
which the Portfolio's securities are quoted would reduce the Portfolio's net
asset value.
The Portfolio may invest any portion of its assets in securities denominated in
a particular currency. The portion of the Portfolio's assets invested in
securities denominated in non-U.S. currencies will vary depending on market
conditions. The Portfolio may enter into forward foreign currency exchange
contracts in order to manage its foreign currency exposure.
INVESTING IN EMERGING MARKETS. Investing in the securities of emerging market
issuers involves considerations and potential risks not typically associated
with investing in the securities of issuers in the United States and other
developed countries.
MARKET CHARACTERISTICS. The fixed income securities markets of emerging
countries generally have substantially less volume than the markets for similar
securities in the United States and may not be able to absorb, without price
disruptions, a significant increase in trading volume or trade size.
Additionally, market making activities may be less extensive in such markets,
which may contribute to increased volatility and reduced liquidity in those
markets. The less liquid the market, the more difficult it may be for the
Portfolio to accurately price its portfolio securities or to dispose of such
securities at the times determined to be appropriate. The risks associated with
reduced liquidity may be particularly acute to the extent that the Fund needs
cash to meet redemption requests, to pay dividends and other distributions or to
pay expenses.
Transaction costs in emerging markets may be higher than in the United States
and other developed securities markets. As legal systems in emerging markets
develop, foreign investors may be adversely affected by new or amended laws and
regulations or may not be able to obtain swift and equitable enforcement of
existing law.
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ECONOMIC, POLITICAL AND SOCIAL FACTORS. Emerging markets may be subject to a
greater degree of economic, political and social instability that could
significantly disrupt the principal financial markets than are markets in the
United States and in other developed countries. Such instability may result from
among other things: (i) authoritarian governments or military involvement in
political and economic decision making, including changes or attempted changes
in government through extraconstitutional means; (ii) popular unrest associated
with demands for improved economic, political and social conditions; (iii)
internal insurgencies; (iv) hostile relations with neighboring countries; and
(v) ethnic, religious and racial disaffection and conflict. Many emerging
markets have experienced in the past, and continue to experience, high rates of
inflation. In certain countries inflation has at times accelerated rapidly to
hyperinflationary levels, creating a negative interest rate environment and
sharply eroding the value of outstanding financial assets in those countries.
The economies of many emerging markets are heavily dependent upon international
trade and are accordingly affected by protective trade barriers and the economic
conditions of their trading partners. In addition, the economies of some
emerging markets are vulnerable to weakness in world prices for their commodity
exports. The economies of emerging markets may differ unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments
position.
RESTRICTIONS ON INVESTMENT AND REPATRIATION. Certain emerging markets limit, or
require governmental approval prior to, investments by foreign persons.
Repatriation of investment income and capital from certain emerging markets is
subject to certain governmental consents. Even where there is no outright
restriction on repatriation of capital, the mechanics of repatriation may affect
the operation of the Portfolio.
SOVEREIGN FIXED INCOME SECURITIES. The Portfolio may invest in fixed income
securities issued or guaranteed by a foreign sovereign government or its
agencies, authorities or political subdivisions. Investment in sovereign fixed
income securities involves special risks not present in corporate fixed income
securities. The issuer of the sovereign debt or the governmental authorities
that control the repayment of the debt may be unable or unwilling to repay
principal or interest when due, and the Portfolio may have limited recourse in
the event of a default. During periods of economic uncertainty, the market
prices of sovereign debt, and the Portfolio's net asset value, may be more
volatile than prices of U.S. debt obligations. In the past, certain foreign
countries have encountered difficulties in servicing their debt obligations,
withheld payments of principal and interest and declared moratoria on the
payment of principal and interest on their sovereign debts.
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward international lenders and local political
constraints. Sovereign debtors may also be dependent on expected disbursements
from foreign governments, multilateral agencies and other entities to reduce
principal and interest arrearages on their debt. The failure of a sovereign
debtor to implement economic reforms, achieve specified levels of economic
performance or repay principal or interest when due may result in the
cancellation of third-party commitments to lend funds to the sovereign debtor,
which may further impair such debtor's ability or willingness to service its
debts.
BRADY BONDS. Brady bonds are securities created through the exchange of existing
commercial bank loans to public and private entities in certain emerging markets
for new bonds in connection with debt restructurings. Brady bonds have been
issued since 1989 and do not have a long payment history. In light of the
history of defaults of countries issuing Brady bonds on their commercial bank
loans, investments in Brady bonds may be viewed as speculative. Brady bonds may
be fully or partially collateralized or uncollateralized, are issued in various
currencies (but primarily the dollar) and are actively traded in
over-the-counter secondary markets. Incomplete collateralization of interest or
principal payment obligations results in increased credit risk.
Dollar-denominated collateralized Brady bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized by U.S. Treasury zero coupon
bonds having the same maturity as the Brady bonds.
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OBLIGATIONS OF SUPRANATIONAL ENTITIES. The Portfolio may invest in obligations
of supranational entities designated or supported by governmental entities to
promote economic reconstruction or development and of international banking
institutions and related government agencies. Examples include the International
Bank for Reconstruction and Development (the "World Bank"), the European Coal
and Steel Community, the Asian Development Bank and the Inter-American
Development Bank. Each supranational entity's lending activities are limited to
a percentage of its total capital (including "callable capital" contributed by
its governmental members at the entity's call), reserves and net income. There
is no assurance that participating governments will be able or willing to honor
their commitments to make capital contributions to a supranational entity.
CONVERTIBLE SECURITIES. Convertible securities in which the Portfolio may invest
consist of bonds, notes, debentures and preferred stocks. Convertible debt
securities and preferred stock acquired by the Portfolio will entitle the
Portfolio to exchange such instruments for common stock of the issuer at a
predetermined rate. Convertible securities are subject both to the credit and
interest rate risks associated with debt obligations and to the stock market
risk associated with equity securities.
ZERO COUPON, PAY-IN-KIND AND DEFERRED PAYMENT SECURITIES. Zero coupon securities
are securities that are sold at a discount to par value and on which interest
payments are not made during the life of the security. Upon maturity, the holder
is entitled to receive the par value of the security. Pay-in-kind securities are
securities that have interest payable by delivery of additional securities. Upon
maturity, the holder is entitled to receive the aggregate par value of the
securities. The Portfolio accrues income with respect to zero coupon and
pay-in-kind securities prior to the receipt of cash payments. Deferred payment
securities are securities that remain zero coupon securities until a
predetermined date, at which time the stated coupon rate becomes effective and
interest becomes payable at regular intervals. Zero coupon, pay-in-kind and
deferred payment securities may be subject to greater fluctuation in value and
lesser liquidity in the event of adverse market conditions than comparably rated
securities paying cash interest at regular interest payment periods.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. The Portfolio may invest up to 10% of
its total assets in shares of other investment companies and up to 5% of its
total assets in any one investment company as long as that investment does not
represent more than 3% of the total voting shares of the acquired investment
company. Investments in the securities of other investment companies may involve
duplication of advisory fees and other expenses.
MONEY MARKET INSTRUMENTS. Under normal market conditions, the Portfolio will
purchase money market instruments to invest temporary cash balances or to
maintain liquidity to meet redemptions. However, the Portfolio may also invest
in money market instruments without limitation as a temporary defensive measure
taken in the Advisor's judgment during, or in anticipation of, adverse market
conditions. These money market instruments include obligations issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities,
any foreign government or any of its political subdivisions, commercial paper,
bank obligations, repurchase agreements and other fixed income securities of
U.S. and foreign issuers. If a repurchase agreement counterparty defaults on its
obligations, the Portfolio may, under some circumstances, be limited or delayed
in disposing of the repurchase agreement collateral to recover its
investment.
RESTRICTED AND ILLIQUID SECURITIES. The Portfolio may acquire securities that
have restrictions on their resale (restricted securities) or securities for
which there is a limited trading market which the Advisor may determine are
illiquid. However, the Portfolio may not purchase an illiquid security if, as a
result, more than 15% of the Portfolio's net assets would be invested in
illiquid investments. The price the Portfolio pays for illiquid securities or
receives upon resale may be lower than the price paid or received for similar
securities with a more liquid market. In addition, illiquid securities may be
more difficult to value due to the unavailability of reliable broker quotes for
these securities. The Portfolio may experience delays in disposing of illiquid
securities and this may have an adverse effect on the ability of the Fund to
meet redemptions in an orderly manner. The Portfolio may purchase restricted
securities that are eligible for resale to
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qualified institutional buyers pursuant to Rule 144A. Restricted securities
eligible for resale under Rule 144A may be determined to be liquid in accordance
with guidelines established by the Advisor and approved by the Trustees. The
Trustees will monitor the Advisor's implementation of these guidelines on a
periodic basis.
WHEN-ISSUED AND FORWARD COMMITMENT TRANSACTIONS. The Portfolio may purchase
when-issued securities and enter into other forward commitments to purchase or
sell securities. The value of securities purchased on a when-issued or forward
commitment basis may decline between the purchase date and the settlement date.
DERIVATIVE INSTRUMENTS. The Portfolio may purchase derivative securities to
enhance return and enter into derivative contracts to hedge against fluctuations
in securities prices or currency exchange rates, to change the duration of the
Portfolio's fixed income holdings or as a substitute for the purchase or sale of
securities or currency. The Portfolio's investments in derivative securities may
include structured securities.
All of the Portfolio's transactions in derivative instruments involve a risk of
loss or depreciation due to unanticipated adverse changes in interest rates,
securities prices or currency exchange rates. The loss on derivative contracts
(other than purchased options) may substantially exceed the Portfolio's initial
investment in these contracts. In addition, the Portfolio may lose the entire
premium paid for purchased options that expire before they can be profitably
exercised by the Portfolio.
STRUCTURED SECURITIES. The Portfolio may invest in structured securities,
including currency linked securities. The interest rate or, in some cases, the
principal payable at the maturity of a structured security may change positively
or inversely in relation to one or more interest rates, financial indices,
currency rates or other financial indicators (reference prices). A structured
security may be leveraged to the extent that the magnitude of any change in the
interest rate or principal payable on a structured security is a multiple of the
change in the reference price. Thus, structured securities may decline in value
due to adverse market changes in currency exchange rates and other reference
prices.
DERIVATIVE CONTRACTS. The Portfolio may purchase and sell a variety of
derivative contracts, including futures contracts on securities, indices or
currency; options on futures contracts; options on securities, indices or
currency; forward contracts to purchase or sell securities or currency; and
interest rate and currency swaps. The Portfolio incurs liability to a
counterparty in connection with transactions in futures contracts, forward
contracts and swaps and in selling options. The Portfolio pays a premium for
purchased options. In addition, the Portfolio incurs transaction costs in
opening and closing positions in derivative contracts.
RISKS ASSOCIATED WITH DERIVATIVE SECURITIES AND CONTRACTS. The risks associated
with the Portfolio's transactions in derivative securities and contracts may
include some or all of the following: market risk, leverage and volatility risk,
correlation risk, credit risk, and liquidity and valuation risk.
MARKET RISK. Investments in structured securities are subject to the market
risks described above. Entering into a derivative contract involves a risk that
the applicable market will move against the Portfolio's position and that the
Portfolio will incur a loss. For derivative contracts other than purchased
options, this loss may substantially exceed the amount of the initial investment
made or the premium received by the Portfolio.
LEVERAGE AND VOLATILITY RISK. Derivative instruments may sometimes increase or
leverage the Portfolio's exposure to a particular market risk. Leverage enhances
the price volatility of derivative instruments held by the Portfolio. If the
Portfolio enters into futures contracts, writes options or engages in certain
foreign currency exchange transactions, it is required to
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maintain a segregated account consisting of cash or liquid assets, hold
offsetting portfolio securities or cover written options which may partially
offset the leverage inherent in these transactions.
CORRELATION RISK. The Portfolio's success in using derivative contracts to hedge
portfolio assets depends on the degree of price correlation between the
derivative contract and the hedged asset. Imperfect correlation may be caused by
several factors, including temporary price disparities among the trading markets
for the derivative contract, the assets underlying the derivative contract and
the Portfolio's assets.
CREDIT RISK. Derivative securities and over-the-counter derivative contracts
involve a risk that the issuer or counterparty will fail to perform its
contractual obligations.
LIQUIDITY AND VALUATION RISK. Some derivative securities are not readily
marketable or may become illiquid under adverse market conditions. In addition,
during periods of extreme market volatility, a commodity exchange may suspend or
limit trading in an exchange-traded derivative contract, which may make the
contract temporarily illiquid and difficult to price. The Portfolio's ability to
terminate over-the-counter derivative contracts may depend on the cooperation of
the counterparties to such contracts. For thinly traded derivative securities
and contracts, the only source of price quotations may be the selling dealer or
counterparty. Segregation of a large percentage of assets could impede portfolio
management or the ability to meet redemption requests.
PORTFOLIO SECURITIES LOANS. The Portfolio may lend portfolio securities with a
value up to one-third of its total assets. Each loan must be fully
collateralized by cash or other eligible assets. The Portfolio may pay
reasonable fees in connection with securities loans. The Advisor will evaluate
the creditworthiness of prospective institutional borrowers and monitor the
adequacy of the collateral to reduce the risk of default by borrowers.
BORROWING AND REVERSE REPURCHASE AGREEMENTS. The Portfolio may (1) borrow money
from banks solely for temporary or emergency (but not for leverage) purposes and
(2) enter into reverse repurchase agreements for any purpose. The aggregate
amount of such borrowings and reverse repurchase agreements may not exceed
one-third of the Portfolio's total assets less liabilities (other than
borrowings). For the purposes of the Investment Company Act of 1940 (the "1940
Act"), reverse repurchase agreements are considered a form of borrowing by the
Portfolio and, therefore, a form of leverage. Leverage may cause any gains or
losses of the Portfolio to be magnified.
SHORT-TERM TRADING. The Portfolio will sell a portfolio security without regard
to the length of time such security has been held if, in the Advisor's view, the
security meets the criteria for sale. The annual portfolio turnover rate of the
Portfolio is generally not expected to exceed 300%. A high portfolio turnover
rate involves higher transaction costs to the Portfolio in the form of dealer
spreads. This policy is subject to certain requirements for qualification of the
Fund as a regulated investment company under the Code.
INVESTMENT POLICIES AND RESTRICTIONS. Except as otherwise stated in this
Prospectus or the Statement of Additional Information, the Fund's and the
Portfolio's investment objective, policies and restrictions are not fundamental
and may be changed without shareholder approval. The Portfolio is diversified
and therefore may not, with respect to 75% of its total assets (i) invest more
than 5% of its total assets in the securities of any one issuer, other than U.S.
Government securities, or (2) acquire more than 10% of the outstanding voting
securities of any one issuer. The Portfolio will not concentrate (invest 25% or
more of its total assets) in the securities of issuers in any one industry. For
purposes of this limitation, the staff of the Securities and Exchange Commission
(the "SEC") considers (a) all supranational organizations as a group to be a
single industry and (b) each foreign government and its political subdivisions
to be a single industry.
MANAGEMENT OF THE FUND AND PORTFOLIO
TRUSTEES. The Trustees of the Trust and the Portfolio decide upon matters of
general policy and review the actions of Morgan and other service providers.
The Trustees of the Trust and the Portfolio are identified below. A majority
of the
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non-interested Trustees have adopted written procedures to deal with any
potential conflicts of interest that may arise because the same persons are
Trustees of both the Trust and the Portfolio.
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 of
the Trust and the Portfolio; Chairman,
Pierpont Group, Inc.
Michael P. Mallardi . . . . . . Former Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast
Group
ADVISOR. The Fund has not retained the services of an investment advisor because
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 as investment advisor. Morgan provides investment advice and portfolio
management services to the Portfolio. Subject to the supervision of the
Trustees, Morgan makes the Portfolio's day-to-day investment decisions, arranges
for the execution of portfolio transactions and generally manages the
Portfolio's investments.
Morgan, with principal offices at 60 Wall Street, New York, New York 10260, is a
New York trust company that conducts a general banking and trust business.
Morgan is a wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P.
Morgan"), a bank holding company organized under the laws of Delaware. Through
offices in New York City and abroad, J.P. Morgan, through the Advisor and other
subsidiaries, offers a wide range of services to governmental, institutional,
corporate and individual customers and acts as investment advisor to individual
and institutional clients with combined assets under management of over $197
billion (of which the Advisor advises over $30 billion).
Morgan uses a sophisticated, disciplined, collaborative process for managing all
asset classes. The following persons have been primarily responsible for the
day-to-day management and implementation of Morgan's investment process for the
Portfolio since its inception (business experience for the past five years is
indicated parenthetically): Gerard W. Lillis, Managing Director (employed by
Morgan since prior to 1992) and Mark E. Smith, Vice President (employed by
Morgan since prior to 1992).
As compensation for the services rendered and related expenses borne by Morgan
under its 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 0.45% of the Portfolio's average daily net assets.
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.
CO-ADMINISTRATOR. Pursuant to Co-Administration Agreements with the Trust and
the Portfolio, Funds Distributor, Inc. ("FDI") serves as the Co-Administrator
for the Fund and the Portfolio. FDI (i) provides office space, equipment and
clerical personnel for maintaining the organization and books and records of
the Fund and the Portfolio; (ii) provides officers for the Trust and the
Portfolio; (iii) prepares and files documents required for notification of
state securities
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administrators; (iv) reviews and files marketing and sales literature; (v) files
Portfolio regulatory documents and mails Portfolio communications to Trustees
and investors; and (vi) maintains related books and records.
For its services under the Co-Administration Agreements, each of the Fund and
the Portfolio has agreed to pay FDI fees equal to its allocable share of an
annual complex wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the Fund or the Portfolio is based on the ratio of its net
assets to the aggregate net assets of the Trust, the Portfolio and certain other
registered investment companies subject to similar agreements with FDI.
ADMINISTRATIVE SERVICES AGENT. Pursuant to Administrative Services Agreements
with the Trust and the Portfolio, Morgan provides administrative and related
services to the Fund and the Portfolio, including services related to tax
compliance, preparation of financial statements, calculation of performance
data, oversight of service providers and certain regulatory and Board of
Trustees matters.
Under the Administrative Services Agreements, each of the Fund and the Portfolio
has agreed to pay Morgan fees equal to its allocable share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate net
assets of the Portfolio,the other portfolios in which series of the Trust or The
JPM Pierpont Funds invest and JPM Series Trust in accordance with the following
annual schedule: 0.09% on the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily net assets in excess of $7
billion, less the complex-wide fees payable to FDI.
DISTRIBUTOR. FDI, a registered broker-dealer, also serves as the Distributor of
shares of the Fund. FDI is a wholly owned indirect subsidiary of Boston
Institutional Group, Inc. FDI's principal business address is 60 State Street,
Suite 1300, Boston, Massachusetts 02109.
FUND SERVICES AGREEMENTS. Pursuant to Fund Services Agreements with the Trust
and the Portfolio, Pierpont Group, Inc. ("PGI"), 461 Fifth Avenue, New York, New
York 10017, assists the Trustees in exercising their overall supervisory
responsibilities for the affairs of the Trust and the Portfolio. PGI provides
these services for a fee approximating its reasonable cost.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company ("State
Street"), 225 Franklin Street, Boston, Massachusetts 02110, serves as the
custodian, fund accounting and transfer agent for the Fund and the Portfolio and
as the Fund's dividend disbursing agent. State Street keeps the books of account
for the Fund and the Portfolio.
EXPENSES. In addition to the fees payable to the service providers identified
above, the Fund and the Portfolio are responsible for usual and customary
expenses associated with their respective operations. These include, among other
things, organization expenses, legal fees, audit and accounting expenses,
insurance costs, the compensation and expenses of the Trustees, interest, taxes
and extraordinary expenses (such as for litigation). For the Fund, such expenses
also include printing and mailing reports, notices and proxy statements to
shareholders and registration and filing fees under federal and state securities
laws, respectively. For the Portfolio, such expenses also include brokerage
expenses and registration fees under foreign securities laws.
Morgan has agreed that it will, at least through November 30, 1997, maintain the
Fund's total operating expenses (which include expenses of the Fund and the
Portfolio) at the annual rate of 0.65% of the Fund's average daily net assets.
This expense limitation does not cover extraordinary expenses during the
period.
SHAREHOLDER INQUIRIES AND SERVICES
Shareholders may call J.P. Morgan Funds Services at (800) 766-7722 for
information about the Fund and assistance with shareholder transactions.
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SHAREHOLDER SERVICING. Under a shareholder servicing agreement with the Trust,
Morgan, acting directly or through an agent (designated as an Eligible
Institution), provides account administration and personal and account
maintenance services to Fund shareholders. These services include assisting in
the maintenance of accurate account records; processing orders to purchase and
redeem shares of the Fund; and responding to shareholder inquiries. The Fund has
agreed to pay Morgan a fee for these services at an annual rate of 0.10% of the
average daily net assets of the Fund.
The Fund may be sold to or through Eligible Institutions, including financial
institutions and broker-dealers, that may be paid fees by Morgan or its
affiliates for services provided to their clients that invest in the Fund. See
Eligible Institutions. Organizations that provide recordkeeping or other
services to certain employee benefit or retirement plans that include the Fund
as an investment alternative may also be paid a fee.
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
instructions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Fund's
Distributor. Investors must be customers of Morgan or an Eligible Institution.
Investors may also be employer-sponsored retirement plans that have designated
the Fund as an investment option for the plans. Prospective investors who are
not already customers of Morgan may apply to become customers of Morgan for the
sole purpose of Fund transactions. There are no charges associated with becoming
a Morgan customer for this purpose. Morgan reserves the right to determine the
customers that it will accept, and the Fund reserves the right to determine the
purchase orders that it will accept.
MINIMUM INVESTMENT REQUIREMENTS. The minimum initial investment in the Fund is
$1,000,000. The minimum subsequent investment is $25,000. These minimum initial
investment requirements may be waived for certain investors, including investors
for whom the Advisor is a fiduciary, who maintain related accounts with the
Fund, other JPM Institutional Funds or with the Advisor, who make investments
for a group of clients, such as financial advisors, trust companies and
investment advisors, or who maintain retirement accounts with the Fund.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value 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, conditions and
charges.
To purchase Fund shares, investors 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 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 shares. If the Fund or its agent 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 becomes a holder of record on the next business day upon the Fund's
receipt of payment in immediately available funds. If the Fund or its agent
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 becomes a holder of record on the following business day
upon the Fund's receipt of payment.
ELIGIBLE INSTITUTIONS. Shares may be sold to or through Eligible Institutions,
including financial institutions and broker-dealers, that may be paid fees by
Morgan or its affiliates for services provided to their clients that invest in
the Fund.
13
<PAGE>
Organizations that provide recordkeeping or other services to certain employee
benefit or retirement plans that include the Fund as an investment alternative
may also be paid a fee.
The services provided by Eligible Institutions may include establishing and
maintaining shareholder accounts, processing purchase and redemption
transactions, arranging for bank wires, performing shareholder subaccounting,
answering client inquiries regarding the Trust, assisting clients in changing
dividend options, account designations and addresses, providing 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 statements, periodic
reports, updated prospectuses 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.
Although there is no sales charge levied directly by the Fund, Eligible
Institutions may establish their own terms and conditions for providing their
services and may charge investors a transaction-based or other fee for their
services. Such charges may vary among Eligible Institutions but in all cases
will be retained by the Eligible Institution and not remitted to the Fund or
Morgan.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem Fund shares, an investor may instruct Morgan or
his or her Eligible Institution, as appropriate, to submit a redemption request
to the Fund or may telephone J.P. Morgan Funds Services directly at (800)
766-7722 and give the Shareholder Service Representative a preassigned
shareholder Personal Identification Number and the amount of the redemption. The
Fund executes effective redemption requests at the next determined net asset
value per share ("NAV"). See Net Asset Value.
A redemption request received by the Fund or its agent prior to 4:00 P.M. New
York time is effective on that day. A redemption request received after that
time becomes effective on the next business day. Cash 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 below, in any event are paid within seven
days.
OTHER REDEMPTION PROCESSING INFORMATION. Redemption requests may not be
processed if the redemption request is not submitted in proper form. To be in
proper form, the Fund must have received the shareholder's certified taxpayer
identification number and address. In addition, if shares were paid for by check
and the check has not yet cleared, redemption proceeds will not be transmitted
until the check has cleared, which may take up to 15 days. The Fund reserves the
right to suspend the right of redemption or postpone the payment of redemption
proceeds to the extent permitted by the SEC.
MANDATORY REDEMPTION. If a redemption of shares reduces the value of a
shareholder's account balance below the required initial minimum investment, the
Fund may redeem the remaining shares in the account 60 days after providing
written notice to the shareholder of the mandatory redemption. An account will
not be subject to mandatory redemption if the shareholder purchases sufficient
shares during the 60-day period to increase the account balance to the required
minimum investment amount.
14
<PAGE>
EXCHANGE OF SHARES
Shares of the Fund may be exchanged for shares of any of The JPM Pierpont Funds,
The JPM Institutional Funds or JPM Series Trust at net asset value without a
sales charge. Shareholders should read the prospectus of the fund into which
they are exchanging and may only exchange between fund accounts that are
registered in the same name, address and taxpayer identification number. After
the exchange, shareholders must meet the minimum investment requirements for the
fund in which they are then investing. An exchange is a redemption of shares
from one fund and a purchase of shares in another and is therefore a taxable
transaction that may have tax consequences. The Fund reserves the right to
discontinue, alter or limit the exchange privilege at any time. Exchanges are
available only in states where an exchange may legally be made.
DIVIDENDS AND DISTRIBUTIONS
Income dividends for the Fund are declared and paid at least annually. Realized
net capital gains will be distributed at least annually. The Fund may also
declare additional dividends from net investment income or capital gains in a
given year to the extent necessary to avoid the imposition of federal income or
excise tax on the Fund. Dividends and distributions will be payable to
shareholders of record on the record date. The Fund's dividends and
distributions are paid in additional Fund shares unless the shareholder elects
to have them paid in cash. The tax treatment of dividends and distributions is
the same whether they are paid in shares or cash. Cash dividends and
distributions are either (1) credited to the shareholder's account at Morgan or
the shareholder's Eligible Institution or (2) in the case of certain Morgan
clients, paid by a check mailed in accordance with the client's
instructions.
NET ASSET VALUE
The Fund computes its NAV at 4:15 p.m. New York time on each business day. The
NAV 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 remainder by the number of outstanding
shares.
TAXES
The Fund intends to elect to be treated as a regulated investment company under
Subchapter M of the Code. To qualify as such, the Fund must satisfy certain
requirements relating to the sources of its income, diversification of its
assets and distribution of its income to shareholders. As a regulated investment
company, the Fund will not be subject to federal income or excise tax on any net
investment income and net realized capital gains that are distributed to
shareholders in accordance with certain timing requirements of the Code.
Dividends paid by the Fund from net investment income, certain foreign currency
gains, and the excess of net short-term capital gain over net long-term capital
loss will be taxable to its shareholders as ordinary income. Distributions paid
by the Fund from the excess of net long-term capital gain over net short-term
capital loss and designated as "capital gain dividends" will be taxable as
long-term capital gains regardless of how long shareholders have held their
shares. These tax consequences will apply whether distributions are received in
additional shares or in cash. The Fund's dividends and distributions will
generally not qualify for the corporate dividends-received deduction under the
Code. Shareholders will be informed annually about the amount and character, for
federal income tax purposes, of distributions received from the Fund.
The Portfolio anticipates that it may be required to pay foreign taxes on its
income from certain foreign investments, which will reduce its return from those
investments. The Fund may elect to pass through qualifying foreign taxes to its
shareholders. If this election is made, shareholders will then include their
share of such taxes in income (in addition to
15
<PAGE>
actual dividends and distributions) and may be entitled, subject to applicable
limitations, to a corresponding federal income tax credit or deduction. The Fund
will provide appropriate information to shareholders if this election is made.
Investors should consider the adverse tax implications of buying shares before a
distribution. Investors who purchase shares shortly before the record date for a
distribution will pay a per share price that includes the value of the
anticipated distribution and will be taxed on the distribution even though the
distribution represents a return of a portion of the purchase price.
Redemptions of shares, whether for cash or in-kind, are taxable events on which
a shareholder may recognize a gain or loss and may be subject to special tax
rules if the redeemed shares were held less than six months or if a reinvestment
occurs. Individuals and certain other shareholders may be subject to 31% backup
withholding of federal income tax on distributions and redemptions if they fail
to furnish their correct taxpayer identification number and certain
certifications or if they are otherwise subject to backup withholding.
In addition to federal taxes, a shareholder may be subject to state, local or
other taxes on Fund distributions, redemptions or exchanges of shares of the
Fund, or the value of their Fund investment. Shareholders are urged to consult
their own tax advisors concerning specific questions about federal, state, local
or other taxes.
ORGANIZATION
The Trust was organized on November 4, 1992 as a Massachusetts business trust.
The Trust currently has 19 series of shares, including the Fund, that are
offered to the public.
Shareholders of the Fund are entitled to one full or fractional vote for each
share of the Fund. There is no cumulative voting and shares have no preemption
or conversion rights. The Trust does not intend to hold annual meetings of
shareholders. The Trustees will call special meetings of shareholders to the
extent required by the Trust's Declaration of Trust or the 1940 Act. The 1940
Act requires the Trustees, under certain circumstances, to call a meeting to
allow shareholders to vote on the removal of a Trustee and to assist
shareholders in communicating with each other.
ADDITIONAL INFORMATION
THE LEHMAN BROTHERS AGGREGATE BOND INDEX. The Index is a widely recognized
measure of the aggregate U.S. bond market and represents an unmanaged portfolio
of fixed income securities. The Index represents approximately 4,000 investment
grade corporate, government, and mortgage-backed securities weighted by the
market value of each security.
SHAREHOLDER REPORTS AND CONFIRMATIONS. The Fund sends to its shareholders annual
and semiannual reports. The financial statements appearing in annual reports are
audited by independent accountants. Shareholders will also be sent confirmations
of each purchase and redemption transaction and monthly statements reflecting
all account activity.
TELEPHONE TRANSACTIONS. All shareholders are entitled to initiate redemptions
and other transactions by telephone. However, a transaction authorized by
telephone and reasonably believed by the Fund, Morgan, an Eligible Institution
or the Distributor to be genuine may result in a loss to the investor if the
transaction is not in fact genuine. The Fund will employ reasonable procedures
to confirm that investor instructions communicated by telephone are genuine.
These include requiring investors to give their personal identification numbers
and tape recording telephone instructions. If these procedures are not followed,
the Fund, Morgan, the investor's Eligible Institution or the Distributor may be
liable for any losses resulting from unauthorized or fraudulent instructions.
16
<PAGE>
PERFORMANCE ADVERTISING. The Fund may advertise historical performance
information and compare its performance to other investments or relevant
indexes. An advertisement may also include data supplied by Lipper Analytical
Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson Associates and other
industry publications.
The Fund may advertise average annual total return and other forms of total
return data. Average annual total return is determined by computing the average
annual percentage change in value of $1,000 invested at NAV for specified
periods ending with the most recent calendar quarter. The total return
calculation assumes a complete redemption of the investment at the end of the
relevant period. The Fund may also advertise total return on a cumulative,
average, year-by-year or other basis for specified periods. The investment
results of the Fund will fluctuate over time and should not be considered a
representation of the Fund's performance in the future.
The Fund may advertise its yield. Yield reflects the Fund's rate of income on
portfolio investments as a percentage of its NAV. Yield is computed by
annualizing the result of dividing the net investment income per share over a
30-day period by the NAV on the last day of that period. Yield is calculated by
accounting methods that are standardized for all stock and bond funds and differ
from the methods used for other accounting purposes. Therefore, the yield on the
Fund's shares may not equal the income paid on these shares or the income
reported in the Fund's financial statements.
Performance information may be obtained by calling Morgan at (800) 766-7722.
17
<PAGE>
THE
JPM INSTITUTIONAL
GLOBAL STRATEGIC
INCOME
FUND
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE TRUST OR THE DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER BY THE TRUST OR BY THE DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE TRUST OR THE
DISTRIBUTOR TO MAKE SUCH AN OFFER IN SUCH JURISDICTION.
PROS308-972
PROSPECTUS
FEBRUARY 28, 1997
<PAGE>
PROSPECTUS
The JPM Institutional Funds
60 State Street
Boston, Massachusetts 02109
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 A TWO-TIER MASTER-FEEDER INVESTMENT FUND STRUCTURE. SEE SPECIAL
INFORMATION CONCERNING INVESTMENT STRUCTURE 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 February 28, 1997 (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, Funds Distributor, Inc. ("FDI"),
60 State Street, Suite 1300, Boston, Massachusetts 02109, Attention: The JPM
Institutional Funds, or by calling (800) 221-7530.
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 FEDERAL 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 FEBRUARY 28, 1997
<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 FEDERAL 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 Investment Structure........................ 17
Investment Objectives and Policies......................................... 18
Additional Investment Information and Risk
Factors................................................................... 34
Investment Restrictions.................................................... 41
Management of the Trust and the Portfolios................................. 43
Shareholder Servicing...................................................... 47
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Purchase of Shares......................................................... 47
Redemption of Shares....................................................... 49
Exchange of Shares......................................................... 50
Dividends and Distributions................................................ 51
Net Asset Value............................................................ 52
Organization............................................................... 52
Taxes...................................................................... 53
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 Federal 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 Federal 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 Funds 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 may 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 in a two-tier master-
feeder investment fund structure. The Trustees believe that each Fund may
achieve economies of scale over time by utilizing this investment 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>
* Certain Eligible Institutions (defined below) may impose fees in connection
with the purchase of the Fund's shares through such institutions.
EXPENSE TABLE
ANNUAL OPERATING EXPENSES
<TABLE>
<CAPTION>
TAX EXEMPT FEDERAL
MONEY MARKET MONEY MARKET MONEY MARKET SHORT TERM TAX EXEMPT
FUND(2) FUND(1) FUND(2) BOND FUND(2) BOND FUND(2) BOND FUND(1)
------------- ------------ ------------ -------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Advisory Fees.......... 0.12% 0.18% 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% 0.07% None 0.00% 0.20% 0.20%
---- ---- ---- ---- ---- ----
Total Operating
Expenses
(after applicable
expense
reimbursement)...... 0.20% 0.25% 0.20% 0.25% 0.50% 0.50%
==== ==== ==== ==== ==== ====
<CAPTION>
SELECTED U.S. SMALL
INTERNATIONAL U.S. EQUITY COMPANY INTERNATIONAL EMERGING MARKETS DIVERSIFIED
BOND FUND(1) FUND(1) FUND(1) EQUITY FUND(2) EQUITY FUND(2) FUND(1)
------------- ------------ ------------ -------------- ---------------- ------------
<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% 0.35% 0.41% 0.10%
---- ---- ---- ---- ---- ----
Total Operating
Expenses
(after applicable
expense
reimbursement)...... 0.65% 0.60% 0.80% 0.95% 1.41% 0.65%
==== ==== ==== ==== ==== ====
</TABLE>
- -------
(1) The expense information in the above table has been restated to reflect
current fees under contractual arrangements and other expenses described
below. Fees and expenses are expressed as a percentage of estimated average
net assets of each Fund for its current fiscal year after expense reim-
bursements through December 31, 1997 for the Tax Exempt Money Market and
Tax Exempt Bond Funds, January 31, 1998 for the International Bond Fund,
September 30, 1997 for the Selected U.S. Equity and U.S. Small Company
Funds and October 31, 1997 for the Diversified Fund. For the Tax Exempt
Money Market Fund, fees and expenses assume the waiver of Morgan's adminis-
trative services and shareholder servicing fees and reimbursement of the
remainder of the Fund's expenses (excluding extraordinary expenses and ex-
penses allocated to the Fund from the Fund's corresponding Portfolio) were
in effect throughout the year. If actual assets are lower than estimated,
Total Operating Expenses may, because of Tax Exempt Money Market Portfo-
lio's expenses allocable to the Fund, exceed 0.25% but, in any event, will
not exceed 0.35% of the Fund's average daily net assets through December
31, 1997. See Management of the Trust and the Portfolios. If the above ex-
pense table reflected these expenses without applicable reimbursements,
Other Expenses and Total Operating Expenses would be equal on an annual ba-
sis to the following percentages for the current fiscal year:
2
<PAGE>
<TABLE>
<S> <C> <C>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
Tax Exempt Money Market Fund........................... 0.22% 0.40%
Tax Exempt Bond Fund................................... 0.27% 0.57%
International Bond Fund................................ 0.78% 1.13%
Selected U.S. Equity Fund.............................. 0.27% 0.67%
U.S. Small Company Fund................................ 0.28% 0.88%
Diversified Fund....................................... 0.29% 0.84%
</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>
Tax Exempt Money Market Fund..................... August 31, 1996 0.42%
Tax Exempt Bond Fund............................. August 31, 1996 0.60%
International Bond Fund.......................... September 30, 1996 1.67%
Selected U.S. Equity Fund........................ May 31, 1996 0.62%
U.S. Small Company Fund.......................... May 31, 1996 0.83%
Diversified Fund................................. June 30, 1996 0.98%
</TABLE>
- -------
(2) Fees and expenses are expressed as a percentage of average net assets of
each Fund for its most recent fiscal year and, except for the Emerging Mar-
kets Equity Fund, after expense reimbursements through February 28, 1998
(March 31, 1998 for the Money Market Fund). See Management of the Trust and
the Portfolios. If the above expense table reflected these expenses without
current reimbursements, Other Expenses and Total Operating Expenses would
have been equal to the following percentages for the most recently com-
pleted fiscal year:
<TABLE>
<S> <C> <C>
TOTAL
OTHER OPERATING
EXPENSES EXPENSES
-------- ---------
Money Market Fund......................................... 0.19% 0.31%
Federal Money Market Fund................................. 0.26% 0.46%
Short Term Bond Fund...................................... 1.12% 1.37%
Bond Fund................................................. 0.23% 0.53%
International Equity Fund................................. 0.36% 0.96%
</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>
FEDERAL
MONEY MARKET TAX EXEMPT MONEY 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 $ 3 $ 2 $ 3 $ 5 $ 5
3 Years................. $ 6 $ 8 $ 6 $ 8 $16 $16
5 Years................. $11 $14 $11 $14 $28 $28
10 Years................ $26 $32 $26 $32 $63 $63
</TABLE>
3
<PAGE>
<TABLE>
<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 $ 14 $ 7
3 Years................. $21 $19 $26 $ 30 $ 45 $21
5 Years................. $36 $33 $44 $ 53 $ 77 $36
10 Years................ $81 $75 $99 $117 $169 $81
</TABLE>
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, organization expenses, the fees paid to Pierpont Group, Inc. un-
der the Fund Services Agreements, the fees paid to FDI under the Co-Administra-
tion Agreements, the fees paid to State Street Bank and Trust Company as custo-
dian and transfer agent, and other usual and customary expenses of the Fund and
the Portfolio. For a more detailed description of contractual fee arrangements,
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
should be read in conjunction with the financial statements and related notes
which are contained in the annual report for each Fund and are incorporated by
reference into the Statement of Additional Information. The following selected
data have been audited by independent accountants except as noted below. Each
Fund's annual report includes a discussion of those factors, strategies and
techniques that materially affected that Fund's performance during the period
of the report, as well as certain related information. A copy of the annual re-
port for any Fund will be made available without charge upon request.
<TABLE>
<CAPTION>
THE JPM INSTITUTIONAL
MONEY MARKET FUND
----------------------------------------------
FOR THE FISCAL YEAR FOR THE
ENDED NOVEMBER 30, PERIOD
------------------------------ ENDED
1996 1995 1994 11/30/93(1)
---------- -------- -------- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period...................... $1.00 $1.00 $1.00 $1.00
---------- -------- -------- -------
Income From Investment
Operations:
Net Investment Income....... 0.0529 0.0577 0.0385 0.0120
Net Realized Gain (Loss) on
Investment................. 0.0001 0.0003 (0.0000)(a) (0.0000)(a)
---------- -------- -------- -------
Total From Investment
Operations.................. 0.0530 0.0580 0.0385 0.0120
---------- -------- -------- -------
Less Distributions to
Shareholders From:
Net Investment Income....... (0.0529) (0.0577) (0.0385) (0.0120)
Net Realized Gain........... (0.0003) -0- -0- (0.0000)(a)
---------- -------- -------- -------
Total Distributions to
Shareholders................ (0.0532) (0.0577) (0.0385) (0.0120)
---------- -------- -------- -------
Net Asset Value, End of
Period...................... $1.00 $1.00 $1.00 $1.00
========== ======== ======== =======
Total Return................. 5.46% 5.93% 3.92% 1.21%(b)
Ratios and Supplemental Data:
Net Assets at End of Period
(in thousands)............. $1,220,401 $999,746 $584,867 $27,188
Ratios to Average Net
Assets:
Expenses.................... 0.20% 0.20% 0.21% 0.30%(c)
Net Investment Income....... 5.28% 5.77% 4.42% 2.88%(c)
Decrease Reflected in
Expense Ratio due to
Expense Reimbursement...... 0.11% 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 AUGUST 31, PERIOD
------------------------------------------- ENDED
1996 1995 1994 8/31/93(1)
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $1.00 $1.00 $1.00 $1.00
------------ ------------ ----------- -------
Income From Investment
Operations:
Net Investment Income.. 0.0331 0.0352 0.0228 0.0040
Net Realized Gain
(Loss) on Investment.. (0.0000)(a) (0.0002) (0.0000)(a) (0.0000)(a)
------------ ------------ ----------- -------
Total From Investment
Operations............. 0.0331 0.0350 0.0228 0.0040
------------ ------------ ----------- -------
Less Distributions to
Shareholders From:
Net Investment Income.. (0.0331) (0.0352) (0.0228) (0.0040)
Net Realized Gain...... -- -- (0.0000)(a) (0.0000)(a)
------------ ------------ ----------- -------
Total Distributions to
Shareholders........... (0.0331) (0.0352) (0.0228) (0.0040)
------------ ------------ ----------- -------
Net Asset Value, End of
Period................. $1.00 $1.00 $1.00 $1.00
============ ============ =========== =======
Total Return............ 3.36% 3.57% 2.30% 0.40%(b)
Ratios and Supplemental
Data:
Net Assets at End of
Period (in thousands). $ 163,569 $100,142 $46,083 $35,004
Ratios to Average Net
Assets:
Expenses............... 0.35% 0.35% 0.35% 0.35%(c)
Net Investment Income.. 3.28% 3.49% 2.34% 2.25%(c)
Decrease Reflected in
Expense Ratio due to
Expense Reimbursement. 0.07% 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
FEDERAL MONEY MARKET FUND(1)
-------------------------------------------
FOR THE FISCAL YEAR FOR THE
ENDED OCTOBER 31 PERIOD
--------------------------- ENDED
1996 1995 1944 10/31/93(2)
-------- -------- ------- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.......................... $1.00 $1.00 $1.00 $1.00
-------- -------- ------- -------
Income From Investment
Operations:
Net Investment Income........... 0.0508 0.0555 0.0354 0.0220
Net Realized Gain (Loss) on
Investment..................... 0.0006 0.0003 (0.0000)(a) 0.0000(a)
-------- -------- ------- -------
Total From Investment Operations. 0.0514 0.0558 0.0354 0.0220
-------- -------- ------- -------
Less Distributions to
Shareholders From:
Net Investment Income........... (0.0508) (0.0555) (0.0354) (0.0220)
Net Realized Gain............... (0.0003) -0- (0.0001) -0-
-------- -------- ------- -------
Total Distributions to
Shareholders.................... (0.0511) (0.0555) (0.0355) (0.0220)
-------- -------- ------- -------
Net Asset Value, End of Period... $1.00 $1.00 $1.00 $1.00
======== ======== ======= =======
Total Return..................... 5.23% 5.69% 3.61% 2.23%(b)
-------- -------- ------- -------
Ratios and Supplemental Data:
Net Assets at End of Period (in
thousands)..................... $109,050 $145,108 $80,146 $25,477
Ratios to Average Net Assets:
Expenses........................ 0.20% 0.20% 0.20% 0.27%(c)
Net Investment Income........... 5.09% 5.56% 3.81% 2.81%(c)
Decrease Reflected in Expense
Ratio due to Expense
Reimbursement.................. 0.26% 0.31% 0.47% 0.76%(c)
</TABLE>
- -------
(1) Formerly The JPM Institutional Treasury Money Market Fund.
(2) 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
1996 1995 1994 10/31/93(1)
------- ------- ------- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.. $ 9.83 $ 9.60 $ 9.99 $10.00
------- ------- ------- -------
Income From Investment Operations:
Net Investment Income................ 0.55 0.58 0.47 0.11
Net Realized and Unrealized Gain
(Loss) on Investment................ 0.02 0.24 (0.39) (0.01)
------- ------- ------- -------
Total From Investment Operations...... 0.57 0.82 0.08 0.10
------- ------- ------- -------
Less Distributions to Shareholders
From:
Net Investment Income................ (0.55) (0.59) (0.47) (0.11)
------- ------- ------- -------
Net Asset Value, End of Period........ $ 9.85 (0.59) (0.47) (0.11)
======= ======= ======= =======
Total Return.......................... 6.01% 8.81% 0.87% 1.01%(a)
Ratios and Supplemental Data:
Net Assets at End of Period (in
thousands).......................... $17,810 $18,916 $47,679 $27,605
Ratios to Average Net Assets:
Expenses............................. 0.37% 0.45% 0.45% 0.46%(b)
Net Investment Income................ 5.69% 6.09% 4.96% 3.92%(b)
Decrease Reflected in Expense Ratio
due to Expense Reimbursement........ 1.00% 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
1996 1995 1994 10/31/93(1)
-------- -------- -------- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $ 9.98 $ 9.23 $10.14 $10.00
-------- -------- -------- -------
Income From Investment Operations:
Net Investment Income............ 0.61 0.63 0.55 0.15
Net Realized and Unrealized Gain
(Loss) on Investment............ (0.11) 0.75 (0.88) 0.14
-------- -------- -------- -------
Total From Investment Operations.. 0.50 1.38 (0.33) 0.29
-------- -------- -------- -------
Less Distributions to Shareholders
From:
Net Investment Income............ (0.61) (0.63) (0.55) (0.15)
Net Realized Gain................ (0.03) -0- (0.03) -0-
-------- -------- -------- -------
Total Distributions............... (0.64) (0.63) (0.58) (0.15)
-------- -------- -------- -------
Net Asset Value, End of Period.... $ 9.84 $ 9.98 $ 9.23 $10.14
======== ======== ======== =======
Total Return...................... 5.21% 15.50% (3.33)% 2.90%(a)
Ratios and Supplemental Data:
Net Assets at End of Period (in
thousands)...................... $836,066 $438,610 $253,174 $43,711
Ratios to Average Net Assets:
Expenses......................... 0.50% 0.47% 0.50 % 0.50%(b)
Net Investment Income............ 6.28% 6.62% 6.00 % 4.83%(b)
Decrease Reflected in Expense
Ratio due to Expense
Reimbursement................... 0.03% 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 PERIOD
7/12/93
(COMMENCEMENT
FOR THE FISCAL YEAR ENDED AUGUST 31, OF
--------------------------------------- OPERATIONS) TO
8/31/96 8/31/95 8/31/94 8/31/93
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.01 $ 9.75 $10.07 $10.00
------------ ----------- ----------- ------
Income From Investment
Operations:
Net Investment Income.. 0.48 0.49 0.48 0.06
Net Realized and
Unrealized Gain (Loss)
on Investment......... (0.07) 0.26 (0.32) 0.07
------------ ----------- ----------- ------
Total From Investment
Operations............. 0.41 0.75 0.16 0.13
------------ ----------- ----------- ------
Less Distributions to
Shareholders From:
Net Investment Income.. (0.48) (0.49) (0.48) (0.06)
Net Realized Gain...... (0.02) 0.00 0.00 0.00
------------ ----------- ----------- ------
Total Distributions.... (0.50) (0.49) (0.48) (0.06)
------------ ----------- ----------- ------
Net Asset Value, End of
Period................. $ 9.92 $10.01 $ 9.75 $10.07
============ =========== =========== ======
Total Return............ 4.13% 8.00% 1.61% 1.39%(a)
Ratios and Supplemental
Data:
Net Assets at End of
Period (in thousands). $121,131 $59,867 $16,415 $ --(c)
Ratios to Average Net
Assets:
Expenses............... 0.50% 0.50% 0.50% --
Net Investment Income.. 4.82% 5.09% 4.70% 3.56%(b)
Decrease Reflected in
Expense Ratio due to
Expense Reimbursement. 0.10% 0.21% 1.48% 2.50%(b)
</TABLE>
- -------
(a)Not annualized.
(b)Annualized.
(c)Net assets at August 31, 1993 were $202.
10
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
THE JPM INSTITUTIONAL
INTERNATIONAL BOND FUND
----------------------------
FOR THE
PERIOD
12/1/94
(COMMENCEMENT
OF
FOR THE FISCAL OPERATIONS)
YEAR ENDED THROUGH
9/30/96 9/30/95
-------------- -------------
<S> <C> <C>
Net Asset Value, Beginning of Period............. $11.12 $10.00
------- ------
Income From Investment Operations:
Net Investment Income........................... 0.31 0.49
Net Realized and Unrealized Gain on Investment
and Foreign Currency........................... 0.95 0.78
------- ------
Total from Investment Operations................. 1.26 1.27
------- ------
Less Distributions to Shareholders From:
Net Investment Income........................... -- (0.15)
------- ------
Net Realized Gain............................... (1.08) --
------- ------
Total Distributions............................. (1.08) (0.15)
------- ------
Net Asset Value, End of Period................... $11.30 $11.12
======= ======
Total Return..................................... 12.09% 12.83%(a)
Ratios and Supplemental Data:
Net Assets at End of Period (in thousands)...... $13,310 $4,233
Ratios to Average Net Assets:
Expenses........................................ 0.65% 0.60%(b)
Net Investment Income........................... 5.28% 5.82%(b)
Decrease reflected in Expense Ratio due to
Expense Reimbursement.......................... 1.02% 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 FOR THE FISCAL
MONTHS ENDED YEAR FOR THE PERIOD
NOVEMBER 30, 1996 ENDED MAY 31, ENDED MAY 31,
(UNAUDITED) --------------------- --------------
-----------------
<S> <C> <C> <C> <C>
1996 1995 1994(1)
-------- -------- --------
Net Asset Value,
Beginning of Period.... $14.00 $12.10 $10.92 $10.00
-------- -------- -------- -------
Income From Investment
Operations:
Net Investment Income.. 0.07 0.27 0.18 0.08
Net Realized and
Unrealized Gain (Loss)
on Investment......... 1.41 2.66 1.42 0.88
-------- -------- -------- -------
Total From Investment
Operations............. 1.48 2.93 1.60 0.96
-------- -------- -------- -------
Less Distributions to
Shareholders From:
Net Investment Income.. (0.07) (0.20) (0.14) (0.04)
Net Realized Gain...... (0.87) (0.83) (0.28) -0-
-------- -------- -------- -------
Total Distributions to
Shareholders........... (0.94) (1.03) (0.42) (0.04)
-------- -------- -------- -------
Net Asset Value, End of
Period................. $14.54 $14.00 $12.10 $10.92
======== ======== ======== =======
Total Return............ 11.56%(a) 25.43%(a) 15.40% 9.61%(a)
Ratios and Supplemental
Data:
Net Assets at End of
Period (in thousands). $268,502 $221,368 $172,497 $47,473
Ratios to Average Net
Assets:
Expenses............... 0.60%(b) 0.60% 0.60% 0.60%(b)
Net Investment Income.. 1.40%(b) 2.08% 2.07% 1.74%(b)
Decrease Reflected in
Expense Ratio due to
Expense Reimbursement. 0.07%(b) 0.02% 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 FISCAL
FOR THE YEAR ENDED MAY FOR THE
SIX MONTHS ENDED 31, PERIOD
NOVEMBER 30, 1996 ------------------ ENDED
(UNAUDITED) 1996 1995 5/31/94(1)
----------------- -------- -------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period................. $13.97 $11.16 $10.03 $10.00
-------- -------- -------- -------
Income From Investment
Operations:
Net Investment Income..... 0.04 0.13 0.10 0.04
Net Realized and
Unrealized Gain (Loss) on
Investment............... 0.16 3.66 1.12 -0-
-------- -------- -------- -------
Total From Investment
Operations................ 0.20 3.79 1.22 0.04
-------- -------- -------- -------
Less Distributions to
Shareholders From:
Net Investment Income..... (0.05) (0.12) (0.09) (0.01)
Net Realized Gain......... (0.66) (0.86) -0- -0-
-------- -------- -------- -------
Total Distributions to
Shareholders.............. (0.71) (0.98) (0.09) (0.01)
-------- -------- -------- -------
Net Asset Value, End of
Period.................... $13.46 $13.97 $11.16 $10.03
======== ======== ======== =======
Total Return............... 1.92%(a) 35.60% 12.26% 0.42%(a)
Ratios and Supplemental
Data:
Net Assets at End of
Period (in thousands).... $333,568 $291,931 $149,279 $71,141
Ratios to Average Net
Assets:
Expenses.................. 0.80%(b) 0.80% 0.80% 0.80%(b)
Net Investment Income..... 0.84%(b) 1.20% 1.14% 0.93%(b)
Decrease Reflected in
Expense Ratio due to
Expense Reimbursement.... 0.10%(b) 0.03% 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
1996 1995 1994 10/31/93(1)
-------- -------- -------- -----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $10.44 $10.83 $10.20 $10.00
-------- -------- -------- ------
Income From Investment Operations:
Net Investment Income............ 0.12 0.06 0.06 0.00
Net Realized and Unrealized Gain
(Loss) on Investment and Foreign
Currency........................ 1.17 (0.33) 0.57 0.20
-------- -------- -------- ------
Total From Investment Operations.. 1.29 (0.27) 0.63 0.20
-------- -------- -------- ------
Less Distributions to Shareholders
From:
Net Investment Income............ (0.24) -- -- --
Net Realized Gain................ (0.06) (0.12) -0- -0-
-------- -------- -------- ------
Total Distributions to
Shareholders..................... (0.30) (0.12) 0.00 0.00
-------- -------- -------- ------
Net Asset Value, End of Period.... $11.43 $10.44 $10.83 $10.20
======== ======== ======== ======
Total Return...................... 12.54% (2.46)% 6.18% 2.00%(a)
Ratios and Supplemental Data:
Net Assets at End of Period (in
thousands)...................... $726,864 $467,511 $213,119 $ 0.2
Ratios to Average Net Assets:
Expenses......................... 0.95% 0.92% 1.00% 0.00%(b)
Net Investment Income............ 1.24% 1.24% 0.95% 0.00%(b)
Decrease Reflected in Expense
Ratio due to Expense
Reimbursement................... 0.01% 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 FISCAL YEAR FOR THE
ENDED OCTOBER 31, PERIOD
-------------------- ENDED
1996 1995 10/31/94(1)
--------- --------- -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period..... $ 9.71 $12.47 $10.00
--------- --------- --------
Income From Investment Operations:
Net Investment Income................... 0.08 0.08 0.04
Net Realized and Unrealized Gain (Loss)
on Investment and Foreign Currency..... 0.56 (2.66) 2.43
--------- --------- --------
Total From Investment Operations......... 0.64 (2.58) 2.47
--------- --------- --------
Less Distributions to Shareholders From:
Net Investment Income................... (0.08) (0.05) -0-
Net Realized Gain....................... -- (0.13) -0-
--------- --------- --------
Total Distributions to Shareholders...... (0.08) (0.18) -0-
--------- --------- --------
Net Asset Value, End of Period........... $10.27 $ 9.71 $12.47
========= ========= ========
Total Return............................. 6.64% (20.81)% 24.70%(a)
Ratios and Supplemental Data:
Net Assets at End of Period (in
thousands)............................. $ 293,594 $ 186,023 $146,667
Ratios to Average Net Assets:
Expenses................................ 1.41% 1.43% 1.46%(b)
Net Investment Income................... 0.96% 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 FISCAL YEAR FOR THE
ENDED JUNE 30, PERIOD
-------------------- ENDED
1996 1995 6/30/94(1)
--------- --------- ----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period. $11.26 $ 9.90 $10.00
--------- --------- -------
Income From Investment Operations:
Net Investment Income............... 0.40 0.31 0.18
Net Realized and Unrealized Gain
(Loss) From Portfolio.............. 1.42 1.37 (0.23)
--------- --------- -------
Total From Investment Operations..... 1.82 1.68 (0.05)
--------- --------- -------
Less Distributions to Shareholders
From:
Net Investment Income............... (0.42) (0.26) (0.05)
Net Realized Gain................... (0.64) (0.06) -0-
--------- --------- -------
Total Distributions to Shareholders.. (1.06) (0.32) (0.05)
--------- --------- -------
Net Asset Value, End of Period....... $12.02 $11.26 $ 9.90
========= ========= =======
Total Return......................... 16.91% 17.36% (0.56%)(a)
Ratios and Supplemental Data:
Net Assets at End of Period (in
thousands)......................... $ 193,219 $ 164,855 $59,222
Ratios to Average Net Assets:
Expenses............................ 0.65% 0.65% 0.65%(b)
Net Investment Income............... 3.34% 3.70% 2.92%(b)
Decrease Reflected in the Above
Expense Ratio due to Expense
Reimbursement...................... 0.33% 0.53% 0.97%(b)
</TABLE>
- -------
(1)Commencement of Operations July 8, 1993.
(a)Not annualized.
(b)Annualized.
16
<PAGE>
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
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 master-feeder investment fund structure has been developed
relatively recently, so shareholders should carefully consider this investment
approach.
In addition to selling a beneficial interest to 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 Morgan
at (800) 766-7722.
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.
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.
17
<PAGE>
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 397 calendar days or less. The Portfolio's ability to
achieve maximum current income is affected by its high quality standards (dis-
cussed 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.
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 or other asset-backed securities collateral -
18
<PAGE>
ized by such assets. 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 lend 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 of 397 calendar days or less and by maintaining a dollar-
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
commercial paper and municipal demand obligations such as variable rate demand
notes and master demand obligations. The interest rate on variable rate demand
notes is adjustable at periodic intervals as specified in the notes. Master de-
mand
19
<PAGE>
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, along with the credit quality of such institutions, when
investment quality is evaluated. Favorable or unfavorable changes in the credit
quality of these institutions may cause gains or losses to the Portfolio and
affect the Fund's share price.
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, lend 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 FEDERAL MONEY MARKET FUND
The JPM Institutional Federal 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 Federal 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 397 calendar days or
less.
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
20
<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 Advisor intends to manage the Portfolio actively in pursuit of its invest-
ment objective. Portfolio transactions are undertaken principally to accomplish
the Portfolio's objective in relation to expected movements in the general
level of interest rates, but the Portfolio may also engage in short-term trad-
ing consistent with its objective. To the extent the Portfolio engages in
short-term trading, it may incur increased transaction costs. See Taxes below.
The portfolio turnover rate for the fiscal year ended October 31, 1996 was
191%.
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 up to 20% of its total assets in debt securities de-
nominated in foreign currencies of developed countries. 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 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 denominated in the U.S. dollar and
other currencies. See Additional Investment Information 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. It is the current policy of the Portfolio that under nor-
mal circumstances at least 90% of total assets will consist of securities that
at the time of purchase are rated Baa or better by Moody's Investors Service,
Inc. ("Moody's") or BBB or better by Standard & Poor's Ratings Group ("Stan-
dard & Poor's"), of which at least 75% of total assets will be rated A or bet-
ter. The remaining 10% of total assets may be invested in securities that are
rated B or better by Moody's or Standard & Poor's. In each case, the Portfolio
may invest in securities which are unrated if in Morgan's opinion such securi-
ties 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. Securities rated Ba or B by Moody's or BB or B 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 Additional Investment
Information and Risk Factors.
22
<PAGE>
The Portfolio may also purchase obligations on a when-issued or delayed deliv-
ery basis, enter into repurchase and reverse repurchase agreements, lend its
portfolio securities, purchase privately placed securities and enter into cer-
tain hedging transactions that may involve options on securities and securities
indexes, futures contracts, options on futures contracts and forward contracts
on foreign currencies. 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.
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 portfolio turnover for the fiscal year ended October 31, 1996 was 186%.
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.
23
<PAGE>
MONEY MARKET INSTRUMENTS. The Portfolio may invest in the types of money market
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 circum-
stances, 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 temporary defensive measure
taken during, or in anticipation of, adverse market conditions.
QUALITY INFORMATION. It is the current policy of the Portfolio that under nor-
mal circumstances at least 75% of total assets will consist of securities that
at the time of purchase are rated Baa or better by Moody's or BBB or better by
Standard & Poor's, of which at least 65% of total assets will be rated A or
better. The remaining 25% of total assets may be invested in securities that
are rated B or better by Moody's or Standard & Poor's. In each case, the Port-
folio may invest in securities which are unrated if in Morgan's opinion such
securities 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. 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 in-
vestment is made. If the quality of the investment later declines, the Portfo-
lio may continue to hold the investment. See Additional Investment Information
and Risk Factors.
The Portfolio may also purchase obligations on a when-issued or delayed deliv-
ery basis, enter into repurchase and reverse repurchase agreements, lend its
portfolio securities, purchase privately placed securities and enter into cer-
tain hedging transactions that may involve options on securities and securities
indexes, futures contracts, options on futures contracts and forward contracts
on foreign currencies. For a discussion of these investments and investment
techniques, see Additional Investment Information and Risk Factors.
THE JPM INSTITUTIONAL TAX EXEMPT BOND FUND
The JPM Institutional 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 at-
tempts to achieve its investment objective by investing all of its investable
assets in The Tax Exempt Bond Portfolio, a diversified open-end management in-
vestment 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 obligations
and who are willing to incur the greater price fluctuation of longer-term in-
struments.
The Portfolio attempts to achieve its investment objective by investing primar-
ily 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 in-
terest 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.
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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 portfolio turnover rate for the Portfolio for the fiscal year ended August
31, 1996 was 25%.
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, lend 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.
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<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 portfolio
turnover rate for the fiscal year ended September 30, 1996 was 330%.
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
26
<PAGE>
defensive measure taken in the Advisor's judgment during, or in anticipation
of, adverse market conditions. For more detailed information about these money
market investments, see Investment Objectives and Policies in the Statement of
Additional Information.
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, lend 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-
27
<PAGE>
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. The port-
folio turnover rate for the Portfolio for the fiscal year ended May 31, 1996
was 84.55%.
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, lend 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 market capitalization size range of 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
28
<PAGE>
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. The portfolio turnover for
the Portfolio for the fiscal year ended May 31, 1996 was 92.58%.
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 the small company
holdings of the Portfolio are primarily companies included in the Russell 2500
Index and its foreign investments are limited to the equity securities of for-
eign 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 October 31, 1996, the approximate Japan weighting was 38% in
the EAFE Index and 33% 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.
The portfolio turnover rate for the fiscal ended October 31, 1996 was 57%.
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 (OTC) markets, and may invest in certain
restricted 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, lend
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.
30
<PAGE>
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 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. The portfolio turnover rate for the fiscal year ended October 31, 1996 was
31%.
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, lend
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
31
<PAGE>
futures contracts for hedging and risk management purposes. For a discussion
of these investments and investment techniques, see Additional Investment In-
formation and Risk Factors.
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. The portfolio turnover rate
for the Portfolio for the fiscal year ended June 30, 1995 was 144%.
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
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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 In-
dex.
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 corporate and government issuers. These include corporate bonds, de-
bentures, notes, mortgage-related securities, and asset-backed securities;
U.S. Government and agency securities; and private placements. See Corporate
Bonds, etc. and Government Obligations, etc. under 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.
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The Portfolio may also invest in securities on a when-issued or delayed deliv-
ery basis, enter into repurchase and reverse repurchase agreements, lend 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 indexes of securi-
ties, futures contracts and options on futures contracts for hedging and risk
management purposes. For a discussion of these investments and investment tech-
niques, 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.
BELOW INVESTMENT GRADE DEBT. The Portfolios for The JPM Institutional Bond and
Short Term Bond Funds may purchase certain lower rated securities, such as
those rated Ba or B by Moody's or BB or B by Standard & Poor's (commonly known
as junk bonds), which may be subject to certain risks with respect to the issu-
ing entity's ability to make scheduled payments of principal and interest and
to greater market fluctuations. While generally providing higher coupons or in-
terest rates than investments in higher quality securities, lower quality fixed
income securities involve greater risk of loss of principal and income, includ-
ing the possibility of default or bankruptcy of the issuers of such securities,
and have greater price volatility, especially during periods of economic uncer-
tainty or change. These lower quality fixed income securities tend to be af-
fected by economic changes and short-term corporate and industry developments
to a greater extent than higher quality securities, which react primarily to
fluctuations in the general level of interest rates. To the extent that the
Portfolio invests in such lower quality securities, the achievement of its in-
vestment objective may be more dependent on the Advisor's own credit analysis.
Lower quality fixed income securities are affected by the market's perception
of their credit quality, especially during times of adverse publicity, and the
outlook for economic growth. Economic downturns or an increase in interest
rates may cause a higher incidence of default by the issuers of these securi-
ties, especially issuers that are highly leveraged. The market for these lower
quality fixed income securities is generally less liquid than the market for
investment grade fixed income securities. It may be more difficult to sell
these lower rated securities to meet redemption requests, to respond to changes
in the market, or to value accurately the Portfolio's portfolio securities for
purposes of determining the Fund's net asset value. See Appendix A in the
Statement of Additional Information for more detailed information on these
ratings.
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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 securities no in-
terest accrues to the Portfolio until settlement. At the time of settlement, a
when-issued security may be valued at less than its purchase price. Each Port-
folio maintains with the Custodian a separate account with a segregated port-
folio of securities in an amount at least equal to these commitments. When en-
tering into a when-issued or delayed delivery transaction, the Portfolio re-
lies 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 liabil-
ities 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 Federal 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 collat-
eral with a market value at least equal to the purchase price plus accrued in-
terest 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
Portfolio's realization upon the disposition of collateral may be delayed or
limited. Investments in certain repurchase agreements and certain other in-
vestments which may be considered illiquid are limited. See Illiquid Invest-
ments; Privately Placed and other Unregistered Securities below.
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.
Loans of portfolio securities may be considered extensions of credit by the
Portfolios. The risks to the Portfolios with respect to borrowers of their
portfolio securities are similar to the risks to the Portfolios with respect
to sellers in repurchase agreement transactions. See Repurchase Agreements
above. 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.
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
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the Portfolio to be magnified. See Investment Restrictions for investment lim-
itations applicable to reverse repurchase agreements and other borrowings. For
more information, 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 in the United States. In addition, there is
generally less government supervision 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
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not necessarily be denominated in the same currency as the securities they rep-
resent. ADRs are receipts typically issued by a U.S. bank or trust company evi-
dencing ownership of the underlying foreign securities. Certain such institu-
tions issuing ADRs may not be sponsored by the issuer of the underlying foreign
securities. A non-sponsored depository may not provide the same shareholder in-
formation that a sponsored depository is required to provide under its contrac-
tual arrangements with the issuer of the underlying foreign 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 Short Term Bond, Bond, International
Bond, Selected U.S. Equity, U.S. Small Company, International Equity, Emerging
Markets Equity and Diversified Funds, since investments in foreign securities
involve foreign currencies, the value of their assets as measured in U.S. dol-
lars may be affected favorably or unfavorably by changes in currency rates and
in exchange control regulations, including currency blockage. See Foreign Cur-
rency Exchange Transactions.
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 Short
Term Bond, Bond, International Bond, Selected U.S. Equity, U.S. Small Company,
International Equity, Emerging Markets Equity and Diversified Funds buy and
sell securities and receive 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 currencies. The cost of a Portfolio's spot currency exchange transac-
tions is generally the difference between the bid and offer spot rate of the
currency being purchased or sold.
A forward foreign currency exchange contract is an obligation by the Portfolio
to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying the contracts. These contracts are entered into in
the interbank market directly between currency traders (usually large commer-
cial banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement and is traded at a net price without com-
mission. The Portfolios will not enter into forward contracts for speculative
purposes. Neither spot transactions nor forward foreign currency exchange con-
tracts eliminate fluctuations in the prices of the Portfolio's securities or in
foreign exchange rates, or prevent loss if the prices of these securities
should decline.
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.
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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 projection of currency market
movements is extremely difficult, and the successful execution of a hedging
strategy is highly uncertain.
SYNTHETIC INSTRUMENTS FOR THE MONEY MARKET FUND. The Portfolio for the Money
Market Fund may invest in certain synthetic instruments. Such instruments gen-
erally involve the deposit of asset-backed securities in a trust arrangement
and the issuance of certificates evidencing interests in the trust. The certif-
icates are generally sold in private placements in reliance on Rule 144A. The
Advisor will review the structure of synthetic instruments to identify credit
and liquidity risks and will monitor those risks. See Illiquid Investments;
Privately Placed and other Unregistered Securities.
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 Tax Exempt Money Market Fund, or the expected return, in the case
of the Portfolio for the Tax Exempt Bond Fund, from an investment in taxable
securities exceeds the yield or expected return, as the case may be, on avail-
able tax exempt securities. In abnormal market conditions, if, in the judgment
of Morgan, tax exempt securities satisfying the Tax Exempt Bond Fund's invest-
ment objective may not be purchased, its corresponding Portfolio may, for de-
fensive purposes only, temporarily invest more than 20% of its net assets in
debt securities the interest on which is subject to federal, state or local in-
come taxes. The taxable investments permitted for these Portfolios include ob-
ligations of the U.S. Government and its agencies and instrumentalities, bank
obligations, commercial paper and repurchase agreements and, in the case of the
Tax Exempt Bond Fund, other debt securities which meet the Fund's quality re-
quirements. 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 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
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involve the deposit of a long-term tax exempt bond in a custody or trust ar-
rangement 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 con-
ditions) 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 in-
struments to identify credit and liquidity risks (including the conditions un-
der which the right to tender the instrument would no longer be available) and
will monitor those risks. In the event that the right to tender the instrument
is no longer available, the risk to the 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 require 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 Federal Money Market
Funds may not acquire any illiquid securities if, as a result thereof, more
than 10% 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, International Equity, Emerging
Markets Equity and Diversified Funds may not invest in additional illiquid se-
curities if, as a result, more than 15% 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 OTC put and call options on fixed income securi-
ties and indexes of fixed income securities, (b) purchase and sell futures con-
tracts on fixed income securities and indexes of fixed income securities and
(c) purchase put and call options on futures contracts on fixed income securi-
ties and indexes of 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, Inter-
national Equity, Emerging Markets Equity and Diversified Funds may (a) purchase
exchange traded and OTC put and call options on equity securities or indexes of
equity securities, (b) purchase and sell futures contracts on indexes of equity
securities, and (c) purchase put and call options on futures contracts on in-
dexes of equity securities. In addition, the Portfolios for the Emerging Mar-
kets Equity and Diversified Funds may sell (write) exchange traded and OTC put
and call options on equity securities and indexes of equity securities and on
futures contracts on indexes of equity securities.
39
<PAGE>
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.
For more detailed information about these transactions, see the Appendix to
this Prospectus and Risk Management in the Statement of Additional Informa-
tion.
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
perspective. These Portfolios may make money market investments pending other
investment or settlement, for liquidity or in adverse market conditions as de-
scribed above under Taxable Investments for the Tax Exempt Funds. The money
market investments permitted for these Portfolios include obligations of the
U.S. Government and its agencies and instrumentalities, other debt securities,
commercial 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,
instrumentalities and political subdivisions. For more detailed information
about these money market investments, see Investment Objectives and Policies
in the Statement of Additional Information.
40
<PAGE>
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 Federal
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 Federal 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 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 certificates
of deposit, time deposits, and bankers' acceptances of U.S. branches of U.S.
banks.
The Portfolio for the Federal 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
41
<PAGE>
the case of the Portfolio for the Tax Exempt Money Market Fund, and may not ac-
quire industrial 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).
The Portfolio for the International Equity Fund is subject to the Industry Con-
centration Restriction and the Senior Securities Restriction. In addition, the
Portfolio may not borrow money, except from banks for extraordinary or emer-
gency purposes and then only in amounts up to 30% of the value of the Portfo-
lio's net assets at the time of borrowing, and except in connection with re-
verse 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, includ-
ing 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 permit-
ted 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 Restric-
tions in the Statement of Additional Information.
42
<PAGE>
MANAGEMENT OF THE TRUST AND THE PORTFOLIOS
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the Port-
folios, 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 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................. Former Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast
Group
</TABLE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are trustees of the Trust, each Portfolio
and The JPM 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 Port-
folios.
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 over-
all supervisory responsibilities for the Portfolios' and the Trust's affairs.
The fees to be paid under the agreements approximate the reasonable cost of
Pierpont Group, Inc. in providing these services to the Trust, the Portfolios
and certain other registered investment companies subject to similar agreements
with Pierpont Group, Inc. Pierpont Group, Inc. was organized in 1989 at the re-
quest of the Trustees of The Pierpont Family of Funds for the purpose of pro-
viding these services at cost to those funds. See Trustees and Officers in the
Statement of Additional Information. The principal offices of Pierpont Group,
Inc. are located at 461 Fifth Avenue, New York, New York 10017.
ADVISOR. 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 re-
tained the services of Morgan as Investment Advisor. Morgan, with principal of-
fices 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 cli-
ents with combined assets under management of over $197 billion (of which the
Advisor advises over $30 billion). Morgan provides investment advice and port-
folio management services to each Portfolio. Subject to the supervision of each
Portfolio's Trustees, Morgan makes each Portfolio's day-to-day investment deci-
sions, arranges for the execution of portfolio transactions and generally man-
ages 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 Portfo-
lio 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 ac-
count. 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,
43
<PAGE>
and, for foreign fixed income securities, country selection. Morgan has managed
portfolios of domestic fixed income securities on behalf of its clients for
over 60 years and international fixed income securities on behalf of its cli-
ents since 1977. The portfolio managers making investments in domestic and in-
ternational fixed income securities work in con- junction 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
1992) and Daniel B. Mulvey, Vice President (since January, 1995, employed by
Morgan since 1992; the Tax Exempt Money Market Fund: Daniel B. Mulvey, Vice
President (since August, 1995, employed by Morgan since 1992) and Elizabeth A.
Augustin, Vice President (since January, 1992, employed by Morgan since prior
to 1992); the Federal Money Market Fund: Robert R. Johnson, Vice President
(since January, 1993, employed by Morgan since prior to 1992) and Daniel B.
Mulvey, Vice President (since October, 1996, employed by Morgan since 1992);
the Short Term Bond Fund: Connie J. Plaehn, Managing Director (since July,
1993, employed by Morgan since prior to 1992 as a portfolio manager of U.S.
fixed income investments) and William G. Tennille, Vice President (since Janu-
ary, 1994, employed by Morgan since March, 1992, previously Managing Director,
Manufacturers Hanover Trust Company as a portfolio manager of U.S. fixed income
investments); the Bond Fund: William G. Tennille, Vice President (since Janu-
ary, 1994, employed by Morgan since March, 1992, previously Managing Director,
Manufacturers Hanover Trust Company as a portfolio manager of U.S. fixed income
investments) and Connie J. Plaehn, Managing Director (since January, 1994, em-
ployed by Morgan since prior to 1992 as a portfolio manager of U.S. fixed in-
come investments); the Tax Exempt Bond Fund: Elizabeth A. Augustin, Vice Presi-
dent (since January, 1992, employed by Morgan since prior to 1992) and Gregory
J. Harris, Vice President (since January, 1996, employed by Morgan since prior
to 1992); the International Bond Fund: Brian Morris, Vice President (since Jan-
uary, 1997, employed by Morgan since January, 1995, previously Vice President,
R.H. Bluestein Company) and Dominic J. Pegler, Vice President (since April,
1995, employed by Morgan since April, 1995, previously an economist at Bank of
England); the Selected U.S. Equity Fund: William B. Petersen, Managing Director
(since February, 1993, employed by Morgan since prior to 1992 as a portfolio
manager of U.S. equity investments) and William M. Riegel, Jr., Managing Direc-
tor (since February, 1993, employed by Morgan since prior to 1992 as a portfo-
lio manager of U.S. equity investments); the U.S. Small Company Fund: James B.
Otness, Managing Director (since February, 1993, employed by Morgan since prior
to 1992 as a portfolio manager of equity securities of small and medium sized
U.S. companies), Michael J. Kelly, Vice President (since May, 1996, employed by
Morgan since prior to 1992 as a portfolio manager of small and medium sized
U.S. companies and an equity research analyst) and Candice Eggerss, Vice Presi-
dent (since May, 1996, employed by Morgan since May, 1996, previously employed
by Weiss, Peck and Greer from June
44
<PAGE>
1993 to May 1996 and Equitable Capital Management prior to June 1993); the In-
ternational Equity Fund: Paul A. Quinsee, Vice President (since April, 1993,
employed by Morgan since February, 1992, previously Vice President and
Citibank N.A. since prior to 1992 as a portfolio manager of international eq-
uity investments), Thomas P. Madsen, Managing Director (since April, 1993, em-
ployed by Morgan since prior to 1992 as a portfolio manager of international
equity investments) and Anne H. Richards, Vice President (since January, 1997,
employed by Morgan since May, 1994, employed by Alliance Capital Ltd. from
September, 1992 to April 1994; the Emerging Markets Equity Fund: Douglas J.
Dooley, Managing Director (since November, 1993, employed by Morgan since
prior to 1992), Satyen Mehta, Vice President (since November, 1993, employed
by Morgan since prior to 1992) and Alejandro J. Baez-Sacasa, Vice President
(since April, 1995, employed by Morgan since prior to 1992); and the Diversi-
fied Fund: Gerald H. Osterberg, Vice President (since July, 1993, employed by
Morgan since prior to 1992) and John M. Devlin, Vice President (since Decem-
ber, 1993, employed by Morgan since prior to 1992).
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 administrative and related
services to the Trust and each Portfolio and shareholder services to share-
holders of the Funds. See Administrative Services Agent and Shareholder Ser-
vicing 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.
CO-ADMINISTRATOR. Under Co-Administration Agreements with the Trust and each
Portfolio, FDI serves as the Administrator for the Trust and the Portfolios
and in that capacity, FDI (i) provides office space, equipment and clerical
personnel for maintaining the organization and books and records of the Trust
and the Portfolios; (ii) provides officers for the Trust and the Portfolios;
(iii) prepares and files documents required in connection with the Trust's
state securities law registrations; (iv) reviews and files Trust marketing and
sales literature; (v) files Portfolio regulatory documents and mails Portfolio
communications to Trustees and investors; and (vi) maintains related books and
records. See Administrative Services Agent below.
For its services under the Co-Administration Agreements, each of the Funds
and the Portfolio has agreed to pay FDI fees equal to its allocable share of
an annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses.
The amount allocable to each Fund or Portfolio is based on the ratio of its
net assets to the aggregate net assets of the Trust and certain other regis-
tered investment companies subject to similar agreements with FDI.
ADMINISTRATIVE SERVICES AGENT. Under Administrative Services Agreements with
the Trust and each Portfolio, Morgan is responsible for certain administrative
services provided to the Trust and each Portfolio, including services related
to the Portfolios' and the Funds' taxes, financial statements, calculation of
performance data, oversight of service providers and certain regulatory and
Board of Trustees matters. Under the Administrative Services Agreements each
Fund and Portfolio has agreed to pay Morgan and FDI fees equal to its alloca-
ble share of an annual complex-wide charge. This charge is calculated daily
based on the aggregate net assets of the Portfolios and the other portfolios
(collectively the
45
<PAGE>
"Master Portfolios") in which series of the Trust or The JPM Pierpont Funds
invest in accordance with the following annual schedule: 0.09% on the first $7
billion of the Master Portfolios' aggregate average daily net assets and 0.04%
of the Master Portfolios' aggregate average daily net assets in excess of $7
billion, less the complex-wide fees payable to FDI.
DISTRIBUTOR. FDI, a registered broker-dealer, also serves as the Distributor
of shares of the Funds and exclusive placement agent for the Portfolios. FDI
is a wholly owned indirect subsidiary of Boston Institutional Group, Inc.
FDI's principal business address is 60 State Street, Suite 1300, Boston, Mas-
sachusetts 02109.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Funds' and the Portfolios'
custodian and fund accounting and transfer agent and the Funds' dividend dis-
bursing agent. State Street also keeps the books of account for the Funds and
the Portfolios.
EXPENSES. In addition to the fees payable to Morgan, FDI and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor, Co-Admin-
istrator and Administrative Services Agent above and Shareholder Servicing be-
low, the Funds and the Portfolios are responsible for usual and customary ex-
penses associated with their respective operations. Such expenses include or-
ganization expenses, legal fees, accounting and audit 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 disbursement 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 filing fees under foreign securities laws, custodian fees and brokerage
expenses.
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 include 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% March 31, 1998
The JPM Institutional Tax Exempt Money Market
Fund 0.35% December 31, 1997
The JPM Institutional Federal Money Market
Fund 0.20% February 28, 1998
The JPM Institutional Short Term Bond Fund 0.25% February 28, 1998
The JPM Institutional Bond Fund 0.50% February 28, 1998
The JPM Institutional Tax Exempt Bond Fund 0.50% December 31, 1997
The JPM Institutional International Bond Fund 0.65% January 31, 1998
The JPM Institutional Selected U.S. Equity
Fund 0.60% September 30, 1997
The JPM Institutional U.S. Small Company Fund 0.80% September 30, 1997
The JPM Institutional International Equity
Fund 1.00% February 28, 1998
The JPM Institutional Diversified Fund 0.65% October 31, 1997
</TABLE>
These limits do not cover extraordinary expenses during the period. There is
no assurance that Morgan will continue these waivers beyond the specified pe-
riods.
Additionally, Morgan has agreed to waive its administrative services and
shareholder servicing fees and reimburse The JPM Institutional Tax Exempt
Money Market Fund for the remainder of the Fund's expenses (excluding extraor-
dinary expenses and expenses allocated to the Fund from the Fund's correspond-
ing Portfolio), thereby reducing current total operating expenses of the Fund.
This waiver and reimbursement arrangement is in effect until December 31, 1997
in addition to the reimbursement described above. There is no assurance that
Morgan will continue this arrangement beyond that date.
46
<PAGE>
SHAREHOLDER SERVICING
Pursuant to a Shareholder Servicing Agreement with the Trust, Morgan acts as
shareholder servicing agent for its customers and other Fund investors who are
customers of an eligible institution which is a customer of Morgan (an "Eligi-
ble Institution"). Each Fund pays Morgan for these services at the following
annual rate (expressed as a percentage 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 Federal 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>
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.
The Funds may be sold to or through Eligible Institutions, including financial
institutions and broker-dealers, that may be paid fees by Morgan or its affili-
ates provided to their clients that invest in the Funds. See Eligible Institu-
tions. Organizations that provide recordkeeping or other services to certain
employee benefit or retirement plans that include the Funds as an investment
alternative may also be paid a fee.
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 ei-
ther customers of Morgan or of an Eligible Institution or 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 transactions. There
are no charges associated with becoming a Morgan customer for this purpose.
Morgan reserves the right to determine the customers that it will accept, and
the Trust reserves the right to determine the purchase orders that it will ac-
cept.
47
<PAGE>
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 Federal 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 certain investors, in-
cluding investors for whom the Advisor is a fiduciary, who maintain related ac-
counts with the Funds or the Advisor, who make investments for a group of cli-
ents, such as financial advisors, trust companies and investment advisors, or
who maintain retirement accounts with the Funds.
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 af-
ter receipt of an order. Prospective investors may purchase shares with the as-
sistance of an Eligible Institution that may establish its own terms, condi-
tions and charges.
THE MONEY MARKET, TAX EXEMPT MONEY MARKET AND FEDERAL MONEY MARKET 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 and to transfer immedi-
ately 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 Federal
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, Federal 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 Fed-
eral 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 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 or its agent 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 effective and is made at net asset value determined on the next business
day. All purchase orders for Fund shares must be accompanied by instructions to
Morgan (or an Eligible Institution) to transfer immediately available funds to
the Funds' Distributor on settlement date. The settlement date is generally the
business day after the purchase is effective. For Funds
48
<PAGE>
other than the International 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 or its agent 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 business
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 becomes
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 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.
Although there is no sales charge levied directly by any of the Funds, Eligi-
ble Institutions may establish their own terms and conditions for providing
their services and may charge investors a transaction-based or other fee for
their services. Such charges may vary among Eligible Institutions but in all
cases will be retained by the Eligible Institution and not remitted to the
Funds or Morgan.
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 FEDERAL MONEY MARKET
FUNDS. A redemption request received by the Fund or its agent 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 Federal 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 af-
ter that time becomes effective on the next day. Proceeds of an effective re-
demption 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 instructions. If a redemption request be-
comes effective 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 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 or their agents prior to
49
<PAGE>
4:00 P.M. New York time is effective on that day. A redemption request re-
ceived after that time becomes effective on the next business day. Proceeds of
an effective redemption are deposited on settlement date in immediately avail-
able funds to the shareholder's account at Morgan or at his Eligible Institu-
tion or, in the case of certain Morgan customers, are mailed by check or wire
transferred in accordance with the customer's instructions. For Funds other
than the International Bond Fund the redeemer will continue to receive divi-
dends on these shares through the day before 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 or their agents prior to 4:00 P.M. New York time
is effective on that day. A redemption request received after that time be-
comes 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 Re-
demption 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 minimum investment amount (these are set forth
under Purchase of Shares above) for more than 30 days because of a redemption
of shares, or a shareholder's account balance does not achieve the required
minimum investment within the prescribed time period, a Fund may redeem the
remaining shares in the account 60 days after written notice to the share-
holder unless the account is increased to the 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 sharehold-
er's taxpayer identification number and address. As discussed under Taxes be-
low, the Funds 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.
Each Fund reserves the right to suspend the right of redemption and to post-
pone 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 any JPM Institutional Fund into any other
JPM Institutional Fund, JPM Pierpont Fund or shares of JPM Series Trust with-
out 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 that fund's minimum investment amount. Shareholders should read
the prospectus of the fund into which they are exchanging and may only ex-
change between fund accounts that are registered in the same name, address and
taxpayer identification number. 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 Re-
demption of Shares in this Prospectus and in the prospectus for other JPM In-
stitutional Funds, The JPM Pierpont Funds and JPM Series Trust. See also Addi-
tional 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
50
<PAGE>
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 FEDERAL 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 Federal 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 Exempt Money
Market and Federal Money Market Funds earn dividends on the business 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 Federal 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. 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, Emerging Markets Equity
and International Bond Funds. These Funds may also declare an additional divi-
dend of net investment income in a given year to the extent necessary to avoid
the imposition of federal excise tax on the Funds. Substantially all the real-
ized net capital gains for these Funds are declared and paid on an annual ba-
sis, 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.
51
<PAGE>
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 Fed-
eral 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 for the Funds on the holidays
listed under Net Asset Value in the Statement of Additional Information. The
Funds compute net asset value as follows, New York time: the Money Market, Tax
Exempt Money Market, and Federal Money Market Funds, 4:00 P.M., and may be com-
puted at earlier times as set forth in the Statement of Additional Information;
The International Equity and Emerging Markets Equity Funds, 4:00 P.M.; and the
Tax Exempt Bond, Bond, Short Term Bond, International Bond, Selected U.S. Equi-
ty, 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 "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, shares of nineteen series have been authorized and are avail-
able for sale to the public. The JPM Institutional New York Total Return Bond
Fund, The JPM Institutional Japan Equity Fund, The JPM Institutional European
Equity Fund, The JPM Institutional Asia Growth Fund, The JPM Institutional Dis-
ciplined Equity Fund, The JPM Institutional International Opportunities Fund
and The JPM Institutional Global Strategic Income Fund are described in, and
offered pursuant to, separate prospectuses. No series of shares has any prefer-
ence 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. 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.
Each Portfolio 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
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable
for all obligations of the Portfolio. However, the risk of a Fund incurring fi-
nancial 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 a
Fund nor its shareholders will be adversely affected by reason of a Fund's in-
vesting in a Portfolio.
52
<PAGE>
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are sub-
ject to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to feder-
al, state or local taxes. See Taxes in the Statement of Additional Information.
Annual statements as to the current federal tax status of distributions, if ap-
plicable, are mailed to shareholders after the end of the taxable year for the
Funds.
The Trust intends to qualify each of the Funds as a separate regulated invest-
ment company under Subchapter M of the Internal Revenue Code of 1986, as amend-
ed. For a Fund to qualify as a regulated investment company, a Portfolio, in
addition to other requirements, limits its investments so that at the close of
each quarter of its taxable year (a) no more than 25% of its total assets are
invested in the securities of any one issuer, except U.S. Government securi-
ties, and (b) with regard to 50% of its total assets, no more than 5% of its
total assets are invested in the securities of a single issuer, except U.S.
Government securities. As a regulated investment company, each Fund should not
be subject to federal income taxes or federal excise taxes if all of its net
investment income and capital gains less any available capital loss
carryforwards are distributed to shareholders within allowable time limits.
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 dependent on,
among other things, the corresponding Portfolio's continued qualification 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, FEDERAL 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, Federal 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 Federal 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.
53
<PAGE>
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term cap-
ital gain or loss if the shares have been held for more than one year, and oth-
erwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect
to such shares. In addition, no loss will be allowed on the redemption or ex-
change of shares of the Fund if, within a period beginning 30 days before the
date of such redemption or exchange and ending 30 days after such date, the
shareholder acquires (such as through dividend reinvestment) securities that
are substantially identical to shares of the Fund.
In the case of the Federal 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 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 char-
acter 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 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 item-
izes deductions, a deduction for his share of the foreign income taxes in com-
puting his federal income tax liability. (No deduction will be permitted to in-
dividuals 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.
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
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certain corporations by the Superfund Revenue Act of 1986, and (iii) the for-
eign 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 casu-
alty 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
corporation 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 capi-
tal 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 realized on the redemption or exchange of shares of these
Funds, are generally treated as described above. Any loss realized by a share-
holder, 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 asset 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, Federal Money Market, Short Term Bond, Bond, Tax Exempt Bond and Interna-
tional Bond Funds may advertise "yield"; the Money Market, Tax Exempt Money
Market and Federal 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 Federal 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
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amount of income generated by the investment during the 30-day period is as-
sumed 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 as-
sumed to be reinvested at the end of the sixth 30-day period. In the case of
the Money Market, Tax Exempt Money Market and Federal 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 demon-
strate 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 commencement of operations, if less) assuming that all distributions and
dividends by the Fund were reinvested on the reinvestment dates during the pe-
riod and less all recurring fees. These methods of calculating yield and total
return 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. Share-
holders may obtain performance information by calling Morgan at (800) 766-7722.
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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. The Portfolios for the Emerging Markets Equity and Diversi-
fied 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 ex-
ercise of securities index options is settled by cash payment and does not in-
volve the actual purchase or sale of securities. In addition, these options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security. A
Portfolio, in purchasing or selling index options, is subject to the risk that
the value of its portfolio securities may not change as much as an index be-
cause 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/assets in connection with its use of op-
tions and futures contracts to the extent required by the staff of the Securi-
ties and Exchange Commission. Securities held in a segregated account cannot be
sold while the futures contract or option is outstanding, unless they are re-
placed with other suitable assets. As a result, there is a possibility that
segregation of a large percentage of a Portfolio's assets could impede portfo-
lio 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.
PROSJPM-9612
The JPM Institutional Funds
The JPM Institutional Money Market Fund
The JPM Institutional Tax Exempt Money Market Fund
The JPM Institutional Federal 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
February 28, 1997
<PAGE>
THE JPM INSTITUTIONAL FUNDS
THE JPM INSTITUTIONAL MONEY MARKET FUND
THE JPM INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
THE JPM INSTITUTIONAL FEDERAL 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 GLOBAL STRATEGIC INCOME FUND
THE JPM INSTITUTIONAL DIVERSIFIED FUND
THE JPM INSTITUTIONAL SELECTED U.S. EQUITY FUND
THE JPM INSTITUTIONAL DISCIPLINED 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 INTERNATIONAL OPPORTUNITIES FUND
THE JPM INSTITUTIONAL EUROPEAN EQUITY FUND
THE JPM INSTITUTIONAL JAPAN EQUITY FUND
THE JPM INSTITUTIONAL ASIA GROWTH FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 28, 1997
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
FOR THE FUND OR FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO TIME, WHICH MAY
BE OBTAINED UPON REQUEST FROM FUNDS DISTRIBUTOR, INC., ATTENTION: THE JPM
INSTITUTIONAL FUNDS; (800) 221-7930.
<PAGE>
Table of Contents
Page
----
General . . . . . . . . . . . . . . . . . . .
Investment Objectives and Policies . . . . . .
Investment Restrictions . . . . . . . . . . .
Trustees and Officers . . . . . . . . . . . .
Investment Advisor . . . . . . . . . . . . . .
Distributor . . . . . . . . . . . . . . . . .
Co-Administrator . . . . . . . . . . . . . . .
Services Agent . . . . . . . . . . . . . . . .
Custodian and Transfer Agent . . . . . . . . .
Shareholder Servicing . . . . . . . . . . . .
Independent Accountants . . . . . . . . . . .
Expenses . . . . . . . . . . . . . . . . . . .
Purchase of Shares . . . . . . . . . . . . . .
Redemption of Shares . . . . . . . . . . . . .
Exchange of Shares . . . . . . . . . . . . . .
Dividends and Distributions . . . . . . . . .
Net Asset Value . . . . . . . . . . . . . . .
Performance Data . . . . . . . . . . . . . . .
Portfolio Transactions . . . . . . . . . . . .
Massachusetts Trust . . . . . . . . . . . . .
Description of Shares . . . . . . . . . . . .
Taxes . . . . . . . . . . . . . . . . . . . .
Additional Information . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . .
Appendix A - Description of Securities
Ratings . . . . . . . . . . . . . . . . . . .
Appendix B - Additional Information
Concerning New York Municipal Obligations. . .
Appendix C - Investing in Japan
and Asian Growth Markets. . . . . . . . . . .
<PAGE>
GENERAL
The JPM Institutional Family of Funds is a family of open-end investment
companies, currently consisting of nineteen funds: The JPM Institutional Money
Market Fund, The JPM Institutional Federal 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
Global Strategic Income 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 Disciplined 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 International Opportunities Fund, The JPM Institutional European
Equity Fund, The JPM Institutional Japan Equity Fund and The JPM Institutional
Asia Growth Fund (collectively, the "Funds"). Each of the Funds is a series of
shares of beneficial interest of The JPM Institutional Funds, an open-end
management investment company formed as a Massachusetts business trust (the
"Trust").
This Statement of Additional Information describes the financial history,
investment objectives and policies, management and operation of each of the
Funds to enable investors to select the Funds which best suit their needs. The
Funds operate through a two-tier master-feeder investment fund structure.
This Statement of Additional Information provides additional information
with respect to the Funds and should be read in conjunction with the relevant
Fund's current Prospectus (the "Prospectus"). Capitalized terms not otherwise
defined herein have the meanings accorded to them in the Prospectus. The Funds'
executive offices are located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
INVESTMENT OBJECTIVES AND POLICIES
THE JPM INSTITUTIONAL MONEY MARKET FUND (the "Money Market Fund") is
designed to be an economical and convenient means of making substantial
investments in money market instruments. The Money Market Fund's investment
objective is to maximize current income and maintain a high level of liquidity.
The Fund attempts to achieve this objective by investing all of its investable
assets in The Money Market Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the Money
Market Fund.
The Portfolio seeks to achieve its investment objective by maintaining a
dollar-weighted average portfolio maturity of not more than 90 days and by
investing in U.S. dollar denominated securities described in the Prospectus and
this Statement of Additional Information that meet certain rating criteria,
present minimal credit risk and have effective maturities of not more than
thirteen months. The Portfolio's ability to achieve maximum current income is
affected by its high quality standards. See "Quality and Diversification
Requirements."
THE JPM INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND (the "Tax Exempt Money
Market Fund") is designed to be an economical and convenient means of making
substantial investments in instruments that are exempt from federal income tax.
The Tax Exempt Money Market Fund's investment objective is to provide a high
level of current income that is exempt from federal income tax and maintain a
high level of liquidity. See "Taxes." The Fund attempts to achieve this
objective by investing all of its investable assets in The Tax Exempt Money
Market Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Tax Exempt Money Market
Fund.
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The Portfolio attempts to achieve its investment objective by maintaining a
dollar-weighted average portfolio maturity of not more than 90 days and by
investing in U.S. dollar-denominated securities described in the Prospectus and
this Statement of Additional Information that meet certain rating criteria,
present minimal credit risks, have effective maturities of not more than
thirteen months and earn interest wholly exempt from federal income tax in the
opinion of bond counsel for the issuer, but it may invest up to 20% of its total
assets in taxable obligations. See "Quality and Diversification Requirements."
Interest on these securities may be subject to state and local taxes. For more
detailed information regarding tax matters, including the applicability of the
alternative minimum tax, see "Taxes."
THE JPM INSTITUTIONAL FEDERAL MONEY MARKET FUND (the "Federal Money Market
Fund") is designed to be an economical and convenient means of making
substantial investments primarily in short term direct obligations of the U.S.
Government. The Federal 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 Federal Money Market Portfolio (the "Portfolio"), a diversified
open-end management investment company having the same investment objective as
the Federal Money Market Fund.
The Portfolio attempts to achieve its investment objective by maintaining a
dollar-weighted average portfolio maturity of not more than 90 days and by
investing primarily in U.S. Treasury securities and by investing in certain U.S.
Treasury securities described in the Prospectus and in this Statement of
Additional Information that have effective maturities of not more than thirteen
months. See "Quality and Diversification Requirements."
THE JPM INSTITUTIONAL SHORT TERM BOND FUND (the "Short Term Bond Fund") is
designed for investors who place a strong emphasis on conservation of capital
but who also want a return greater than that of a money market fund or other
very low risk investment vehicles. The Fund 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 of domestic and foreign issuers 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.
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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 FOR THE U.S. FIXED INCOME PORTFOLIO
Duration/yield curve management: Morgan's duration decision begins with an
analysis of real yields, which its research indicates are generally a reliable
indicator of longer term interest rate trends. Other factors Morgan studies in
regard to interest rates include economic growth and inflation, capital flows
and monetary policy. Based on this analysis, Morgan forms a view of the most
likely changes in the level and shape of the yield curve -- as well as the
timing of those changes -- and sets the Portfolio's duration and maturity
structure accordingly. Morgan typically limits the overall duration of the
Portfolio to a range between one year shorter and one year longer than that of
the Salomon Brothers Broad Investment Grade Bond Index, the benchmark index.
Sector allocations: Sector allocations are driven by Morgan's fundamental
and quantitative analysis of the relative valuation of a broad array of fixed
income sectors. Specifically, Morgan utilizes market and credit analysis to
assess whether the current risk-adjusted yield spreads of various sectors are
likely to widen or narrow. Morgan then overweights (underweights) those sectors
its analysis indicates offer the most (least) relative value, basing the speed
and magnitude of these shifts on valuation considerations.
Security selection: Securities are selected by the portfolio manager, with
substantial input from Morgan's fixed income analysts and traders. Using
quantitative analysis as well as traditional valuation methods, Morgan's
applied-research analysts aim to optimize security selection within the bounds
of the Portfolio's investment objective. In addition, credit analysts --
supported by Morgan's equity analysts -- assess the creditworthiness of issuers
and counterparties. A dedicated trading desk contributes to security selection
by tracking new issuance, monitoring dealer inventories, and identifying
attractively priced bonds. The traders also handle all transactions for the
Portfolio.
THE JPM INSTITUTIONAL TAX EXEMPT BOND FUND (the "Tax Exempt Bond Fund") is
designed to be an economical and convenient means of making substantial
investments in debt obligations that are exempt from federal income tax. The
Tax Exempt Bond Fund's investment objective is to provide a high level of
current income exempt from federal income tax consistent with moderate risk of
capital and maintenance of liquidity. See "Taxes." The Fund attempts to
achieve its investment objective by investing all of its investable assets in
The Tax Exempt Bond Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the Tax
Exempt Bond Fund.
The Portfolio attempts to achieve its investment objective by investing
primarily in securities of states, territories and possessions of the United
States and their political subdivisions, agencies and instrumentalities, the
interest of which is exempt from federal income tax in the opinion of bond
counsel for the issuer, but it may invest up to 20% of its total assets in
taxable obligations. The Tax Exempt Bond Fund seeks to maintain a current yield
that is greater than that obtainable from a portfolio of short term tax exempt
obligations, subject to certain quality restrictions. See "Quality and
Diversification Requirements."
THE JPM INSTITUTIONAL NEW YORK TOTAL RETURN BOND FUND (the "New York Total
Return Bond Fund") is designed to be an economical and convenient means of
investing in a portfolio consisting primarily of debt obligations that are
exempt from federal and New York State income taxes. The New York Total Return
Bond Fund's investment objective is to provide a high after tax total return for
New
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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 FOR THE NON-U.S. FIXED INCOME PORTFOLIO
Duration management: The duration decision is central to Morgan's
investment process and begins with an analysis of economic conditions and real
yields in the countries that make up the Portfolio's universe. Based on this
analysis, fixed income portfolio managers forecast three potential paths
(optimistic, pessimistic, and most likely) that interest rates in each market
could follow over the next three and twelve months. These forecasts are
converted into return curves that enable Morgan to estimate the risk-return
profile of different portfolio durations. In each market, duration is set at
its "optimal" level-that is, at the level that Morgan believes will generate the
highest excess return per unit of excess risk, as measured against the Salomon
Brothers World Government Bond Index.
Country allocation: Morgan allocates the Portfolio's assets primarily among
the developed countries of the world outside the United States. Country
allocations are determined through an 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
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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 GLOBAL STRATEGIC INCOME FUND (the "Global Strategic
Income Fund") is designed for the aggressive investor seeking to diversify an
investment portfolio by investing in fixed-income securities of foreign and
domestic issuers. The Global Strategic Income Fund's investment objective is
high total return from a portfolio of fixed-income securities of foreign and
domestic issuers. The Global Strategic Income Fund seeks to achieve its
objective by investing all of its investable assets in the Global Strategic
Income Portfolio (the "Portfolio"), a diversified open-end management
investment company having the same investment objective as the Global Strategic
Income Fund.
The Portfolio attempts to achieve its investment objective by investing
primarily in mortgage-backed securities and direct mortgage obligations; below
investment grade debt obligations of U.S. and non-U.S. issuers; investment grade
U.S. dollar-denominated debt obligations of U.S. and non-U.S. issuers;
investment grade non-dollar denominated debt obligations of non-U.S. issuers;
and obligations of emerging market issuers.
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 (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Diversified Fund.
INVESTMENT PROCESS FOR THE DIVERSIFIED PORTFOLIO
The mix of equities and fixed income is based on the risk premium model and
the anticipation of changing economic trends. The risk premium is the
difference between Morgan's forecast of the long-term return on stocks
(determined using Morgan's proprietary dividend discount model) and the current
nominal yield on 30-year U.S. Treasury bonds. When the risk premium is high,
more assets are allocated to stocks. When the risk premium is low, more assets
are allocated to bonds. Within U.S. equities, the allocation between large cap
and small cap stocks is based on the relative dividend discount rate spread
between large and small cap. Within fixed income, the allocation among sectors
is based on Morgan's analysis of their relative valuation. Morgan's asset
allocation decisions for the Portfolio are implemented using the investment
processes described herein for the Bond, Selected U.S. Equity, U.S. Small
Company and International Equity Funds.
THE JPM INSTITUTIONAL SELECTED U.S. EQUITY FUND (the "Selected U.S. Equity
Fund") is designed for investors who want an actively managed portfolio of
selected equity securities that seeks to outperform the S&P 500 Index. The
Selected U.S. Equity Fund's investment objective is to provide a high total
return from a portfolio of selected equity securities. The Fund attempts to
achieve its investment objective by investing all of its investable assets in
The Selected U.S. Equity Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the
Selected U.S. Equity Fund.
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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 FOR THE SELECTED U.S. EQUITY PORTFOLIO
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 candidate for sale. The portfolio
manager seeks to hold sector weightings close to those of the S&P 500 Index,
reflecting Morgan's belief that its research has the potential to add value at
the individual stock level, but not at the sector level. Sector neutrality is
also seen as a way to help protect the portfolio from macroeconomic risks, and -
- -together with diversification -- represents an important element of Morgan's
risk control strategy. A dedicated trading desk handles all transactions for
the Portfolio.
THE JPM INSTITUTIONAL DISCIPLINED EQUITY FUND (the "Disciplined Equity
Fund") is designed for investors seeking enhanced total return relative to that
of large and medium sized companies, typically represented by the S&P 500 Index.
The Disciplined Equity Fund's investment objective is to provide high total
return from a broadly diversified portfolio of equity securities. The Fund
attempts to achieve its investment objective by investing all of its investable
assets in The Disciplined Equity Portfolio (the "Portfolio"), a diversified
open- end management investment company having the same investment objective as
the Disciplined Equity Fund.
The Portfolio invests primarily in a diversified portfolio of common stocks
and other equity securities. Under normal circumstances, the Portfolio expects
to invest at least 65% of its total assets in such securities.
INVESTMENT PROCESS FOR THE DISCIPLINED EQUITY PORTFOLIO
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Fundamental research: Morgan's 20 domestic equity analysts, each an
industry specialist with an average of 13 years of experience, follow 600 medium
and large capitalization U.S. companies. Their research goal is to forecast
intermediate-term earnings and prospective dividend growth rates for the most
attractive companies among those researched.
Systematic valuation: The analysts' forecasts are converted into
comparable expected returns using a proprietary dividend discount model, which
calculates the intermediate-term earnings by comparing a company's current stock
price with the "fair value" price forecasted by the estimated intermediate-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 broadly diversified portfolio is
constructed using disciplined buy and sell rules. Purchases are allocated among
stocks in the first three quintiles. The stocks selected reflect the portfolio
manager's judgment concerning the soundness of the underlying forecasts, the
likelihood that a perceived misvaluation will be corrected within a reasonable
time frame, and the manager's estimate of the magnitude of the risks versus the
potential rewards. A stock that falls into the fourth and fifth quintiles
generally becomes a candidate for sale, either because its price has risen or
its fundamentals have deteriorated. The Portfolio's sector weightings are
matched to those of the S&P 500 Index, reflecting Morgan's belief that its
research has the potential to add value at the individual stock level, but not
at the sector level. Morgan also controls the Portfolio's exposure to style and
theme bets and maintains near-market security weightings in individual security
holdings. This process results in an investment portfolio containing 250-300
stocks.
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
a 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 FOR THE U.S. SMALL COMPANY PORTFOLIO
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.
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Systematic valuation: The analysts' forecasts are converted into comparable
expected returns by Morgan's dividend discount model, which calculates those
returns by comparing a company's current stock price with the "fair value" price
forecasted by its estimated long-term earnings power. Within each industry,
companies are ranked by their expected returns and grouped into quintiles: those
with the highest expected returns (Quintile 1) are deemed the most undervalued
relative to their long-term earnings power, while those with the lowest expected
returns (Quintile 5) are deemed the most overvalued.
Disciplined portfolio construction: A diversified portfolio is constructed
using disciplined buy and sell rules. Purchases are concentrated among the
stocks in the top two quintiles of the rankings; the specific names selected
reflect the portfolio manager's judgment concerning the soundness of the
underlying forecasts, the likelihood that the perceived misevaluation will soon
be corrected, and the magnitude of the risks versus the rewards. Once a stock
falls into the third quintile -- because its price has risen or its fundamentals
have deteriorated -- it generally becomes a candidate for sale. The portfolio
manager seeks to hold sector weightings close to those of the Russell 2500
Index, the Portfolio's benchmark, reflecting Morgan's belief that its research
has the potential to add value at the individual stock level, but not at the
sector level. Sector neutrality is also seen as a way to help to protect the
portfolio from macroeconomic risks, and -- together with diversification --
represents an important element of Morgan's investment strategy.
THE JPM INSTITUTIONAL INTERNATIONAL EQUITY FUND (the "International Equity
Fund") is designed for investors with a long term investment horizon who want to
diversify their portfolios by investing in an actively managed portfolio of non-
U.S. securities that seeks to outperform the Morgan Stanley Capital
International ("MSCI") Europe, Australia and Far East Index (the "EAFE Index").
The International Equity Fund's investment objective is to provide a high total
return from a portfolio of Equity Securities of foreign corporations. The Fund
attempts to achieve its investment objective by investing all of its investable
assets in The Non-U.S. Equity Portfolio (the "Portfolio"), a diversified open-
end management investment company having the same investment objective as the
International Equity Fund.
The Portfolio seeks to achieve its investment objective by investing
primarily in the Equity Securities of foreign corporations. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing at the same time in a significant number of developed
foreign countries render investments in such countries inadvisable.
INVESTMENT PROCESS FOR THE NON-U.S. EQUITY PORTFOLIO
Country allocation: Morgan's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of those
deviations. Countries with high (low) rankings are overweighted (underweighted)
in comparisons to the EAFE Index to reflect the above-average (below-average)
attractiveness of their stock markets. In determining weightings, Morgan
analyzes a variety of qualitative factors as well -- including the liquidity,
earnings momentum and interest rate climate of the market at hand. These
qualitative assessments can change the magnitude but not the direction of the
country allocations called for by the risk premium forecast. Morgan places
limits on the total size of the Portfolio's country over- and under-weightings
relative to the EAFE Index.
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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 stocks
deemed most undervalued, and to keep sector weightings close to those of the
EAFE Index, the Fund's benchmark. Once a stock falls into the bottom half of
the rankings, it generally becomes a candidate for sale. Where available,
warrants and convertibles may be purchased instead of common stock if they are
deemed a more attractive means of investing in an undervalued company.
Currency management: Currency is actively managed, in conjunction with
country and stock allocation, with the goal of protecting and possibly enhancing
the Fund's return. Morgan's currency decisions are supported by a proprietary
tactical mode which forecasts currency movements based on an analysis of four
fundamental factors -- trade balance trends, purchasing power parity, real
short-term interest differentials and real bond yields -- plus a technical
factor designed to improve the timing of transactions. Combining the output of
this model with a subjective assessment of economic, political and market
factors, Morgan's currency group recommends currency strategies that are
implemented in conjunction with the Portfolio's investment strategy.
THE JPM INSTITUTIONAL EMERGING MARKETS EQUITY FUND (the "Emerging Markets
Equity Fund") is designed for investors with a long term investment horizon who
want exposure to the rapidly growing emerging markets. The Emerging Markets
Equity Fund's investment objective is to provide a high total return from a
portfolio of Equity Securities of companies in emerging markets. The Fund
attempts to achieve its investment objective by investing all of its investable
assets in The Emerging Markets Equity Portfolio (the "Portfolio"), a diversified
open-end management investment company having the same investment objective as
the Emerging Markets Equity Fund.
The Portfolio seeks to achieve its investment objective by investing
primarily in Equity Securities of emerging markets issuers. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing at the same time in a significant number of emerging
markets countries render investments in such countries inadvisable.
INVESTMENT PROCESS FOR THE EMERGING MARKETS EQUITY PORTFOLIO
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
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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 INTERNATIONAL OPPORTUNITIES FUND (the "International
Opportunities Fund") is designed for long-term investors who want to invest in
an actively managed portfolio of common stocks and other equity securities of
non-U.S. companies, including companies located in emerging markets. The
International Opportunities Fund's investment objective is to provide a high
total return from a portfolio of equity securities of foreign corporations in
developed and to a lesser extent developing markets. The Fund attempts to
achieve its investment objective by investing all of its investable assets in
The International Opportunities Portfolio (the "Portfolio"), a diversified open-
end management investment company having the same investment objective as the
International Opportunities Fund.
The Portfolio invests primarily in common stocks and other equity
securities of non-U.S. issuers in developed and developing countries. 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 foreign countries render investments in such countries inadvisable.
INVESTMENT PROCESS FOR THE INTERNATIONAL OPPORTUNITIES PORTFOLIO
Country allocation (developed countries): Morgan's country allocation
decision for securities issued in developed countries 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 developed countries 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 emphasized (deemphasized) to
reflect the above-average (below-average) attractiveness of their stock markets.
In determining these 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.
Country allocation (emerging countries): Morgan's country allocation
decision for emerging markets securities begins with a forecast of the expected
return of each emerging 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, while those that rank poorly are underweighted.
Stock selection: Morgan's 44 international equity analysts and 12 emerging
market equity analysts, each an industry and country specialist, forecast
normalized earnings, dividend payouts and cash flows 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
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constructed using disciplined buy and sell rules. The portfolio manager's
objective is to concentrate the Portfolio's purchases in the stocks deemed most
undervalued. Stocks generally become a candidate for sale when they fall into
the bottom half of Morgan's rankings. 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: Morgan actively manages the currency exposure of the
Portfolio's investments in developed countries, 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 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.
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 FOR THE EUROPEAN EQUITY PORTFOLIO
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
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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 candidate for
sale.
THE JPM INSTITUTIONAL JAPAN EQUITY FUND (the "Japan Equity Fund") is
designed for investors who want an actively managed portfolio of Japanese Equity
Securities that seeks to outperform the Tokyo Stock Price Index ("TOPIX"), a
composite market-capitalization weighted-index of all common stocks listed on
the First Section of the Tokyo Stock Exchange. The Japan Equity Fund's
investment objective is to provide a high total return from a portfolio of
Equity Securities of Japanese companies. The Japan Equity Fund attempts to
achieve its investment objective by investing all of its investable assets in
The Japan Equity Portfolio (the "Portfolio"), a non-diversified open-end
management investment company having the same investment objective as the Japan
Equity Fund. For additional information, see "Appendix C - Investing in Japan
and Asian Growth Markets."
The Portfolio seeks to achieve its investment objective by investing
primarily in the Equity Securities of Japanese companies. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing in Japan render investments there inadvisable.
INVESTMENT PROCESS FOR THE JAPAN EQUITY PORTFOLIO
Systematic valuation: Morgan's ten Japanese equity analysts in Tokyo --
each an industry specialist -- follow a total of over 300 Japanese companies.
The most attractive names in that universe are identified by a multifactor model
which screens for low price/earnings ratios, high earnings growth rates and high
sales/price ratios. Within each sector, this subset of the universe is ranked
by these three measures and broken into quintiles; the companies in the top
quintile are considered the most attractive ones from both a growth and
valuation viewpoint. To provide an additional check on the valuation of
selected companies, the analysts prepare normalized, long-term earnings and
dividend forecasts which are converted into comparable expected returns by a
dividend discount model.
Warrant/convertible strategy: Once a company has been identified as a buy
candidate, the portfolio manager analyzes the yields on the company's available
equity vehicles -- stocks, warrants and convertibles -- to determine which
appears the most attractive means of purchase. In an effort to enhance
potential returns, the Portfolio also trades among these vehicles -- a strategy
that seeks to capitalize on the inefficiencies that pervade the Japanese equity
market. If the Portfolio invests in a warrant, it will set aside cash in an
amount approximately equal to the difference in the price of the warrant and the
market value of the underlying common stock. The cash is invested in money
market instruments.
Disciplined portfolio construction: The Portfolio is constructed using
disciplined buy and sell rules. The portfolio manager's objective is to
concentrate purchases in the top 20% of the rankings; the specific companies
selected reflect the portfolio manager's judgment concerning the liquidity of an
issue, the soundness of the underlying forecasts, and the magnitude of the risks
versus the rewards. Once a stock falls into the third quintile -- because its
price has risen or its fundamentals have deteriorated -- it generally becomes a
candidate for sale. The portfolio manager strives to hold sector weightings
close to those of the benchmark in an effort to contain risk.
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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 FOR THE ASIA GROWTH PORTFOLIO
Country allocation: Morgan's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of these
deviations. Countries with high (low) rankings are overweighted (underweighted)
to reflect the above-average (below average) attractiveness of their stock
markets. In determining weightings, Morgan analyzes a variety of qualitative
factors as well -- including the liquidity, earnings momentum and interest rate
climate of the market at hand. These qualitative assessments can change the
magnitude but not the direction of the country allocations called for by the
risk-premium forecast. In an effort to contain risk, Morgan places limits on
the total size of the Portfolio's country over- and under-weightings.
Stock selection: Morgan's six Asian equity analysts focused on Asian
markets -- each an industry and country specialist -- forecast normalized, long-
term earnings and dividend payouts for approximately 250 companies in this
region. These forecasts are converted into comparable expected returns by a
dividend discount model, and then companies are ranked from most to least
attractive by industry and country, and are grouped into quintiles. A
diversified portfolio is constructed using disciplined buy and sell rules. The
portfolio manager's objective is to concentrate purchases in the top 20% of the
rankings, and to keep sector weightings close to those of the benchmark. Once a
stock falls into the third quintile -- because its price has risen or its
fundamentals have deteriorated -- it generally becomes a candidate for sale.
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
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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. Also 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 Federal 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 its commitments. Securities in which each Fund, except the Federal 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 Federal Money
Market Fund, may invest that are not backed by the full faith and credit of the
United States include, and only for the Federal 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 Federal 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, Global Strategic Income,
Selected U.S. Equity, Disciplined Equity, U.S. Small Company, International
Equity, Emerging Markets Equity, International Opportunities, Diversified,
European Equity, Japan Equity and Asia Growth Funds, in another currency. See
"Foreign Investments."
BANK OBLIGATIONS. Each of the Funds, except the Federal 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, Global Strategic Income, International Equity, Emerging Markets Equity,
International Opportunities, 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,
Federal Money Market, Tax Exempt Bond and New York Total Return Bond Funds, may
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also invest in obligations of international banking institutions designated or
supported by national governments to promote economic reconstruction,
development or trade between nations (e.g., the European Investment Bank, the
Inter-American Development Bank, or the World Bank).
COMMERCIAL PAPER. Each of the Funds (except the Federal 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. It is
possible that the issuer of a master demand obligation could be a client of
Morgan to whom Morgan, in its capacity as a commercial bank, has made a loan.
REPURCHASE AGREEMENTS. Each of the Funds may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Funds' Trustees. In a repurchase agreement, a Fund buys a
security from a seller that has agreed to repurchase the same security at a
mutually agreed upon date and price. The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. This interest rate
is effective for the period of time the Fund is invested in the agreement and is
not related to the coupon rate on the underlying security. A repurchase
agreement may also be viewed as a fully collateralized loan of money by a Fund
to the seller. The period of these repurchase agreements will usually be short,
from overnight to one week, and at no time will the Funds invest in repurchase
agreements for more than thirteen months. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of thirteen
months from the effective date of the repurchase agreement. The Federal 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 Federal Money Market Funds will be fully collateralized within
the meaning of paragraph (a)(4) 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.
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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 Federal 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, Global Strategic Income, 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."
MORTGAGE-BACKED SECURITIES. The Short Term Bond Fund, the Bond Fund and
the Global Strategic Income Fund may invest in mortgage-backed securities. Each
mortgage pool underlying mortgage-backed securities consists of mortgage loans
evidenced by promissory notes secured by first mortgages or first deeds of trust
or other similar security instruments creating a first lien on owner occupied
and non-owner occupied one-unit to four-unit residential properties, multifamily
(i.e., five or more) properties, agriculture properties, commercial properties
and mixed use properties. The investment characteristics of adjustable and
fixed rate mortgage-backed securities differ from those of traditional fixed
income securities. The major differences include the payment of interest and
principal on mortgage-backed securities on a more frequent (usually monthly)
schedule and the possibility that principal may be prepaid at any time due to
prepayments on the underlying mortgage loans or other assets. These differences
can result in significantly greater price and yield volatility than is the case
with traditional fixed income securities. As a result, a faster than expected
prepayment rate will reduce both the market value and the yield to maturity from
those which were anticipated. A prepayment rate that is slower than expected
will have the opposite effect of increasing yield to maturity and market value.
GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. Government National
Mortgage Association mortgage-backed certificates ("Ginnie Maes") are supported
by the full faith and credit of the United States. Certain other U.S.
Government securities, issued or guaranteed by federal agencies or government
sponsored enterprises, are not supported by the full faith and credit of the
United States, but may be supported by the right of the issuer to borrow from
the U.S. Treasury. These securities include obligations of instrumentalities
such as the Federal Home Loan Mortgage Corporation ("Freddie Macs") and the
Federal National Mortgage Association ("Fannie Maes"). No assurance can be
given that the U.S. Government will provide financial support to these federal
agencies, authorities, instrumentalities and government sponsored enterprises in
the future.
There are several types of guaranteed mortgage-backed securities currently
available, including guaranteed mortgage pass-through certificates and multiple
class securities, which include guaranteed real estate mortgage investment
conduit certificates ("REMIC Certificates"), other collateralized mortgage
obligations ("CMOs") and stripped mortgage-backed securities.
Mortgage pass-through securities are fixed or adjustable rate mortgage-
backed securities which provide for monthly payments that are a "pass-through"
of the monthly interest and principal payments (including any
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prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees or other amounts paid to any guarantor, administrator and/or
servicer of the underlying mortgage loans.
Multiple class securities include CMOs and REMIC Certificates issued by
U.S. Government agencies, instrumentalities (such as Fannie Mae) and sponsored
enterprises (such as Freddie Mac) or by trusts formed by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage bankers, commercial banks, insurance companies, investment banks and
special purpose subsidiaries of the foregoing. In general, CMOs are debt
obligations of a legal entity that are collateralized by, and multiple class
mortgage-backed securities represent direct ownership interests in, a pool of
mortgage loans or mortgaged-backed securities and payments on which are used to
make payments on the CMOs or multiple class mortgage-backed securities.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie Mac
are types of multiple class mortgage-backed securities. Investors may purchase
beneficial interests in REMICs, which are known as "regular" interests or
"residual" interests. The Funds do not intend to purchase residual interests in
REMICs. The REMIC Certificates represent beneficial ownership interests in a
REMIC trust, generally consisting of mortgage loans or Fannie Mae, Freddie Mac
or Ginnie Mae guaranteed mortgage-backed securities (the "Mortgage Assets").
The obligations of Fannie Mae and Freddie Mac under their respective guaranty of
the REMIC Certificates are obligations solely of Fannie Mae and Freddie Mac,
respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each class of
CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the assets
underlying the CMOs or REMIC Certificates may cause some or all of the classes
of CMOs or REMIC Certificates to be retired substantially earlier than their
final scheduled distribution dates. Generally, interest is paid or accrues on
all classes of CMOs or REMIC Certificates on a monthly basis.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed securities
("SMBS") are derivative multiclass mortgage securities, issued or guaranteed by
the U.S. Government, its agencies or instrumentalities or by private issuers.
Although the market for such securities is increasingly liquid, privately issued
SMBS may not be readily marketable and will be considered illiquid for purposes
of the Fund's limitation on investments in illiquid securities. The Advisor may
determine that SMBS which are U.S. Government securities are liquid for purposes
of each Fund's limitation on investments in illiquid securities in accordance
with procedures adopted by the Board of Trustees. The market value of the class
consisting entirely of principal payments generally is unusually volatile in
response to changes in interest rates. The yields on a class of SMBS that
receives all or most of the interest from Mortgage Assets are generally higher
than prevailing market yields on other mortgage-backed securities because their
cash flow patterns are more volatile and there is a greater risk that the
initial investment will not be fully recouped.
ZERO COUPON, PAY-IN-KIND AND DEFERRED PAYMENT SECURITIES. While interest
payments are not made on such securities, holders of such securities are deemed
to have received "phantom income." Because a Fund will distribute "phantom
income" to shareholders, to the extent that shareholders elect to receive
dividends in cash rather than reinvesting such dividends in additional shares,
the applicable Portfolio will have fewer assets with which to purchase income
producing securities.
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
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card receivables or other asset-backed securities collateralized by such assets.
Payments of principal and interest may be guaranteed up to certain amounts and
for a certain time period by a letter of credit issued by a financial
institution unaffiliated with the entities issuing the securities. The
asset-backed securities in which a Fund may invest are subject to the Fund's
overall credit requirements. However, asset-backed securities, in general, are
subject to certain risks. Most of these risks are related to limited interests
in applicable collateral. For example, credit card debt receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts on credit card debt thereby reducing the
balance due. Additionally, if the letter of credit is exhausted, holders of
asset-backed securities may also experience delays in payments or losses if the
full amounts due on underlying sales contracts are not realized. Because
asset-backed securities are relatively new, the market experience in these
securities is limited and the market's ability to sustain liquidity through all
phases of the market cycle has not been tested.
TAX EXEMPT OBLIGATIONS
As discussed in the Prospectus, the Tax Exempt Money Market, Tax Exempt
Bond and New York Total Return Bond Funds and, in certain circumstances, the
Bond and Short Term Bond Funds, may invest in tax exempt obligations to the
extent consistent with each Fund's investment objective and policies. A
description of the various types of tax exempt obligations which may be
purchased by the Funds appears in the Prospectus and below. See "Quality and
Diversification Requirements."
MUNICIPAL BONDS. Municipal bonds are debt obligations issued by the
states, territories and possessions of the United States and the District of
Columbia, by their political subdivisions and by duly constituted authorities
and corporations. For example, states, territories, possessions and
municipalities may issue municipal bonds to raise funds for various public
purposes such as airports, housing, hospitals, mass transportation, schools,
water and sewer works. They may also issue municipal bonds to refund
outstanding obligations and to meet general operating expenses. Public
authorities issue municipal bonds to obtain funding for privately operated
facilities, such as housing and pollution control facilities, for industrial
facilities or for water supply, gas, electricity or waste disposal facilities.
Municipal bonds may be general obligation or revenue bonds. General
obligation bonds are secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
payable from revenues derived from particular facilities, from the proceeds of a
special excise tax or from other specific revenue sources. They are not
generally payable from the general taxing power of a municipality.
MUNICIPAL NOTES. Municipal notes are subdivided into three categories of
short-term obligations: municipal notes, municipal commercial paper and
municipal demand obligations.
Municipal notes are short-term obligations with a maturity at the time of
issuance ranging from six months to five years. The principal types of
municipal notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes, grant anticipation notes and project notes. Notes sold in
anticipation of collection of taxes, a bond sale, or receipt of other revenues
are usually general obligations of the issuing municipality or agency.
Municipal commercial paper typically consists of very short-term unsecured
negotiable promissory notes that are sold to meet seasonal working capital or
interim construction financing needs of a municipality or agency. While these
obligations are intended to be paid from general revenues or refinanced with
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long-term debt, they frequently are backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks or institutions.
Municipal demand obligations are subdivided into two types: variable rate
demand notes and master demand obligations.
Variable rate demand notes are tax exempt municipal obligations or
participation interests that provide for a periodic adjustment in the interest
rate paid on the notes. They permit the holder to demand payment of the notes,
or to demand purchase of the notes at a purchase price equal to the unpaid
principal balance, plus accrued interest either directly by the issuer or by
drawing on a bank letter of credit or guaranty issued with respect to such note.
The issuer of the municipal obligation may have a corresponding right to prepay
at its discretion the outstanding principal of the note plus accrued interest
upon notice comparable to that required for the holder to demand payment. The
variable rate demand notes in which each Fund may invest are payable, or are
subject to purchase, on demand usually on notice of seven calendar days or less.
The terms of the notes provide that interest rates are adjustable at intervals
ranging from daily to six months, and the adjustments are based upon the prime
rate of a bank or other appropriate interest rate index specified in the
respective notes. Variable rate demand notes are valued at amortized cost; no
value is assigned to the right of each Fund to receive the par value of the
obligation upon demand or notice.
Master demand obligations are tax exempt municipal obligations that provide
for a periodic adjustment in the interest rate paid and permit daily changes in
the amount borrowed. The interest on such obligations is, in the opinion of
counsel for the borrower, excluded from gross income for federal income tax
purposes. For a description of the attributes of master demand obligations, see
"Money Market Instruments" above. Although there is no secondary market for
master demand obligations, such obligations are considered by each Fund to be
liquid because they are payable upon demand. The Funds have no specific
percentage limitations on investments in master demand obligations.
The Tax Exempt Money Market Fund may purchase securities of the type
described above if they have effective maturities within thirteen months. As
required by regulation of the Securities and Exchange Commission (the "SEC"),
this means that on the date of acquisition the final stated maturity (or if
called for redemption, the redemption date) must be within thirteen months or
the maturity must be deemed to be no more than thirteen months because of a
maturity shortening mechanism, such as a variable interest rate, coupled with a
conditional or unconditional right to resell the investment to the issuer or a
third party. See "Variable Rate Demand Notes" and "Puts." A substantial
portion of the Tax Exempt Money Market Fund's portfolio is subject to maturity
shortening mechanisms consisting of variable interest rates coupled with
unconditional rights to resell the securities to the issuers either directly or
by drawing on a domestic or foreign bank letter of credit or other credit
support arrangement. See "Foreign Investments."
PUTS. The Tax Exempt Money Market, Tax Exempt Bond and New York Total
Return Bond Funds may purchase without limit municipal bonds or notes together
with the right to resell the bonds or notes to the seller at an agreed price or
yield within a specified period prior to the maturity date of the bonds or
notes. Such a right to resell is commonly known as a "put." The aggregate
price for bonds or notes with puts may be higher than the price for bonds or
notes without puts. Consistent with each Fund's investment objective and
subject to the supervision of the Trustees, the purpose of this practice is to
permit each Fund to be fully invested in tax exempt securities while preserving
the necessary liquidity to purchase securities on a when-issued basis, to meet
unusually large redemptions, and to purchase at a later date securities other
than those subject to the put. The principal risk of puts is that the writer of
the put may default
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on its obligation to repurchase. The Advisor will monitor each writer's ability
to meet its obligations under puts.
Puts may be exercised prior to the expiration date in order to fund
obligations to purchase other securities or to meet redemption requests. These
obligations may arise during periods in which proceeds from sales of Fund shares
and from recent sales of portfolio securities are insufficient to meet
obligations or when the funds available are otherwise allocated for investment.
In addition, puts may be exercised prior to the expiration date in order to take
advantage of alternative investment opportunities or in the event the Advisor
revises its evaluation of the creditworthiness of the issuer of the underlying
security. In determining whether to exercise puts prior to their expiration
date and in selecting which puts to exercise, the Advisor considers the amount
of cash available to each Fund, the expiration dates of the available puts, any
future commitments for securities purchases, alternative investment
opportunities, the desirability of retaining the underlying securities in each
Fund's portfolio and the yield, quality and maturity dates of the underlying
securities.
The Tax Exempt Money Market Fund values any municipal bonds and notes which
are subject to puts at amortized cost. No value is assigned to the put. The
cost of any such put is carried as an unrealized loss from the time of purchase
until it is exercised or expires. The Tax Exempt Bond and New York Total Return
Bond Funds value any municipal bonds and notes subject to puts with remaining
maturities of less than 60 days by the amortized cost method. If the Tax Exempt
Bond and New York Total Return Bond Funds were to invest in municipal bonds and
notes with maturities of 60 days or more that are subject to puts separate from
the underlying securities, the puts and the underlying securities would be
valued at fair value as determined in accordance with procedures established by
the Board of Trustees. The Board of Trustees would, in connection with the
determination of the value of a put, consider, among other factors, the
creditworthiness of the writer of the put, the duration of the put, the dates on
which or the periods during which the put may be exercised and the applicable
rules and regulations of the SEC. Prior to investing in such securities, the
Tax Exempt Bond and New York Total Return Bond Funds, if deemed necessary based
upon the advice of counsel, will apply to the SEC for an exemptive order, which
may not be granted, relating to the valuation of such securities.
Since the value of the put is partly dependent on the ability of the put
writer to meet its obligation to repurchase, each Fund's policy is to enter into
put transactions only with municipal securities dealers who are approved by the
Advisor. Each dealer will be approved on its own merits, and it is each Fund's
general policy to enter into put transactions only with those dealers which are
determined to present minimal credit risks. In connection with such
determination, the Trustees will review regularly the Advisor's list of approved
dealers, taking into consideration, among other things, the ratings, if
available, of their equity and debt securities, their reputation in the
municipal securities markets, their net worth, their efficiency in consummating
transactions and any collateral arrangements, such as letters of credit,
securing the puts written by them. Commercial bank dealers normally will be
members of the Federal Reserve System, and other dealers will be members of the
National Association of Securities Dealers, Inc. or members of a national
securities exchange. In the case of the Tax Exempt Bond and New York Total
Return Bond Funds, other put writers will have outstanding debt rated Aa or
better by Moody's Investors Service, Inc. ("Moody's") or AA or better by
Standard & Poor's Ratings Group ("Standard & Poor's"), or will be of comparable
quality in the Advisor's opinion or such put writers' obligations will be
collateralized and of comparable quality in the Advisor's opinion. The Trustees
have directed the Advisor not to enter into put transactions with any dealer
which in the judgment of the Advisor becomes more than a minimal credit risk.
In the event that a dealer should default on its obligation to repurchase an
underlying security, the Funds are unable to predict whether all or any portion
of any loss sustained could subsequently be recovered from such dealer.
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The Trust has been advised by counsel that the Funds will be considered the
owner of the securities subject to the puts so that the interest on the
securities is tax exempt income to the Funds. Such advice of counsel is based
on certain assumptions concerning the terms of the puts and the attendant
circumstances.
EQUITY INVESTMENTS
As discussed in the Prospectus, the Portfolios for the Selected U.S.
Equity, Disciplined Equity, U.S. Small Company, International Equity, Emerging
Markets Equity, International Opportunities, 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 (OTC)
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 Selected U.S. Equity, Disciplined Equity, U.S. Small
Company, International Equity, Emerging Markets Equity, International
Opportunities, Diversified, European Equity, Japan Equity and Asia Growth Funds
may invest in common stock warrants that entitle the holder to buy common stock
from the issuer of the warrant at a specific price (the strike price) for a
specific period of time. The market price of warrants may be substantially
lower than the current market price of the underlying common stock, yet warrants
are subject to similar price fluctuations. As a result, warrants may be more
volatile investments than the underlying common stock.
Warrants generally do not entitle the holder to dividends or voting rights
with respect to the underlying common stock and do not represent any rights in
the assets of the issuer company. A warrant will expire worthless if it is not
exercised on or prior to the expiration date.
FOREIGN INVESTMENTS
The International Bond, Global Strategic Income, International Equity,
Emerging Markets Equity, International Opportunities, 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, Disciplined
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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 up to 20% of
total assets in fixed income securities of foreign issuers denominated in
foreign currencies. 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, Disciplined Equity, U.S. Small Company and
Diversified Funds do not expect to invest more than 25%, 25%, 5%, 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 Short Term Bond, Bond, International Bond,
Global Strategic Income, Selected U.S. Equity, Disciplined Equity, U.S. Small
Company, International Equity, Emerging Markets Equity, International
Opportunities, Diversified, European Equity, Japan Equity and Asia Growth Funds
may enter into forward commitments for the purchase or sale of foreign
currencies in connection with the settlement of foreign securities transactions
or to manage the Funds' currency exposure as described in the Prospectus.
The Global Strategic Income, International Equity, Emerging Markets Equity,
International Opportunities and Asia Growth Funds may also invest in countries
with emerging economies or securities markets. Political and economic
structures in many of such countries may be undergoing significant evolution and
rapid development, and such countries may lack the social, political and
economic stability characteristic of more developed countries. Certain of such
countries may have in the past failed to recognize private property rights and
have at times nationalized or expropriated the assets of private companies. As
a result, the risks described above, including the risks of nationalization or
expropriation of assets, may be heightened. In addition, unanticipated
political or social developments may affect the values of a Fund's investments
in those countries and the availability to such Fund of additional investments
in those countries. The small size and inexperience of the securities markets
in certain of such countries and the limited volume of trading in securities in
those countries may make a Fund's investments in such countries illiquid and
more volatile than investments in more developed countries, and such Fund may be
required to establish special custodial or other arrangements before making
certain investments in those countries. There may be little financial or
accounting information available with respect to issuers located in certain of
such countries, and it may be difficult as a result to assess the value or
prospects of an investment in such issuers.
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.
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INVESTING IN JAPAN. Investing in Japanese securities may involve the risks
associated with investing in foreign securities generally. In addition, because
the Japan Equity, International Equity and International Opportunities
Portfolios invest in equities of Japanese issuers, they will be subject to the
general economic and political conditions in Japan. It is not expected that the
Asia Growth Portfolio will invest in Japan (see "Investment Objective and
Policies" in the Prospectus).
Share prices of companies listed on Japanese stock exchanges and on the
Japanese OTC market reached historical peaks (which were later referred to as
the "bubble") as well as historically high trading volumes in 1989 and 1990.
Since then, stock prices in both markets decreased significantly. There can be
no assurance that additional market corrections will not occur.
The common stocks of many Japanese companies continue to trade at high
price earnings ratios in comparison with those in the United States, even after
the recent market decline. Differences in accounting methods make it difficult
to compare the earnings of Japanese companies with those of companies in other
countries, especially the United States.
Since the Japan Equity, International Equity and International
Opportunities Portfolios invest in yen, changes in exchange rates between the
U.S. dollar and the yen affect the U.S. dollar value of their respective assets.
Although the Japanese economy has grown substantially over the past four
decades, recently the rate of growth had slowed substantially. See "Foreign
Currency Exchange Transactions."
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, International
Equity and International Opportunities Portfolios.
Japan's economy has typically exhibited low inflation and low interest
rates. There can be no assurance that low inflation and low interest rates will
continue, and it is likely that a reversal of such factors would adversely
affect the Japanese economy. Moreover, the Japanese economy may differ,
favorably or unfavorably, from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position.
Japan has a parliamentary form of government. In 1993 a coalition
government was formed which, for the first time since 1955, did not include the
Liberal Democratic Party. Since mid-1993, there have been several changes in
leadership in Japan. What, if any, effect the current political situation will
have on prospective regulatory reforms of the economy in Japan cannot be
predicted. Recent and future developments in Japan and neighboring Asian
countries may lead to changes in policy that might adversely affect these
Portfolios.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each of the Portfolios may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed
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income securities 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 (excluding the Disciplined Equity,
International Opportunities and Global Strategic Income Portfolios) 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 or Portfolio 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 or Portfolio bears directly in
connection with its own operations. The Funds and the Portfolios have applied
for exemptive relief from the SEC to permit the Portfolios to invest in
affiliated investment companies. If the requested relief is granted, the
Portfolios would then be permitted to invest in affiliated Funds, subject to
certain conditions specified in the applicable order.
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 Federal Money Market Fund will only
enter into reverse repurchase agreements involving Treasury securities. For
purposes of the 1940 Act a reverse repurchase agreement is also considered as
the borrowing of money by the Portfolio and, therefore, a form of leverage. The
Portfolios will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, a Portfolio will enter into a reverse repurchase
agreement only when the interest income to be earned from the investment of the
proceeds is greater than the interest expense of the transaction. A Portfolio
will not invest the proceeds of a reverse repurchase agreement for a period
which exceeds the duration of the reverse repurchase agreement. 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 Federal Money Market Funds' ability to maintain a net asset
value of $1.00 per
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share. See "Investment Restrictions" for each Portfolio's limitations on
reverse repurchase agreements and bank borrowings.
MORTGAGE DOLLAR ROLL TRANSACTIONS. The Portfolios for the Short Term Bond,
Bond and Global Strategic Income Funds may engage in mortgage dollar roll
transactions with respect to mortgage securities issued by the Government
National Mortgage Association, the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation. In a mortgage dollar roll transaction,
the Portfolio sells a mortgage backed security and simultaneously agrees to
repurchase a similar security on a specified future date at an agreed upon
price. During the roll period, the Portfolio will not be entitled to receive
any interest or principal paid on the securities sold. The Portfolio is
compensated for the lost interest on the securities sold by the difference
between the sales price and the lower price for the future repurchase as well as
by the interest earned on the reinvestment of the sales proceeds. The Portfolio
may also be compensated by receipt of a commitment fee. When the Portfolio
enters into a mortgage dollar roll transaction, liquid assets in an amount
sufficient to pay for the future repurchase are segregated with the Custodian.
Mortgage dollar roll transactions are considered reverse repurchase agreements
for purposes of the Portfolio's investment restrictions.
LOANS OF PORTFOLIO SECURITIES. Each of the Portfolios may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the
Portfolio any income accruing thereon. Loans will be subject to termination by
the Portfolios in the normal settlement time, generally three business days
after notice, or by the borrower on one day's notice. Borrowed securities must
be returned when the loan is terminated. Any gain or loss in the market price
of the borrowed securities which occurs during the term of the loan inures to a
Portfolio and its respective investors. The Portfolios may pay reasonable
finders' and custodial fees in connection with a loan. In addition, a Portfolio
will consider all facts and circumstances including the creditworthiness of the
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 Federal 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 INSTRUMENTS. The Portfolios for the Tax Exempt Bond, Tax Exempt
Money Market 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)
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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.
The Portfolio for the Money Market Fund may invest in certain synthetic
instruments. Such instruments generally involve the deposit of asset-backed
securities in a trust arrangement and the issuance of certificates evidencing
interests in the trust. The certificates are generally sold in private
placements in reliance on Rule 144A.
INTEREST RATE SWAPS (GLOBAL STRATEGIC INCOME PORTFOLIO). In connection with
such transactions, the Portfolio will segregate cash or liquid securities to
cover any amounts it could owe under swaps that exceed the amounts it is
entitled to receive, and it will adjust that amount daily, as needed. During the
term of a swap, changes in the value of the swap are recognized as unrealized
gains or losses by marking to market to reflect the market value of the swap.
When the swap is terminated, the Portfolio will record a realized gain or loss
equal to the difference, if any, between the proceeds from (or cost of) the
closing transaction and the Portfolio's basis in the contract. The Portfolio is
exposed to credit loss in the event of nonperformance by the other party to the
swap.
QUALITY AND DIVERSIFICATION REQUIREMENTS
Each of the Funds, except the New York Total Return Bond, International
Bond and Japan Equity Funds, intends to meet the diversification requirements of
the 1940 Act. To meet these requirements, 75% of the assets of these Funds is
subject to the following fundamental limitations: (1) the Fund may not invest
more than 5% of its total assets in the securities of any one issuer, except
obligations of the U.S. Government, its agencies and instrumentalities, and
(2) the Fund may not own more than 10% of the outstanding voting securities of
any one issuer. As for the other 25% of the Fund's assets not subject to the
limitation described above, there is no limitation on investment of these assets
under the 1940 Act, so that all of such assets may be invested in securities of
any one issuer, subject to the limitation of any applicable state securities
laws, or with respect to the Money Market, Tax Exempt Money Market and Federal
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 (and the other 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. See "Taxes."
With respect to the Tax Exempt Money Market and Tax Exempt Bond Funds, for
purposes of diversification and concentration under the 1940 Act, identification
of the issuer of municipal bonds or notes depends on the terms and conditions of
the obligation. With respect to the New York Total Return Bond Fund, for
purposes of diversification under the Code and concentration under the 1940 Act,
identification of the issuer of municipal bonds or notes also depends on the
terms and conditions of the obligation. If the assets and revenues of an
agency, authority, instrumentality or other political subdivision are separate
from those of the government creating the subdivision and the obligation is
backed only by the assets and revenues of the subdivision, such subdivision is
regarded as the sole issuer. Similarly, in the case of an industrial
development revenue bond or pollution control revenue bond, if the bond is
backed only by the assets and revenues of the nongovernmental user, the
nongovernmental user is regarded as the sole issuer. If in either case the
creating government or another entity guarantees an obligation, the guaranty is
regarded as a separate security and treated as an issue of such guarantor.
Since securities issued or guaranteed by states or municipalities are not voting
securities, there is no limitation on the percentage of a single issuer's
securities which a Fund may own so long as it does not invest more than 5% of
its total assets that are subject to the diversification limitation in the
securities of such issuer, except obligations issued or guaranteed by the U.S.
Government. Consequently, the Funds may invest
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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." 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
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
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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.
FEDERAL MONEY MARKET FUND. In order to attain its objective of maintaining
a stable net asset value, the Federal Money Market Fund will limit its
investments to direct obligations of the U.S. Treasury, including Treasury
bills, notes and bonds, and certain U.S. Government securities with remaining
maturities of thirteen months or less at the time of purchase and will maintain
a dollar-weighted average portfolio maturity of not more than 90 days.
SHORT TERM BOND, BOND, INTERNATIONAL BOND AND DIVERSIFIED FUNDS. The Short
Term Bond, Bond and International Bond Funds and the fixed income portion of the
Diversified Fund invest in a diversified portfolio of securities with the
quality ratings described in the Prospectus. These securities are considered
"high grade," "investment grade" and "below investment grade" as described in
Appendix A. In addition, at the time, in the case of the Bond Fund and the
fixed income portion of the Diversified Fund, the Funds invest in any commercial
paper, bank obligation or repurchase agreement, the issuer must have outstanding
debt rated A or higher by Moody's or Standard & Poor's, the issuer's parent
corporation, if any, must have outstanding commercial paper rated Prime-1 by
Moody's or A-1 by Standard & Poor's, or if no such ratings are available, the
investment must be of comparable quality in the Advisor's opinion.
THE GLOBAL STRATEGIC INCOME FUND. The higher total return sought by the
Global Strategic Income Fund is generally obtainable from high yield high risk
securities in the lower rating categories of the established rating services.
These securities are rated below Baa by Moody's or below BBB by Standard &
Poor's. The Global Strategic Income Fund may invest in securities rated as low
as B by Moody's or Standard & Poor's, which may indicate that the obligations
are speculative to a high degree and in default. Lower rated securities are
generally referred to as junk bonds. See the Appendix attached to this
Statement of Additional Information for a description of the characteristics of
the various ratings categories. The Global Strategic Income Fund is not
obligated to dispose of securities whose issuers subsequently are in default or
which are downgraded below the minimum ratings noted above. The credit ratings
of Moody's and Standard & Poor's (the "Rating Agencies"), such as those ratings
described in this Statement of Additional Information, may not be changed by the
Rating Agencies in a timely fashion to reflect subsequent economic events. The
credit ratings of securities do not evaluate market risk. The Global Strategic
Income Fund may also invest in unrated securities which, in the opinion of the
Advisor, offer comparable yields and risks to the rated securities in which the
Fund may invest.
Debt securities that are rated in the lower rating categories, or which are
unrated, involve greater volatility of price and risk of loss of principal and
income. In addition, lower ratings reflect a greater possibility of an adverse
change in financial condition affecting the ability of the issuer to make
payments of interest and principal. The market price and liquidity of lower
rated fixed income securities generally respond to short-term corporate and
market developments to a greater extent than the price and liquidity of higher
rated securities, because these developments are perceived to have a more direct
relationship to the ability of an issuer of lower rated securities to meet its
ongoing debt obligations. Although the Advisor seeks to minimize these risks
through diversification, investment analysis and attention to current
developments in interest rates and economic conditions, there can be no
assurance that the Advisor will be successful in limiting the Global Strategic
Income Fund's exposure to the risks associated with lower rated securities.
Because the Global Strategic Income Fund invests in securities in the lower
rated categories, the achievement of the Fund's investment objective is more
dependent on the Advisor's ability than would be the case if the Fund were
investing in securities in the higher rated categories.
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Reduced volume and liquidity in the high yield bond market or the reduced
availability of market quotations may make it more difficult to dispose of the
Global Strategic Income Fund's investments in high yield securities and to value
accurately these assets. The reduced availability of reliable, objective data
may increase the Global Strategic Income Fund's reliance on management's
judgment in valuing high yield bonds. In addition, the Global Strategic Income
Fund's investments in high yield securities may be susceptible to adverse
publicity and investor perceptions whether or not justified by fundamental
factors.
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 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, DISCIPLINED EQUITY, U.S. SMALL COMPANY, INTERNATIONAL
EQUITY, EMERGING MARKETS EQUITY, INTERNATIONAL OPPORTUNITIES, DIVERSIFIED,
EUROPEAN EQUITY, JAPAN EQUITY AND ASIA GROWTH FUNDS. The Selected U.S. Equity,
Disciplined Equity, U.S. Small Company, International Equity, Emerging Markets
Equity, International Opportunities, 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
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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 OTC 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 (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.
Provided that a Portfolio 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, a Portfolio may treat the
underlying securities used to cover written OTC options as liquid. 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 Disciplined Equity,
International Bond, Global Strategic Income, Diversified, Emerging Markets
Equity, International Opportunities, 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.
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The seller of an option on a futures contract receives the premium paid by
the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by a Portfolio are paid by the Portfolio into a segregated
account, in the name of the Futures Commission Merchant, as required by the
1940 Act and the SEC's interpretations thereunder.
COMBINED POSITIONS. The Portfolios permitted to purchase and write options may
do so in combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, certain Portfolios may purchase a put option and write a
call option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call
option at one strike price and buying a call option at a lower price, in order
to reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open and
close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of types of
exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match a
Portfolio's current or anticipated investments exactly. A Portfolio may invest
in options and futures contracts based on securities with different issuers,
maturities, or other characteristics from the securities in which it typically
invests, which involves a risk that the options or futures position will not
track the performance of the Portfolio's other investments.
Options and futures contracts prices can also diverge from the prices of
their underlying instruments, even if the underlying instruments match the
Portfolio's investments well. Options and futures contracts prices are affected
by such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A Portfolio may purchase or sell options
and futures contracts with a greater or lesser value than the securities it
wishes to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in a Portfolio's options
or futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for a
Portfolio to enter into new positions or close out existing positions. If the
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions, and
could potentially require a Portfolio to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, the
Portfolio's access to other assets held to cover its options or futures
positions could also be impaired. (See "Exchange Traded and OTC Options" above
for a discussion of the liquidity of options not traded on an exchange.)
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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,
Global Strategic Income, Diversified, Disciplined Equity, Emerging Markets
Equity, International Opportunities, European Equity, Japan Equity and Asia
Growth Funds may employ non-hedging risk management techniques. Examples of
risk management strategies include synthetically altering the duration of a
portfolio or the mix of securities in a portfolio. For example, if the Advisor
wishes to extend maturities in a fixed income portfolio in order to take
advantage of an anticipated decline in interest rates, but does not wish to
purchase the underlying long term securities, it might cause the Portfolio to
purchase futures contracts on long term debt securities. Similarly, if the
Advisor wishes to decrease fixed income securities or purchase equities, it
could cause the Portfolio to sell futures contracts on debt securities and
purchase futures contracts on a stock index. Such non-hedging risk management
techniques are not speculative, but because they involve leverage include, as do
all leveraged transactions, the possibility of losses as well as gains that are
greater than if these techniques involved the purchase and sale of the
securities themselves rather than their synthetic derivatives.
SPECIAL FACTORS AFFECTING THE NEW YORK TOTAL RETURN BOND FUND. The New York
Total Return Bond Fund intends to invest a high proportion of its assets in
municipal obligations of the State of New York and its political subdivisions,
municipalities, agencies, instrumentalities and public authorities. Payment of
interest and preservation of principal is dependent upon the continuing ability
of New York issuers and/or obligors of state, municipal and public authority
debt obligations to meet their obligations thereunder.
The fiscal stability of New York State is related, at least in part, to the
fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State through lease-purchase arrangements, other
contractual arrangements or moral obligation provisions. While debt service is
normally paid out of revenues generated by projects of such State agencies,
authorities and localities, the State has had to provide special assistance in
the past, in some cases of a recurring nature, to enable such agencies,
authorities and localities to meet their financial obligations and, in some
cases, to prevent or cure defaults. To the extent State agencies and local
governments require State assistance to meet their financial obligations, the
ability of the State to meet its own obligations as they become due or to obtain
additional financing could be adversely affected.
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On July 10, 1995, Standard & Poor's downgraded its rating on New York
City's outstanding general obligation bonds to BBB+ from A-, citing the city's
chronic structural budget problems and weak economic outlook. Moody's currently
rates New York City general obligation bonds Baa-1. Factors contributing to
these ratings include the city's reliance on one-time revenue measures to close
annual budget gaps, a dependence on unrealized labor savings, overly optimistic
estimates of revenues and of state and federal aid, and the city's continued
high debt levels.
For further information concerning New York municipal obligations, see
"Appendix B." 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
The table below sets forth the portfolio turnover rates for the Portfolios
corresponding to the Funds. A rate of 100% indicates that the equivalent of all
of the Portfolio's assets have been sold and reinvested in a year. High
portfolio turnover may result in the realization of substantial net capital
gains or losses. To the extent net short term capital gains are realized, any
distributions resulting from such gains are considered ordinary income for
federal income tax purposes. See "Taxes" below.
THE SHORT TERM BOND PORTFOLIO (Short Term Bond Fund) -- For the fiscal year
ended October 31, 1995: 177%. For the fiscal year ended October 31, 1996: 191%.
THE TAX EXEMPT BOND PORTFOLIO (Tax Exempt Bond Fund) -- For the fiscal year
ended August 31, 1995: 47%. For the fiscal year ended August 31, 1996: 25%.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO (New York Total Return Bond Fund) --
For the period April 11, 1994 (commencement of operations) through March 31,
1995: 63%. For the fiscal year ended March 31, 1996: 41%.
THE NON-U.S. FIXED INCOME PORTFOLIO (International Bond Fund) -- For the period
October 11, 1994 (commencement of operations) through September 30, 1995: 288%.
For the fiscal year ended September 30, 1996: 330%.
THE U.S. FIXED INCOME PORTFOLIO (Bond Fund) -- For the fiscal year ended
October 31, 1995: 293%. For the fiscal year ended October 31, 1996: 186%.
THE SELECTED U.S. EQUITY PORTFOLIO (Selected U.S. Equity Fund) -- For the
fiscal year ended May 31, 1995: 71%. For the fiscal year ended May 31, 1996:
85%.
THE U.S. SMALL COMPANY PORTFOLIO (U.S. Small Company Fund) -- For the fiscal
year ended May 31, 1995: 75%. For the fiscal year ended May 31, 1996: 93%.
THE NON-U.S. EQUITY PORTFOLIO (International Equity Fund) -- For the fiscal
year ended October 31, 1995: 59%. For the fiscal year ended October 31, 1996:
57%.
THE DIVERSIFIED PORTFOLIO (Diversified Fund) -- For the fiscal year ended
June 30, 1995: 136%. For the fiscal year ended June 30, 1996: 144%.
THE EMERGING MARKETS EQUITY PORTFOLIO (Emerging Markets Equity Fund) -- For the
fiscal year ended October 31, 1995: 41%. For the fiscal year ended October 31,
1996: 31%.
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THE EUROPEAN EQUITY PORTFOLIO (European Equity Fund) -- For the period March 28,
1995 (commencement of operations) through December 31, 1995: 36%. For the six
months ended June 30, 1996: 27% (unaudited).
THE JAPAN EQUITY PORTFOLIO (Japan Equity Fund) -- For the period March 28, 1995
(commencement of operations) through December 31, 1995: 60%. For the six months
ended June 30, 1996: 44% (unaudited).
THE ASIA GROWTH PORTFOLIO (Asia Growth Fund) -- For the period April 5, 1995
(commencement of operations) through December 31, 1995: 70%. For the six months
ended June 30, 1996: 42% (unaudited).
The estimated annual portfolio turnover rate for each of The European
Equity, Japan Equity, Asia Growth, International Opportunities and Disciplined
Equity Portfolios generally should not exceed 100%. The estimated annual
portfolio turnover rate for The Global Strategic Income Portfolio generally
should not exceed 300%.
INVESTMENT RESTRICTIONS
The investment restrictions of each Fund and its corresponding Portfolio
are identical, unless otherwise specified. Accordingly, references below to a
Fund also include the Fund's corresponding Portfolio unless the context requires
otherwise; similarly, references to a Portfolio also include its corresponding
Fund unless the context requires otherwise.
The investment restrictions below have been adopted by the Trust with
respect to each Fund and by each corresponding Portfolio. Except where
otherwise noted, these investment restrictions are "fundamental" policies which,
under the 1940 Act, may not be changed without the vote of a majority of the
outstanding voting securities of the Fund or Portfolio, as the case may be. A
"majority of the outstanding voting securities" is defined in the 1940 Act as
the lesser of (a) 67% or more of the voting securities present at a meeting if
the holders of more than 50% of the outstanding voting securities are present or
represented by proxy, or (b) more than 50% of the outstanding voting securities.
The percentage limitations contained in the restrictions below apply at the time
of the purchase of securities. Whenever a Fund is requested to vote on a change
in the fundamental investment restrictions of its corresponding Portfolio, the
Trust will hold a meeting of Fund shareholders and will cast its votes as
instructed by the Fund's shareholders.
The MONEY MARKET FUND and its corresponding PORTFOLIO may not:
1. Acquire any illiquid securities, such as repurchase agreements with more than
seven days to maturity or fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 10% of the market value of the
Fund's total assets would be in investments which are illiquid;
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
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example, in the event of abnormally heavy redemption requests, and is not for
investment purposes and shall not apply to reverse repurchase agreements;
4. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund. This limitation shall not
apply to issues of the U.S. Government, its agencies or instrumentalities and to
permitted investments of up to 25% of the Fund's total assets;
5. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investment in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities, negotiable certificates of
deposit, time deposits, and bankers' acceptances of U.S. branches of U.S. banks;
6. Make loans, except through purchasing or holding debt obligations, or
entering into repurchase agreements, or loans of portfolio securities in
accordance with the Fund's investment objective and policies (see "Investment
Objectives and Policies");
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;
10. Act as an underwriter of securities; or
11. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule, order or
interpretation thereunder.
The TAX EXEMPT MONEY MARKET FUND and its corresponding PORTFOLIO may not:
1. Borrow money, except from banks for temporary, extraordinary or emergency
purposes and then only in amounts up to 10% of the value of the Fund's total
assets, taken at cost at the time of such borrowing; or mortgage, pledge or
hypothecate any assets except in connection with any such borrowing in amounts
up to 10% of the value of the Fund's net assets at the time of such borrowing.
The Fund will not purchase securities while borrowings exceed 5% of the Fund's
total assets, provided, however, that the Fund may increase its interest in an
open-end management investment company with the same investment objective and
restrictions as the Fund's while such borrowings are outstanding. This
borrowing provision, for example, facilitates the orderly sale of portfolio
securities in the event of abnormally heavy redemption requests or in the event
of redemption requests during periods of tight market supply. This provision is
not for leveraging purposes;
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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 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;
9. Act as an underwriter of securities; or
10. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule, order or
interpretation thereunder.
- --------------------
(1) Pursuant 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.
(2) For 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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The FEDERAL 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 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
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of the Fund's assets in an open-end management investment company with the same
investment objective and restrictions as the Fund;
9. Act as an underwriter of securities; or
10. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule, order or
interpretation thereunder.
The SHORT TERM BOND FUND and its corresponding PORTFOLIO may not:
1. Purchase securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase the value of its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;
2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. This limitation shall not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of the Fund's total
assets;
3. Purchase the securities of an issuer if, immediately after such purchase, the
Fund owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that the Fund may invest all or part of its investable assets
in an open-end management investment company with the same investment objective
and restrictions as the Fund's. This limitation shall not apply to permitted
investments of up to 25% of the Fund's total assets;
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
38
<PAGE>
hedging activities as described in "Investment Objectives and Policies" shall
not be considered senior securities for purposes hereof;
6. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities) or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies;
7. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, or commodity contracts, except for the Fund's
interests in hedging activities as described under "Investment Objectives and
Policies"; or interests in oil, gas, or mineral exploration or development
programs. However, the Fund may purchase securities or commercial paper issued
by companies which invest in real estate or interests therein, including real
estate investment trusts, and purchase instruments secured by real estate or
interests therein;
8. Purchase securities on margin, make short sales of securities, or maintain a
short position in securities, except to obtain such short-term credit as
necessary for the clearance of purchases and sales of securities; provided that
this restriction shall not be deemed to be applicable to the purchase or sale of
when-issued securities or delayed delivery securities;
9. Acquire securities of other investment companies, except as permitted by the
1940 Act or in connection with a merger, consolidation, reorganization,
acquisition of assets or an offer of exchange; provided, however, that nothing
in this investment restriction shall prevent the Trust from investing all or
part of the Fund's assets in an open-end management investment company with the
same investment objective and restrictions as the Fund; or
10. Act as an underwriter of securities.
The BOND FUND and its corresponding PORTFOLIO may not:
1. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts up to 30% of the value of the Fund's total assets, taken at
cost at the time of such borrowing and except in connection with reverse
repurchase agreements permitted by Investment Restriction No. 8. Mortgage,
pledge, or hypothecate any assets except in connection with any such borrowing
in amounts up to 30% of the value of the Fund's net assets at the time of such
borrowing. The Fund will not purchase securities while borrowings (including
reverse repurchase agreements) exceed 5% of the Fund's total assets; provided,
however, that the Fund may increase its interest in an open-end management
investment company with the same investment objective and restrictions as the
Fund's while such borrowings are outstanding. This borrowing provision
facilitates the orderly sale of portfolio securities, for example, in the event
of abnormally heavy redemption requests. This provision is not for investment
purposes. Collateral arrangements for premium and margin payments in connection
with the Fund's hedging activities are not deemed to be a pledge of assets;
2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. This limitation shall not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of the Fund's total
assets;
3. Purchase the securities of an issuer if, immediately after such purchase, the
Fund owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that the Fund may invest all or part of its investable assets
39
<PAGE>
in an open-end management investment company with the same investment objective
and restrictions as the Fund's. This limitation shall not apply to permitted
investments of up to 25% of the Fund's total assets;
4. Purchase securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase the value of its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;
5. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities) or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies;
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, commodity contracts, except for the Fund's interest in
hedging activities as described under "Investment Objectives and Policies"; or
interests in oil, gas, or mineral exploration or development programs. However,
the Fund may purchase debt obligations secured by interests in real estate or
issued by companies which invest in real estate or interests therein including
real estate investment trusts;
7. Purchase securities on margin, make short sales of securities, or maintain a
short position in securities, except in the course of the Fund's hedging
activities, unless at all times when a short position is open the Fund owns an
equal amount of such securities, provided that this restriction shall not be
deemed to be applicable to the purchase or sale of when-issued securities or
delayed delivery securities;
8. Issue any senior security, except as appropriate to evidence indebtedness
which constitutes a senior security and which the Fund is permitted to incur
pursuant to Investment Restriction No. 1 and except that the Fund may enter into
reverse repurchase agreements, provided that the aggregate of senior securities,
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
40
<PAGE>
purposes. Collateral arrangements for premium and margin payments in connection
with the Fund's hedging activities are not deemed to be a pledge of assets;
2. Purchase securities or other obligations of any one issuer if, immediately
after such purchase, more than 5% of the value of the Fund's total assets would
be invested in securities or other obligations of any one such issuer; provided,
however, that the Fund may invest all or part of its investable assets in an
open-end management investment company with the same investment objective and
restrictions as the Fund's. Each state and each political subdivision, agency
or instrumentality of such state and each multi-state agency of which such state
is a member will be a separate issuer if the security is backed only by the
assets and revenue of that issuer. If the security is guaranteed by another
entity, the guarantor will be deemed to be the issuer.(3) This limitation shall
not apply to securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or to permitted investments of up to 25% of the
Fund's total assets;
3. Invest more than 25% of its total assets in securities of governmental units
located in any one state, territory, or possession of the United States. The
Fund may invest more than 25% of its total assets in industrial developments and
pollution control obligations whether or not the users of facilities financed by
such obligations are in that same industry;(4)
4. Purchase industrial revenue bonds if, as a result of such purchase, more than
5% of total Fund assets would be invested in industrial revenue bonds where
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;
- --------------------
(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.
(4) Pursuant 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.
41
<PAGE>
8. Issue any senior security, except as appropriate to evidence indebtedness
which the Fund is permitted to incur pursuant to Investment Restriction No. 1.
The Fund's arrangements in connection with its hedging activities as described
in "Investment Objectives and Policies" shall not be considered senior
securities for purposes hereof;
9. Acquire securities of other investment companies, except as permitted by the
1940 Act; or
10. Act as an underwriter of securities.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC staff
interpretations thereof, are amended or modified, the NEW YORK TOTAL RETURN BOND
FUND and its corresponding PORTFOLIO may not:
1. Purchase any security if, as a result, more than 25% of the value of the
Fund's total assets would be invested in securities of issuers having their
principal business activities in the same industry. This limitation shall not
apply to obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities;
2. Borrow money, except that the Fund may (i) borrow money from banks for
temporary or emergency purposes (not for leveraging purposes) and (ii) enter
into reverse repurchase agreements for any purpose; provided that (i) and (ii)
in total do not exceed 33 1/3% of the value of the Fund's total assets
(including the amount borrowed) less liabilities (other than borrowings). If at
any time any borrowings come to exceed 33 1/3% of the value of the Fund's total
assets, the Fund will reduce its borrowings within three business days to the
extent necessary to comply with the 33 1/3% limitation;
3. Make loans to other persons, except through the purchase of debt obligations,
loans of portfolio securities, and participation in repurchase agreements;
4. Purchase or sell physical commodities or contracts thereon, unless acquired
as a result of the ownership of securities or instruments, but the Fund may
purchase or sell futures contracts or options (including options on futures
contracts, but excluding options or futures contracts on physical commodities)
and may enter into foreign currency forward contracts;
5. Purchase or sell real estate, but the Fund may purchase or sell securities
that are secured by real estate or issued by companies (including real estate
investment trusts) that invest or deal in real estate;
6. Underwrite securities of other issuers, except to the extent the Fund, in
disposing of portfolio securities, may be deemed an underwriter within the
meaning of the 1933 Act;
7. Issue senior securities, except as permitted under the 1940 Act or any rule,
order or interpretation thereunder; or
8. Notwithstanding any other investment restriction of the Fund, the Fund may
invest all of its investable assets in an open-end management investment company
having the same investment objective and restrictions as the Fund.
42
<PAGE>
The DIVERSIFIED FUND and its corresponding PORTFOLIO may not:
1. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase the value of its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;
2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. This limitation shall not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of the Fund's total
assets;
3. Purchase the securities of an issuer if, immediately after such purchase, the
Fund owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that the Fund may invest all or part of its investable assets
in an open-end management investment company with the same investment objective
and restrictions as the Fund's. This limitation shall not apply to permitted
investments of up to 25% of the Fund's total assets;
4. Borrow money (not including reverse repurchase agreements), except from banks
for temporary or extraordinary or emergency purposes and then only in amounts up
to 30% of the value of the Fund's or the Portfolio's total assets, taken at cost
at the time of such borrowing (and provided that such borrowings and reverse
repurchase agreements do not exceed in the aggregate one-third of the market
value of the Fund's and the Portfolio's total assets less liabilities other than
the obligations represented by the bank borrowings and reverse repurchase
agreements). The Fund will not mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts not to exceed 30% of
the value of the Fund's or the Portfolio's net assets at the time of such
borrowing. The Fund or the Portfolio will not purchase securities while
borrowings exceed 5% of the Fund's total assets; provided, however, that the
Fund may increase its interest in an open-end management investment company with
the same investment objective and restrictions as the Fund's while such
borrowings are outstanding. This borrowing provision is included to facilitate
the orderly sale of portfolio securities, for example, in the event of
abnormally heavy redemption requests, and is not for investment purposes.
Collateral arrangements 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");
43
<PAGE>
7. Purchase or sell commodities or commodity contracts, but this restriction
shall not prohibit the Fund from purchasing or selling futures contracts or
options (including options on futures contracts, but excluding options or
futures contracts on physical commodities) or entering into foreign currency
forward contracts; or purchase or sell real estate or interests in oil, gas, or
mineral exploration or development programs. However, the Fund may purchase
securities or commercial paper issued by companies which invest in real estate
or interests therein, including real estate investment trusts, and purchase
instruments secured by real estate or interests therein;
8. Purchase securities on margin, make short sales of securities, or maintain a
short position in securities, except to obtain such short term credit as
necessary for the clearance of purchases and sales of securities, provided that
this restriction shall not be deemed to be applicable to the purchase or sale of
when-issued securities or delayed delivery securities or to restrict the Fund's
use of futures contracts or options;
9. Acquire securities of other investment companies, except as permitted by the
1940 Act or in connection with a merger, consolidation, reorganization,
acquisition of assets or an offer of exchange; provided, however, that nothing
in this investment restriction shall prevent the Trust from investing all or
part of the Fund's assets in an open-end management investment company with the
same investment objective and restrictions as the Fund; or
10. Act as an underwriter of securities.
Each of the SELECTED U.S. EQUITY FUND and the U.S. SMALL COMPANY FUND and
their corresponding PORTFOLIOS may not:
1. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase the value of its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;
2. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts not to exceed 10% of the value of the Fund's total assets,
taken at cost, at the time of such borrowing. Mortgage, pledge, or hypothecate
any assets except in connection with any such borrowing and in amounts not to
exceed 10% of the value of the Fund's net assets at the time of such borrowing.
The Fund will not purchase securities while borrowings exceed 5% of the Fund's
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;
44
<PAGE>
4. Purchase the securities of an issuer if, immediately after such purchase, the
Fund owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that the Fund may invest all or part of its investable assets
in an open-end management investment company with the same investment objective
and restrictions as the Fund's;
5. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities), or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies (see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, or commodity contracts, except for the Fund's
interests in hedging activities as described under "Investment Objectives and
Policies"; or interests in oil, gas, or mineral exploration or development
programs. However, the Fund may purchase securities or commercial paper issued
by companies which invest in real estate or interests therein, including real
estate investment trusts;
7. Purchase securities on margin, make short sales of securities, or maintain a
short position, except in the course of the Fund's hedging activities, provided
that this restriction shall not be deemed to be applicable to the purchase or
sale of when-issued securities or delayed delivery securities;
8. Acquire securities of other investment companies, except as permitted by the
1940 Act;
9. Act as an underwriter of securities;
10. Issue any senior security, except as appropriate to evidence indebtedness
which the Fund is permitted to incur pursuant to Investment Restriction No. 2.
The Fund's arrangements in connection with its hedging activities as described
in "Investment Objectives and Policies" shall not be considered senior
securities for purposes hereof; or
11. Purchase any equity security if, as a result, the Fund would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three years.
The INTERNATIONAL EQUITY FUND and its corresponding PORTFOLIO may not:
1. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts up to 30% of the value of the Fund's net assets at the time
of borrowing, and except in connection with reverse repurchase agreements and
then only in amounts up to 33 1/3% of the value of the Fund's net assets; or
purchase securities while borrowings, including reverse repurchase agreements,
exceed 5% of the Fund's total assets; provided, however, that the Fund may
increase its interest in an open-end management investment company with the same
investment objective and restrictions as the Fund's while such borrowings are
outstanding. The Fund will not mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts not to exceed 30% of
the value of the Fund's net assets at the time of such borrowing;
2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. This limitation shall not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of the Fund's total
assets;
45
<PAGE>
3. Purchase the securities of an issuer if, immediately after such purchase, the
Fund owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that the Fund may invest all or part of its investable assets
in an open-end management investment company with the same investment objective
and restrictions as the Fund's. This limitation shall not apply to permitted
investments of up to 25% of the Fund's total assets;
4. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;
5. Make loans, except through the purchase or holding of debt obligations
(including restricted securities), or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies, see "Additional Investment Information" in
the Prospectus and "Investment Objectives and Policies" in this Statement of
Additional Information;
6. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof, real property, including limited partnership interests, commodities, or
commodity contracts, except for the Fund's interests in hedging and foreign
exchange activities as described under "Additional Investment Information" in
the Prospectus; or interests in oil, gas, mineral or other exploration or
development programs or leases. However, the Fund may purchase securities or
commercial paper issued by companies that invest in real estate or interests
therein including real estate investment trusts;
7. Purchase securities on margin, make short sales of securities, or maintain a
short position in securities, except to obtain such short-term credit as
necessary for the clearance of purchases and sales of securities, provided that
this restriction shall not be deemed to apply to the purchase or sale of
when-issued securities or delayed delivery securities;
8. Acquire securities of other investment companies, except as permitted by the
1940 Act;
9. Act as an underwriter of securities, except insofar as the Fund may be deemed
to be an underwriter under the 1933 Act by virtue of disposing of portfolio
securities; or
10. Issue any senior security, except as appropriate to evidence indebtedness
which the Fund is permitted to incur pursuant to Investment Restriction No. 1.
The Fund's arrangements in connection with its hedging activities as described
in "Additional Investment Information" in the Prospectus shall not be considered
senior securities for purposes hereof.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act, or any SEC or SEC staff
interpretations thereof, are amended or modified, each of the EMERGING MARKETS
EQUITY, EUROPEAN EQUITY AND ASIA GROWTH FUNDS and its corresponding PORTFOLIO
may not:
1. Purchase any security if, as a result, more than 25% of the value of the
Fund's total assets would be invested in securities of issuers having their
principal business activities in the same industry. This limitation shall not
apply to obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities;
46
<PAGE>
2. Borrow money, except that the Fund may (i) borrow money from banks for
temporary or emergency purposes (not for leveraging purposes) and (ii) enter
into reverse repurchase agreements for any purpose; provided that (i) and (ii)
in total do not exceed 33 1/3% of the value of the Fund's total assets
(including the amount borrowed) less liabilities (other than borrowings). If at
any time any borrowings come to exceed 33 1/3% of the value of the Fund's total
assets, the Fund will reduce its borrowings within three business days to the
extent necessary to comply with the 33 1/3% limitation;
3. With respect to 75% of its total assets, purchase any security if, as a
result, (a) more than 5% of the value of the Fund's total assets would be
invested in securities or other obligations of any one issuer; or (b) the Fund
would hold more than 10% of the outstanding voting securities of that issuer.
This limitation shall not apply to Government securities (as defined in the 1940
Act);
4. Make loans to other persons, except through the purchase of debt obligations,
loans of portfolio securities, and participation in repurchase agreements;
5. Purchase or sell physical commodities or contracts thereon, unless acquired
as a result of the ownership of securities or instruments, but the Fund may
purchase or sell futures contracts or options (including options on futures
contracts, but excluding options or futures contracts on physical commodities)
and may enter into foreign currency forward contracts;
6. Purchase or sell real estate, but the Fund may purchase or sell securities
that are secured by real estate or issued by companies (including real estate
investment trusts) that invest or deal in real estate;
7. Underwrite securities of other issuers, except to the extent the Fund, in
disposing of portfolio securities, may be deemed an underwriter within the
meaning of the 1933 Act;
8. Issue senior securities, except as permitted under the 1940 Act or any rule,
order or interpretation thereunder; and
9. Notwithstanding any other investment restriction of the Fund, the Fund may
invest all of its investable assets in an open-end management investment company
having the same investment objective and restrictions as the Fund.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC staff
interpretations thereof are amended or modified, each of the INTERNATIONAL BOND
AND JAPAN EQUITY FUNDS and 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. 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,
47
<PAGE>
the Fund will reduce its borrowings within three business days to the extent
necessary to comply with the 33 1/3% limitation;
3. Make loans to other persons, except through the purchase of debt obligations,
loans of portfolio securities, and participation in repurchase agreements;
4. Purchase or sell physical commodities or contracts thereon, unless acquired
as a result of the ownership of securities or instruments, but the Fund may
purchase or sell futures contracts or options (including options on futures
contracts, but excluding options or futures contracts on physical commodities)
and may enter into foreign currency forward contracts;
5. Purchase or sell real estate, but the Fund may purchase or sell securities
that are secured by real estate or issued by companies (including real estate
investment trusts) that invest or deal in real estate;
6. Underwrite securities of other issuers, except to the extent the Fund, in
disposing of portfolio securities, may be deemed an underwriter within the
meaning of the 1933 Act;
7. Issue senior securities, except as permitted under the 1940 Act or any rule,
order or interpretation thereunder; and
8. Notwithstanding any other investment restriction of the Fund, the Fund may
invest all of its investable assets in an open-end management investment company
having substantially the same investment objective and restrictions as the Fund.
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 DISCIPLINED EQUITY
AND INTERNATIONAL OPPORTUNITIES FUNDS and its corresponding PORTFOLIO may not:
1. Purchase any security if, as a result, more than 25% its total assets would
be invested in securities of issuers in any single industry. This limitation
shall not apply to securities issued or guaranteed as to principal or interest
by the U.S. Government, its agencies or instrumentalities.
2. Issue senior securities. For purposes of this restriction, borrowing money
in accordance with paragraph 3 below, making loans in accordance with
paragraph 7 below, the issuance of shares of beneficial interest in multiple
classes or series, the purchase or sale of options, futures contracts, forward
commitments, swaps and transactions in repurchase agreements are not deemed to
be senior securities.
3. Borrow money, except in amounts not to exceed one third of the Fund's total
assets (including the amount borrowed) (i) from banks for temporary or short-
term purposes or for the clearance of transactions, (ii) in connection with the
redemption of Fund shares or to finance failed settlements of portfolio trades
without immediately liquidating portfolio securities or other assets, (iii) in
order to fulfill commitments or plans to purchase additional securities pending
the anticipated sale of other portfolio securities or assets and (iv) pursuant
to reverse repurchase agreements entered into by the Fund.
4. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Fund may be deemed
to be an underwriter under the 1933 Act.
5. Purchase or sell real estate except that the Fund may (i) acquire or lease
office space for its own use, (ii) invest in securities of issuers that invest
in real estate or interests therein, (iii) invest in securities that are secured
by real estate or interests therein, (iv) purchase and sell mortgage-related
securities and (v) hold and sell real estate acquired by the Fund as a result of
the ownership of securities.
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<PAGE>
6. Purchase or sell commodities or commodity contracts, except the Fund may
purchase and sell financial futures contracts, options on financial futures
contracts and warrants and may enter into swap and forward commitment
transactions.
7. Make loans, except that the Fund (1) may lend portfolio securities with a
value not exceeding one-third of the Fund's net assets, (2) enter into
repurchase agreements, and (3) purchase all or a portion of an issue of debt
securities (including privately issued debt securities), bank loan participation
interests, bank certificates of deposit, bankers' acceptances, debentures or
other securities, whether or not the purchase is made upon the original issuance
of the securities.
8. With respect to 75% of its total assets, purchase securities of an issuer
(other than the U.S. Government, its agencies, instrumentalities or authorities
or repurchase agreements collateralized by U.S. Government securities), if:
a. such purchase would cause more than 5% of the Fund's total assets to be
invested in the securities of such issuer; or
b. such purchase would cause the Fund to hold more than 10% of the
outstanding voting securities of such issuer.
(Although permitted to do so by restriction No. 3 above, the Funds have no
current intention to engage in borrowing for financial leverage.)
Unless Section 8(b)(1), and 13(a) of the 1940 Act or any SEC or SEC staff
interpretations thereof, are amended or modified, the GLOBAL STRATEGIC INCOME
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. Issue senior securities. For purposes of this restriction, borrowing money
in accordance with paragraph 3 below, making loans in accordance with non-
fundamental restriction no. (v), the issuance of shares of beneficial interest
in multiple classes or series, the purchase or sale of options, futures
contracts, forward commitments, swaps and transactions in repurchase agreements
are not deemed to be senior securities.
3. Borrow money, except in amounts not to exceed one third of the Fund's total
assets (including the amount borrowed) less liabilities (other than
borrowings)(i) from banks for temporary or short-term purposes or for the
clearance of transactions, (ii) in connection with the redemption of Fund shares
or to finance failed settlements of portfolio trades without immediately
liquidating portfolio securities or other assets, (iii) in order to fulfill
commitments or plans to purchase additional securities pending the anticipated
sale of other portfolio securities or assets and (iv) pursuant to reverse
repurchase agreement entered into by the Fund.(5)
4. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Fund may be deemed
to be an underwriter under the 1933 Act.
- --------------------
(5) Although the Portfolio is permitted to fulfill plans to purchase
additional securities pending the anticipated sale of other portfolio securities
or assets, the Portfolio has no current intention of engaging in this form of
leverage.
49
<PAGE>
5. Purchase or sell real estate except that the Fund may (i) acquire or lease
office space for its own use, (ii) invest in securities of issuers that invest
in real estate or interests therein, (iii) invest in securities that are secured
by real estate or interests therein, (iv) make direct investments in mortgages,
(v) purchase and sell mortgage-related securities and (vi) hold and sell real
estate acquired by the Fund as a result of the ownership of securities including
mortgages.
6. Purchase or sell commodities or commodity contracts, unless acquired as a
result of the ownership of securities or instruments, except the Fund may
purchase and sell financial futures contracts, options on financial futures
contracts and warrants and may enter into swap and forward commitment
transactions.
7. With respect to 75% of its total assets, purchase securities of an issuer
(other than the U. S. Government, its agencies, instrumentalities or authorities
or repurchase agreements collateralized by U.S. Government securities), if:
a. such purchase would cause more than 5% of the Fund's total assets to be
invested in the securities of such issuer; or
b. Such purchase would cause the Fund to hold more than 10% of the
outstanding voting securities of such issuer.
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
FEDERAL MONEY MARKET FUND. The investment restriction described below is not a
fundamental policy of these Funds or their corresponding Portfolios and may be
changed by their respective Trustees. This non-fundamental investment policy
requires that each such Fund may not:
(i) acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 10% of the market value of the
Fund's total assets would be in investments that are illiquid.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - SHORT TERM BOND FUND, TAX EXEMPT
BOND FUND, BOND FUND, SELECTED U.S. EQUITY FUND, U.S. SMALL COMPANY FUND,
INTERNATIONAL EQUITY FUND, DIVERSIFIED FUND, EUROPEAN EQUITY FUND, JAPAN EQUITY
FUND AND ASIA GROWTH FUND. The investment restriction described below is not a
fundamental policy of these Funds or their corresponding Portfolios and may be
changed by their respective Trustees. This non-fundamental investment policy
requires that each such Fund may not:
(i) acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 15% of the market value of the
Fund's total assets would be in investments that are illiquid.
50
<PAGE>
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 Advisor, if after the Portfolio's purchase of the
securities of such issuer, one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities, or both, all taken at market value,
of such issuer, and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities,
or both, all taken at market value.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - NEW YORK TOTAL RETURN BOND FUND.
The investment restrictions described below are not fundamental policies of the
New York Total Return Bond Fund and its corresponding Portfolio and may be
changed by their Trustees. These non-fundamental investment policies require
that the New York Total Return Bond Fund and its corresponding Portfolio may
not:
(i) Acquire securities of other investment companies, except as permitted by the
1940 Act or any rule, order or interpretation thereunder, or in connection with
a merger, consolidation, reorganization, acquisition of assets or an offer of
exchange;
(ii) Acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 15% of the market value of the
Fund's total assets would be in investments that are illiquid;
(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
51
<PAGE>
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 Advisor, if after the Portfolio's purchase of the
securities of such issuer, one or more of such persons owns beneficially more
than 1/2 of 1% of the shares or securities, or both, all taken at market value,
of such issuer, and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares or securities,
or both, all taken at market value.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - SELECTED U.S. EQUITY FUND, U.S.
SMALL COMPANY FUND AND DIVERSIFIED FUND. The investment restrictions described
below are not fundamental policies of these Funds or their corresponding
Portfolios and may be changed by their respective Trustees. These
non-fundamental investment policies require that each such Fund may not:
(i) invest in real estate limited partnership interests; or
(ii) invest in oil, gas or other mineral leases.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - EMERGING MARKETS EQUITY FUND,
EUROPEAN EQUITY FUND AND ASIA GROWTH FUND. The investment restrictions
described below are not fundamental policies of these Funds or their
corresponding Portfolios and may be changed by their respective Trustees. These
non-fundamental investment policies require that each such Fund may not:
(i) Acquire securities of other investment companies, except as permitted by the
1940 Act or any rule, order or interpretation thereunder, or in connection with
a merger, consolidation, reorganization, acquisition of assets or an offer of
exchange;
(ii) Acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 15% of the market value of the
Fund's total assets would be in investments that are illiquid;
(iii) Purchase any security if, as a result, the Fund would then have more than
5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three years;
(iv) Invest in warrants (other than warrants acquired by the Fund as part of a
unit or attached to securities at the time of purchase) if, as a result, the
investments (valued at the lower of cost or market) would exceed 5% of the value
of the Fund's net assets or if, as a result, more than 2% of the Fund's net
assets would be invested in warrants not listed on a recognized U.S. or foreign
stock exchange, to the extent permitted by applicable state securities laws;
(v) Sell any security short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold or unless it
covers such short sales as required by the current rules or positions of the SEC
or its staff. Transactions in futures contracts and options shall not
constitute selling securities short;
(vi) Purchase securities on margin, but the Fund may obtain such short term
credits as may be necessary for the clearance of transactions;
(vii) Purchase or retain securities of any issuer if, to the knowledge of the
Fund, any of the Fund's officers or Trustees or any officer of the Portfolio's
investment adviser individually owns more than 1/2 of 1% of the issuer's
outstanding securities and such persons owning more than 1/2 of 1% of such
52
<PAGE>
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.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - DISCIPLINED EQUITY, INTERNATIONAL
OPPORTUNITIES AND GLOBAL STRATEGIC INCOME FUNDS. The investment restrictions
described below are not fundamental policies of the Funds and their
corresponding Portfolios and may be changed by their respective Trustees. These
non-fundamental investment policies require that each 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;
53
<PAGE>
(iii) Sell any security short, except to the extent permitted by the 1940
Act. Transactions in futures contracts and options shall not constitute selling
securities short;
(iv) Purchase securities on margin, but the Fund may obtain such short term
credits as may be necessary for the clearance of transactions; or
(v) (For Global Strategic Income Portfolio only) Make loans, except that the
Fund (1) may lend portfolio securities with a value not exceeding one third of
the Fund's total assets, (2) enter into repurchase agreements, and (3) purchase
all or a portion of an issue of debt obligations (including privately issued
debt obligations and direct investments in mortgages), bank loan participation
interests, bank certificates of deposit, bankers' acceptances, debentures or
other securities, whether or not the purchase is made upon the original issuance
of the securities.
ALL FUNDS. There will be no violation of any investment restriction if
that restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, Morgan may classify issuers by industry in accordance with
classifications set forth in the DIRECTORY OF COMPANIES FILING ANNUAL REPORTS
WITH THE SECURITIES AND EXCHANGE COMMISSION or other sources. In the absence of
such classification or if Morgan determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, Morgan
may classify an issuer accordingly. For instance, personal credit finance
companies and business credit finance companies are deemed to be separate
industries and wholly owned finance companies are considered to be in the
industry of their parents if their activities are primarily related to financing
the activities of their parents.
TRUSTEES AND OFFICERS
TRUSTEES
The Trustees of the Trust, who are also the Trustees of each of the
Portfolios, their business addresses, principal occupations during the past five
years and dates of birth are set forth below.
FREDERICK S. ADDY----Trustee; Retired; Executive Vice President and Chief
Financial Officer since prior to April 1994, Amoco Corporation. His address is
5300 Arbutus Cove, Austin, TX 78746, and his date of birth is January 1, 1932.
WILLIAM G. BURNS----Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, FL 32779,
and his date of birth is November 2, 1932.
ARTHUR C. ESCHENLAUER----Trustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, NJ 08540, and his date of birth is May 23, 1934.
MATTHEW HEALEY (*)----Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1992. His address is Pine Tree
Club Estates, 10286 Saint Andrews Road, Boynton Beach, FL 33436, and his date of
birth is August 23, 1937.
MICHAEL P. MALLARDI----Trustee; Retired; Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast Group since prior to April 1996. His
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<PAGE>
address is 10 Charnwood Drive, Suffern, NY 10910, and his date of birth is
March 17, 1934.
______________________
(*) 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 JPM
Pierpont Funds, up to and including creating a separate board of trustees.
Each Trustee is currently paid an annual fee of $65,000 for serving as
Trustee of the Trust, each of the Portfolios, The JPM Pierpont Funds and the JPM
Series Trust and is reimbursed for expenses incurred in connection with service
as a Trustee. The Trustees may hold various other directorships unrelated to
these funds.
Trustee compensation expenses accrued by the Trust for the calendar year
ended December 31, 1996 is set forth below.
<TABLE>
<CAPTION>
TOTAL TRUSTEE COMPENSATION
AGGREGATE TRUSTEE ACCRUED BY THE PORTFOLIOS,
COMPENSATION THE JPM PIERPONT FUNDS, JPM
ACCRUED BY THE SERIES TRUST AND THE TRUST
NAME OF TRUSTEE TRUST DURING 1996 DURING 1996 (**)
- --------------- ----------------- ----------------
<S> <C> <C>
Frederick S. Addy, Trustee $12,593 $65,000
William G. Burns, Trustee $12,593 $65,000
Arthur C. Eschenlauer, Trustee $12,593 $65,000
Matthew Healey, Trustee(*),
Chairman and Chief Executive
Officer $12,593 $65,000
Michael P. Mallardi, Trustee $12,593 $65,000
</TABLE>
(*) During 1996, 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 $21,500 in
insurance premiums for his benefit.
(**) No investment company within the fund complex has a pension or
retirement plan. Currently there are 18 investment companies (15 investment
companies comprising the Portfolios, The JPM Pierpont Funds, the Trust and JPM
Series Trust) in the fund complex.
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 to the Trust, the Portfolios and certain other
registered
55
<PAGE>
investment companies subject to similar agreements with Pierpont Group, Inc.
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. For the fiscal year ended
November 30, 1996: $48,339.
THE MONEY MARKET PORTFOLIO -- For the fiscal year ended November 30, 1994:
$246,089. For the fiscal year ended November 30, 1995: $261,045. For the
fiscal year ended November 30, 1996: $157,428.
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. For the fiscal year
ended August 31, 1996: 8,391.
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. For the
fiscal year ended August 31, 1996: $62,310.
FEDERAL MONEY MARKET FUND -- For the fiscal year ended October 31, 1994: $6,211.
For the fiscal year ended October 31, 1995: $8,445. For the fiscal year ended
October 31, 1996: $6,320.
THE FEDERAL MONEY MARKET PORTFOLIO -- For the fiscal year ended October 31,
1994: $17,104. For the fiscal year ended October 31, 1995: $22,791. For the
fiscal year ended October 31, 1996: $16,144.
SHORT TERM BOND FUND -- For the fiscal year ended October 31, 1994: $3,935. For
the fiscal year ended October 31, 1995: $4,748. For the fiscal year ended
October 31, 1996: $568.
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. For the fiscal year
ended October 31, 1996: $1,005.
TAX EXEMPT BOND FUND -- For the fiscal year ended August 31, 1994: $686. For
the fiscal year ended August 31, 1995: $3,602. For the fiscal year ended August
31, 1996: $4,527.
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. For the fiscal
year ended August 31, 1996: $24,602
NEW YORK TOTAL RETURN BOND FUND -- For the period April 11, 1994 (commencement
of operations) through March 31, 1995: $1,297. For the fiscal year ended March
31, 1996: $2,409.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO -- For the period April 11, 1994
(commencement of operations) through March 31, 1995: $4,140. For the fiscal
year ended March 31, 1996: $5,530.
INTERNATIONAL BOND FUND -- For the period December 1, 1994 (commencement of
operations) through September 30, 1995: $232. For the fiscal year ended
September 30, 1996: $304.
THE NON-U.S. FIXED INCOME PORTFOLIO -- For the period October 11, 1994
(commencement of operations) through September 30, 1995: $20,446. For the fiscal
year ended September 30, 1996: $11,488.
BOND FUND -- For the fiscal year ended October 31, 1994: $12,989. For the
fiscal year ended October 31, 1995: $29,276. For the fiscal year ended October
31, 1996: $30,044.
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. For the fiscal
year ended October 31, 1996: $36,922.
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<PAGE>
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. For the fiscal year ended May 31, 1996: $13,993.
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. For the fiscal year ended May 31, 1996: $46,626.
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. For the fiscal year ended May 31, 1996: $14,539.
THE U.S. SMALL COMPANY PORTFOLIO -- For the period July 19, 1993 (commencement
of operations) through May 31, 1994: $33,435. For the fiscal year ended May 31,
1995: $48,688.
INTERNATIONAL EQUITY FUND -- For the fiscal year ended October 31, 1994:
$13,902. For the fiscal year ended October 31, 1995: $30,279. For the fiscal
year ended October 31, 1996: $29,774.
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. For the fiscal
year ended October 31, 1996: $39,391.
DIVERSIFIED FUND -- For the period July 8, 1993 (commencement of operations)
through June 30, 1994: $2,959. For the fiscal year ended June 30, 1995:
$10,267. For the fiscal year ended June 30, 1996: $11,024.
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. For the fiscal year ended June 30, 1996: $13,109.
EMERGING MARKETS EQUITY FUND -- For the period November 15, 1993 (commencement
of operations) through October 31, 1994: $8,326. For the fiscal year ended
October 31, 1995: $14,527. For the fiscal year ended October 31, 1996:
$11,374.
THE EMERGING MARKETS EQUITY PORTFOLIO -- For the period November 15, 1993
(commencement of operations) through October 31, 1994: $42,764. For the fiscal
year ended October 31, 1995: $53,162. For the fiscal year ended October 31,
1996: $36,851.
EUROPEAN EQUITY PORTFOLIO -- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $19,953. For the six months ended
June 30, 1996: $14,050 (unaudited).
EUROPEAN EQUITY FUND -- For the period February 29, 1996 (commencement of
operations) through June 30, 1996: $51 (unaudited).
JAPAN EQUITY PORTFOLIO -- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $21,727. For the six months ended
June 30, 1996: $13,641 (unaudited).
JAPAN EQUITY FUND -- For the period February 29, 1996 (commencement of
operations) through June 30, 1996: $30 (unaudited).
ASIA GROWTH PORTFOLIO -- For the period April 5, 1995 (commencement of
operations) through December 31, 1995: $4,788. For the six months ended
June 30, 1996: $2,840 (unaudited).
ASIA GROWTH FUND -- For the period February 29, 1996 (commencement of
operations) through June 30, 1996: $28 (unaudited).
OFFICERS
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The Trust's and Portfolios' executive officers (listed below), other than
the Chief Executive Officer, are provided and compensated by Funds Distributor,
Inc. ("FDI"), a wholly owned indirect subsidiary of Boston Institutional Group,
Inc. The officers conduct and supervise the business operations of the Trust
and the Portfolios. The Trust and the Portfolios have no employees.
The officers of the Trust and the Portfolios, their principal occupations
during the past five years and dates of birth are set forth below. Unless
otherwise specified, each officer holds the same position with the Trust and
each Portfolio. The business address of each of the officers unless otherwise
noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group, since
prior to 1992. His address is Pine Tree Club Estates, 10286 Saint Andrews Road,
Boynton Beach, FL 33436. His date of birth is August 23, 1937.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President and
Chief Executive Officer and Director of FDI, Premier Mutual Fund Services, Inc.
("Premier Mutual") and an officer of certain investment companies advised or
administered by the Dreyfus Corporation ("Dreyfus") or is affiliates. From
December 1991 to July 1994, she was President and Chief Compliance Officer of
FDI. Her date of birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Supervisor of
Treasury Services and Administration of FDI and an officer of certain
investment companies advised or administered by Dreyfus or its affiliates. From
April 1993 to January 1995, Mr. Conroy was a Senior Fund Accountant for
Investors Bank & Trust Company. Prior to March 1993, Mr. Conroy was employed as
a fund accountant at The Boston Company, Inc. His date of birth is March 31,
1969.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer. Managing
Director, State Street Cayman Trust Company, Ltd. since October 1994. Prior to
October 1994, Mrs. Henning was head of mutual funds at Morgan Grenfell in
Cayman and for five years was Managing Director of Bank of Nova Scotia Trust
Company (Cayman) Limited from September 1988 to September 1993. Address: P.O.
Box 2508 GT, Elizabethan Square, 2nd Floor, Shedden Road, George Town, Grand
Cayman, Cayman Islands. Her date of birth is March 24, 1942.
RICHARD W. INGRAM; President and Treasurer. Senior Vice President and
Director of Client Services and Treasury Administration of FDI, Senior Vice
President of Premier Mutual and an officer of RCM Capital Funds, Inc., RCM
Equity Funds, Inc., Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus or Harris Trust and
Savings Bank ("Harris") or their respective affiliates. From March 1994 to
November 1995, Mr. Ingram was Vice President and Division Manager of First Data
Investor Services Group, Inc. From 1989 to 1994, Mr. Ingram was Vice President,
Assistant Treasurer and Tax Director - Mutual Funds of The Boston Company, Inc.
His date of birth is September 15, 1955.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Assistant Vice
President of FDI and an officer of RCM Capital Funds, Inc. and RCM Equity Funds,
Inc., Waterhouse Investors Cash Management Fund, Inc. and Harris or their
respective affiliates. From June 1994 to January 1996, Ms. Jacoppo-Wood was a
Manager, SEC Registration, Scudder, Stevens & Clark, Inc. From 1988 to May
1994, Ms. Jacoppo-Wood was a senior paralegal at The Boston Company Advisors,
Inc. ("TBCA"). Her date of birth is December 29, 1966.
ELIZABETH A. KEELEY; Vice President and Assistant Secretary. Vice
President and Senior Counsel, FDI and Premier Mutual and an officer of RCM
Capital Funds, Inc., RCM Equity Funds, Inc., Waterhouse Investors Cash
Management Fund, Inc. and certain investment companies advised or administered
by Dreyfus
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or Harris or their respective affiliates. Prior to September 1995, Ms. Keeley
was enrolled at Fordham University School of Law and received her JD in May
1995. Prior to September 1992, Ms. Keeley was an assistant at the National
Association for Public Interest Law. Address: FDI, 200 Park Avenue, New York,
New York 10166. Her date of birth is September 14, 1969.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Associate General Counsel of FDI and Premier Mutual and an officer
of Waterhouse Investors Cash Management Fund, Inc. and certain investment
companies advised or administered by Harris or its affiliates. From April 1994
to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial Group. From
1992 to 1994, Mr. Kelley was employed by Putnam Investments in legal and
compliance capacities. Prior to September 1992, Mr. Kelley was enrolled at
Boston College Law School and received his JD in May 1992. His date of birth is
December 24, 1964.
LENORE J. MCCABE; Assistant Secretary and Assistant Treasurer. Assistant
Vice President, State Street Bank and Trust Company since November 1994.
Assigned as Operations Manager, State Street Cayman Trust Company, Ltd. since
February 1995. Prior to November, 1994, employed by Boston Financial Data
Services, Inc. as Control Group Manager. Address: P.O. Box 2508 GT, Elizabethan
Square, 2nd Floor, Shedden Road, George Town, Grand Cayman, Cayman Islands. Her
date of birth is May 31, 1961.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI, an officer of RCM
Capital Funds, Inc., RCM Equity Funds, Inc., Waterhouse Investors Cash
Management Fund, Inc. and certain investment companies advised or administered
by Dreyfus or Harris or their respective affiliates. From 1989 to 1994, Ms.
Nelson was an Assistant Vice President and client manager for The Boston
Company, Inc. Her date of birth is April 22, 1964.
JOHN E. PELLETIER; Vice President and Secretary. Senior Vice President and
General Counsel of FDI and Premier Mutual and an officer of RCM Capital Funds,
Inc., RCM Equity Funds, Inc., Waterhouse Investors Cash Management Fund, Inc.
and certain investment companies advised or administered by Dreyfus or Harris or
their respective affiliates. From February 1992 to April 1994, Mr. Pelletier
served as Counsel for TBCA. From August 1990 to February 1992, Mr. Pelletier
was employed as an Associate at Ropes & Gray. His date of birth is June 24,
1964.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Senior Vice
President, Treasurer and Chief Financial Officer of FDI and Premier Mutual and
an officer of Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus. From July 1988 to
November 1993, Mr. Tower was Financial Manager of The Boston Company, Inc. His
date of birth is June 13, 1962.
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. The Advisor, 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. The Advisor 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, the Advisor 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
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funds and other institutional investors with combined assets under management of
$197 billion (of which the Advisor advises over $30 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 the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, Melbourne and Singapore to cover companies, industries and
countries on site. In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers and traders.
The conclusions of the equity analysts' fundamental research is quantified into
a set of projected returns for individual companies through the use of a
dividend discount model. These returns are projected for 2 to 5 years to enable
analysts to take a longer term view. These returns, or normalized earnings, are
used to establish relative values among stocks in each industrial sector. These
values may not be the same as the markets' current valuations of these
companies. This provides the basis for ranking the attractiveness of the
companies in an industry according to five distinct quintiles or rankings. This
ranking is one of the factors considered in determining the stocks purchased and
sold in each sector. The Advisor's fixed income investment process is based on
analysis of real rates, sector diversification and quantitative and credit
analysis.
The investment advisory services the Advisor provides to the Portfolios are
not exclusive under the terms of the Advisory Agreements. The Advisor is free
to and does render similar investment advisory services to others. The Advisor
serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolios. Such accounts are supervised by officers and employees of
the Advisor who may also be acting in similar capacities for the Portfolios.
See "Portfolio Transactions."
Sector weightings are generally similar to a benchmark with the emphasis on
security selection as the method to achieve investment performance superior to
the benchmark. The benchmarks for the Portfolios in which the Funds invest are
currently: The Money Market Portfolio--IBC/Donoghue's Tier-One Money Fund
Average; The Federal Money Market Portfolio--IBC/Donoghue's U.S. Government and
Agency Money Fund Average; The Tax Exempt Money Market Portfolio--IBC/Donoghue's
Tax Exempt Money Fund Average; The Short Term Bond Portfolio--Merrill Lynch
1-3 Year Treasury Index; The U.S. Fixed Income Portfolio--Salomon Brothers Broad
Investment Grade Bond Index; The Tax Exempt Bond Portfolio--Lehman Brothers
Quality Intermediate Municipal Bond Index; The New York Total Return Bond
Portfolio--Lehman Brothers New York 1-15 Year Municipal Bond Index; The Non-U.S.
Fixed Income Portfolio--Salomon Brothers Non-U.S. World Government Bond Index
(currency hedged); The Global Strategic Income Portfolio--The Lehman Brothers
Aggregate Bond Index; The Selected U.S. Equity Portfolio and The Disciplined
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 International Opportunities
Portfolio--EAFE and MSCI Emerging Markets Free Indexes; 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
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Portfolio--the MSCI Europe Index; The Japan Equity Portfolio--the TOPIX; and The
Asia Growth Portfolio--the MSCI indexes for Hong Kong and Singapore and the
International Finance Corporation Investable indexes for China, Indonesia,
Malaysia, Philippines, South Korea, Taiwan and Thailand.
J.P. Morgan Investment Management Inc., also a wholly owned subsidiary of
J.P. Morgan, is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, which manages employee benefit funds of corporations,
labor unions and state and local governments and the accounts of other
institutional investors, including investment companies. Certain of the assets
of employee 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.
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
FEDERAL 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%
GLOBAL STRATEGIC INCOME: 0.45%
DISCIPLINED EQUITY: 0.35%
SELECTED U.S. EQUITY: 0.40%
U.S. SMALL COMPANY: 0.60%
NON-U.S. EQUITY: 0.60%
DIVERSIFIED: 0.55%
EMERGING MARKETS EQUITY: 1.00%
INTERNATIONAL OPPORTUNITIES: 0.60%
EUROPEAN EQUITY: 0.65%
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JAPAN EQUITY: 0.65%
ASIA GROWTH: 0.80%
The table below sets forth for each Fund listed the advisory fees paid by
its corresponding Portfolio to the Advisor 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 fiscal year ended
November 30, 1994: $3,423,576. For the fiscal year ended November 30, 1995:
$3,913,479. For the fiscal year ended November 30, 1996: $4,503,793.
THE TAX EXEMPT MONEY MARKET PORTFOLIO (Tax Exempt Money Market Fund) -- For the
fiscal year ended August 31, 1994: $2,021,476. For the fiscal year ended August
31, 1995: $2,150,291. For the fiscal year ended August 31, 1996: $2,154,248.
THE FEDERAL MONEY MARKET PORTFOLIO (Federal Money Market Fund) -- For the
fiscal year ended October 31, 1994: $339,521. For the fiscal year ended October
31, 1995: $492,941. For the fiscal year ended October 31, 1996: $653,326.
THE SHORT TERM BOND PORTFOLIO (Short Term Bond Fund) -- For the fiscal year
ended October 31, 1994: $113,379. For the fiscal year ended October 31, 1995:
$146,335. For the fiscal year ended October 31, 1996: $50,319.
THE U.S. FIXED INCOME PORTFOLIO (Bond Fund) -- For the fiscal year ended
October 31, 1994: $699,081. For the fiscal year ended October 31, 1995:
$1,339,147. For the fiscal year ended October 31, 1996: $2,402,660.
THE TAX EXEMPT BOND PORTFOLIO (Tax Exempt Bond Fund) -- For the fiscal year
ended August 31, 1994: $1,383,986. For the fiscal year ended August 31, 1995:
$1,178,720. For the fiscal year ended August 31, 1996: $1,354,145.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO (New York Total Return Bond Fund) --
For the period April 11, 1994 (commencement of operations) through March 31,
1995: $120,281. For the fiscal year ended March 31, 1996: $246,966.
THE NON-U.S. FIXED INCOME PORTFOLIO (International Bond Fund) -- For the period
April 11, 1994 (commencement of operations) through September 30, 1995:
$782,748. For the fiscal year ended September 30, 1996: $737,543.
THE SELECTED U.S. EQUITY PORTFOLIO (Selected U.S. Equity Fund) -- For the period
July 19, 1993 (commencement of operations) through May 31, 1994: $1,263,048.
For the fiscal year ended May 31, 1995: $2,025,936. For the fiscal year ended
May 31, 1996: $2,744,054.
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. For the fiscal year ended
May 31, 1996: $4,286,311.
THE NON-U.S. EQUITY PORTFOLIO (International Equity Fund) -- For the fiscal
year ended October 31, 1994: $1,911,202. For the fiscal year ended October 31,
1995: $3,174,965. For the fiscal year ended October 31, 1996: $5,007,993.
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. For the fiscal year ended June 30, 1996:
$1,122,941.
THE EMERGING MARKETS EQUITY PORTFOLIO (Emerging Markets Equity Fund) -- For the
period November 15, 1993 (commencement of operations) through October 31, 1994:
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$4,122,465. For the fiscal year ended October 31, 1995: $5,713,506. For the
fiscal year ended October 31, 1996: $7,825,873.
EUROPEAN EQUITY PORTFOLIO (European Equity Fund) -- For the period March 28,
1995 (commencement of operations) through December 31, 1995: $1,675,355. For
the six months ended June 30, 1996: $1,670,174 (unaudited).
JAPAN EQUITY PORTFOLIO (Japan Equity Fund) -- For the period March 28, 1995
(commencement of operations) through December 31, 1995: $1,777,126. For the six
months ended June 30, 1996: $1,581,190 (unaudited).
ASIA GROWTH PORTFOLIO (Asia Growth Fund) -- For the period April 5, 1995
(commencement of operations) through December 31, 1995: $528,956. For the six
months ended June 30, 1996: $414,049 (unaudited).
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
"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 the Advisor 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. The Advisor believes that it may perform the services for
the Portfolios contemplated by the Advisory Agreements without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. State laws
on this issue may differ from the interpretation of relevant federal law, and
banks and financial institutions may be required to register as dealers pursuant
to state securities laws. However, it is possible that future changes in either
federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as further judicial or administrative
decisions and interpretations of present and future statutes and regulations,
might prevent the Advisor from continuing to perform such services for the
Portfolios.
If the Advisor 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.
DISTRIBUTOR
FDI serves as the Trust's exclusive Distributor and holds itself available
to receive purchase orders for each of the Fund's shares. In that capacity, FDI
has been granted the right, as agent of the Trust, to solicit and accept orders
for the purchase of each of the Fund's shares in accordance with the terms of
the
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Distribution Agreement between the Trust and FDI. Under the terms of the
Distribution Agreement between FDI and the Trust, FDI receives no compensation
in its capacity as the Trust's distributor.
The Distribution Agreement shall continue in effect with respect to each of
the Funds for a period of two years after execution only if it is approved at
least annually thereafter (i) by a vote of the holders of a majority of the
Fund's outstanding shares or by its Trustees and (ii) by a vote of a majority of
the Trustees of the Trust who are not "interested persons" (as defined by the
1940 Act) of the parties to the Distribution Agreement, cast in person at a
meeting called for the purpose of voting on such approval (see "Trustees and
Officers"). The Distribution Agreement will terminate automatically if assigned
by either party thereto and is terminable at any time without penalty by a vote
of a majority of the Trustees of the Trust, a vote of a majority of the Trustees
who are not "interested persons" of the Trust, or by a vote of the holders of a
majority of the Fund's outstanding shares as defined under "Additional
Information," in any case without payment of any penalty on 60 days' written
notice to the other party. The principal offices of FDI are located at 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolios dated
August 1, 1996, FDI also serves as the Trust's and the Portfolios'
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust or the Portfolios, as applicable, on not more than 60
days' written notice nor less than 30 days' written notice to the other party.
The Co-Administrator may subcontract for the performance of its obligations,
provided, however, that unless the Trust or the Portfolios, as applicable,
expressly agrees in writing, the Co-Administrator shall be fully responsible for
the acts and omissions of any subcontractor as it would for its own acts or
omissions. See "Services Agent" below.
For its services under the Co-Administration Agreements, each Fund and
Portfolio has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to each Fund or Portfolio is based on the ratio of its net assets to
the aggregate net assets of the Trust, The JPM Pierpont Funds, the Portfolios
and JPM Series Trust.
The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to FDI for the fiscal periods indicated.
See "Expenses" in the Prospectus and below for applicable expense limitations.
THE MONEY MARKET PORTFOLIO -- For the period August 1, 1996 through November 30,
1996: $33,012.
MONEY MARKET FUND -- For the period August 1, 1996 through November 30, 1996:
$15,195.
THE TAX EXEMPT MONEY MARKET PORTFOLIO -- For the period August 1, 1996 through
August 31, 1996: $2,284.
TAX EXEMPT MONEY MARKET FUND -- For the period August 1, 1996 through August 31,
1996: $525.
THE FEDERAL MONEY MARKET PORTFOLIO -- For the period August 1, 1996 through
October 31, 1996: $1,663.
FEDERAL MONEY MARKET FUND -- For the period August 1, 1996 through October 31,
1996: $945.
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THE SHORT TERM BOND PORTFOLIO -- For the period August 1, 1996 through October
31, 1996: $156.
SHORT TERM BOND FUND -- For the period August 1, 1996 through October 31, 1996:
$137.
THE TAX EXEMPT BOND PORTFOLIO -- For the period August 1, 1996 through August
31, 1996: $920.
TAX EXEMPT BOND FUND -- For the period August 1, 1996 through August 31, 1996:
$370.
THE NON-U.S. FIXED INCOME PORTFOLIO -- For the period August 1, 1996 through
September 30, 1996: $738.
INTERNATIONAL BOND FUND -- For the period August 1, 1996 through September 30,
1996: $80.
THE U.S. FIXED INCOME PORTFOLIO -- For the period August 1, 1996 through
October 31, 1996:: $6,419.
BOND FUND -- For the period August 1, 1996 through October 31, 1996: $7,415.
THE INTERNATIONAL EQUITY PORTFOLIO -- For the period August 1, 1996 through
October 31, 1996: $6,212.
INTERNATIONAL EQUITY FUND -- For the period August 1, 1996 through October 31,
1996: $6,625.
THE EMERGING MARKETS EQUITY PORTFOLIO -- For the period August 1, 1996 through
October 31, 1996: $5,719.
EMERGING MARKETS EQUITY FUND -- For the period August 1, 1996 through October
31, 1996: $2,593.
The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to Signature Broker-Dealer Services, Inc.
(which provided distribution and administrative services to the Trust and
placement agent and administrative services to the Portfolios prior to August 1,
1996) for the fiscal periods indicated. See "Expenses" in the Prospectus and
below for applicable expense limitations.
THE MONEY MARKET PORTFOLIO -- For the fiscal year ended November 30, 1994:
$165,519. For the fiscal year ended November 30, 1995: $176,717. For the
period December 1, 1995 through July 31, 1996: $272,989.
MONEY MARKET FUND -- For the fiscal year ended November 30, 1994: $52,168. For
the fiscal year ended November 30, 1995: $161,341. For the period December 1,
1995 through July 31, 1996: $97,980.
THE TAX EXEMPT MONEY MARKET PORTFOLIO -- For the fiscal year ended August 31,
1994: $62,565. For the fiscal year ended August 31, 1995: $72,729. For the
period September 1, 1995 through July 31, 1996: $110,848.
TAX EXEMPT MONEY MARKET FUND -- For the fiscal year ended August 31, 1994:
$5,854. For the fiscal year ended August 31, 1995: $22,290. For the period
September 1, 1995 through July 31, 1996: $23,755.
THE FEDERAL MONEY MARKET PORTFOLIO -- For the fiscal year ended October 31,
1994: $11,777. For the fiscal year ended October 31, 1995: $17,480. For the
period November 1, 1995 through July 31, 1996: $28,623.
FEDERAL MONEY MARKET FUND -- For the fiscal year ended October 31, 1994:
$17,006. For the fiscal year ended October 31, 1995: $23,920. For the period
November 1, 1995 through July 31, 1996: $15,525.
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THE SHORT TERM BOND PORTFOLIO -- For the fiscal year ended October 31, 1994:
$3,149. For the fiscal year ended October 31, 1995: $4,485. For the period
November 1, 1995 through July 31, 1996: $1,547.
SHORT TERM BOND FUND -- For the fiscal year ended October 31, 1994: $12,264.
For the fiscal year ended October 31, 1995: $13,185. For the period November 1,
1995 through July 31, 1996: $1,332.
THE U.S. FIXED INCOME PORTFOLIO -- For the fiscal year ended October 31, 1994:
$16,107. For the fiscal year ended October 31, 1995: $27,436. For the period
November 1, 1995 through July 31, 1996: $65,610.
BOND FUND -- For the fiscal year ended October 31, 1994: $36,809. For the
fiscal year ended October 31, 1995: $85,904. For the period November 1, 1995
through July 31, 1996: $67,809.
THE TAX EXEMPT BOND PORTFOLIO -- For the fiscal year ended August 31, 1994:
$28,345. For the fiscal year ended August 31, 1995: $28,290. For the period
September 1, 1995 through July 31, 1996: $43,154.
TAX EXEMPT BOND FUND -- For the fiscal year ended August 31, 1994: $1,859. For
the fiscal year ended August 31, 1995: $10,309. For the period September 1,
1995 through July 31, 1996: $12,887
THE NEW YORK TOTAL RETURN BOND PORTFOLIO -- For the period April 11, 1994
(commencement of operations) through March 31, 1995: $2,563. For the fiscal
year ended March 31, 1996: $6,648.
NEW YORK TOTAL RETURN BOND FUND -- For the period April 11, 1994 (commencement
of operations) through March 31, 1995: $3,042. For the fiscal year ended March
31, 1996: $5,065.
THE NON-U.S. FIXED INCOME PORTFOLIO -- For the period October 11, 1994
(commencement of operations) through September 30, 1995: $13,862. For the
period October 1, 1995 through July 31, 1996: $18,964.
INTERNATIONAL BOND FUND -- For the period December 1, 1994 (commencement of
operations) through September 30, 1995: $460. For the period October 1, 1995
through July 31, 1996: $689.
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. For the fiscal year ended May 31, 1996: $62,404.
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. For the fiscal year ended May 31, 1996: $41,556.
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. For the fiscal year ended May 31, 1996: $65,079.
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. For the fiscal year ended May 31, 1996: $42,829.
THE NON-U.S. EQUITY PORTFOLIO -- For the fiscal year ended October 31, 1994:
$22,024. For the fiscal year ended October 31, 1995: $31,500. For the period
November 1, 1995 through July 31, 1996: $70,197.
INTERNATIONAL EQUITY FUND -- For the fiscal year ended October 31, 1994:
$37,065. For the fiscal year ended October 31, 1995: $83,762. For the period
November 1, 1995 through July 31, 1996: $68,651.
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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. For the fiscal year ended June 30, 1996: $19,517.
DIVERSIFIED FUND -- For the period July 8, 1993 (commencement of operations)
through June 30, 1994: $10,086. For the fiscal year ended June 30, 1995:
$28,135. For the fiscal year ended June 30, 1996: $31,954.
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. For the period November 1, 1995 through
July 31, 1996: $66,251.
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. For the period November 1, 1995 through July 31,
1996: $27,031.
EUROPEAN EQUITY PORTFOLIO -- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $15,623. For the six months ended
June 30, 1996: $32,409 (unaudited).
EUROPEAN EQUITY FUND -- For the period February 29, 1996 (commencement of
operations) through June 30, 1996: $134 (unaudited).
JAPAN EQUITY PORTFOLIO -- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $17,418. For the six months ended
June 30, 1996: $30,693 (unaudited).
JAPAN EQUITY FUND -- For the period February 29, 1996 (commencement of
operations) through June 30, 1996: $90 (unaudited).
ASIA GROWTH PORTFOLIO -- For the period April 5, 1995 (commencement of
operations) through December 31, 1995: $4,037. For the six months ended
June 30, 1996: $6,530 (unaudited).
ASIA GROWTH FUND -- For the period February 29, 1996 (commencement of
operations) through June 30, 1996: $71 (unaudited).
SERVICES AGENT
The Trust, on behalf of each Fund, and the Portfolios have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
effective December 29, 1995, as amended effective August 1, 1996, pursuant to
which Morgan is responsible for certain administrative and related services
provided to each Fund and its corresponding Portfolio. The Services Agreements
may be terminated at any time, without penalty, by the Trustees or Morgan, in
each case on not more than 60 days' nor less than 30 days' written notice to the
other party.
Under the amended Services Agreements, each of the Funds and the Portfolios
has agreed to pay Morgan fees equal to its allocable share of an annual complex-
wide charge. This charge is calculated daily based on the aggregate net assets
of the Portfolios and the JPM Series Trust in accordance with the following
annual schedule: 0.09% on the first $7 billion of their aggregate average daily
net assets and 0.04% of their average daily net assets in excess of $7 billion,
less the complex-wide fees payable to FDI. The portion of this charge payable
by each Fund and Portfolio is determined by the proportionate share that its net
assets bear to the total net assets of the Trust, The JPM Institutional Funds,
the Portfolios, the other investors in the Portfolios for which Morgan provides
similar services and the JPM Series Trust.
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Under Administrative Services Agreements in effect from December 29, 1995
through July 31, 1996, with Morgan, each Fund and its corresponding Portfolio
paid Morgan a fee equal to its proportionate share of an annual complex-wide
charge. This charge was calculated daily based on the aggregate net assets of
the Portfolios in accordance with the following schedule: 0.06% of the first $7
billion of the Portfolios' aggregate average daily net assets, and 0.03% of the
Portfolios' average daily net assets in excess of $7 billion. Prior to December
29, 1995, the Trust and each Portfolio had entered into Financial and Fund
Accounting Services Agreements with Morgan, the provisions of which included
certain of the activities described above and, prior to September 1, 1995, also
included reimbursement of usual and customary expenses. The table below sets
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 fiscal year ended November 30, 1994:
$385,012. For the fiscal year ended November 30, 1995: $373,077. For the
fiscal year ended November 30, 1996: $891,730.
MONEY MARKET FUND -- For the fiscal year ended November 30, 1994: $(265,806)*.
For the fiscal year ended November 30, 1995: $(967,889)*. For the fiscal year
ended November 30, 1996: $(945,013)*.
THE TAX EXEMPT MONEY MARKET PORTFOLIO -- For the fiscal year ended August 31,
1994: $153,204. For the fiscal year ended August 31, 1995: $169,754. For the
fiscal year ended August 31, 1996: $205,419.
TAX EXEMPT MONEY MARKET FUND -- For the fiscal year ended August 31, 1994:
$(103,541)*. For the fiscal year ended August 31, 1995: $(56,396)*. For the
fiscal year ended August 31, 1996: $30,085.
THE FEDERAL MONEY MARKET PORTFOLIO -- For the fiscal year ended October 31,
1994: $(13,844)*. For the fiscal year ended October 31, 1995: $(146,180)*. For
the fiscal year ended October 31, 1996: $(165,137)*.
FEDERAL MONEY MARKET FUND -- For the fiscal year ended October 31, 1994:
$(118,050)*. For the fiscal year ended October 31, 1995: $(236,058)*. For the
fiscal year ended October 31, 1996: $(198,465)*.
THE SHORT TERM BOND PORTFOLIO -- For the fiscal year ended October 31, 1994:
$(22,054)*. For the fiscal year ended October 31, 1995: $(21,070)*. For the
fiscal year ended October 31, 1996: $(42,274)*.
SHORT TERM BOND FUND -- For the fiscal year ended October 31, 1994: $(89,141)*.
For the fiscal year ended October 31, 1995: $(91,382)*. For the fiscal year
ended October 31, 1996: $(83,872)*.
THE U.S. FIXED INCOME PORTFOLIO -- For the fiscal year ended October 31, 1994:
$140,493. For the fiscal year ended October 31, 1995: $167,081. For the fiscal
year ended October 31, 1996: $191,348.
BOND FUND -- For the fiscal year ended October 31, 1994: $(141,179)*. For the
fiscal year ended October 31, 1995: $(146,399)*. For the fiscal year ended
October 31, 1996: $(18,383)*.
THE TAX EXEMPT BOND PORTFOLIO -- For the fiscal year ended August 31, 1994:
$210,795. For the fiscal year ended August 31, 1995: $189,892. For the fiscal
year ended August 31, 1996: $80,281.
TAX EXEMPT BOND FUND -- For the fiscal year ended August 31, 1994: $(82,093)*.
For the fiscal year ended August 31, 1995: $(61,012)*. For the fiscal year ended
August 31, 1996: $16,596.
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THE NEW YORK TOTAL RETURN BOND PORTFOLIO -- For the period April 11, 1994
(commencement of operations) through March 31, 1995: $(11,830)*. For the fiscal
year ended March 31, 1996: $7,691.
THE NEW YORK TOTAL RETURN BOND FUND -- For the Period April 11, 1994
(commencement of operations) through March 31, 1995: $(49,096)*. For the fiscal
year ended March 31, 1996: $(10,606)*.
THE NON-U.S. FIXED INCOME PORTFOLIO -- For the period October 11, 1994
(commencement of operations) through September 30, 1995: $156,367. For the
fiscal year ended September 30, 1996: $37,344.
THE INTERNATIONAL BOND FUND -- For the period December 1, 1994 (commencement of
operations) through September 30, 1995: $(46,217)*. For the fiscal year ended
September 30, 1996: $1,729.
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. For the fiscal year ended May 31, 1996: $138,134.
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)*. For the fiscal year ended May 31, 1996: $15,882.
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. For the fiscal year ended May 31, 1996: $144,277.
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)*. For the fiscal year ended May 31, 1996: $21,392.
THE NON-U.S. EQUITY PORTFOLIO -- For the fiscal year ended October 31, 1994:
$327,569. For the fiscal year ended October 31, 1995: $349,443. For the fiscal
year ended October 31, 1996: $196,299.
INTERNATIONAL EQUITY FUND -- For the fiscal year ended October 31, 1994:
$(118,900)*. For the fiscal year ended October 31, 1995: $(63,230)*. For the
fiscal year ended October 31, 1996: $114,261.
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. For the fiscal year ended June 30, 1996: $45,687.
DIVERSIFIED FUND -- For the period July 8, 1993 (commencement of operations)
through June 30, 1994: $(100,039)*. For the fiscal year ended June 30, 1995:
$(96,795)*. For the fiscal year ended June 30, 1996: $12,610.
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. For the fiscal year ended October 31,
1996: $183,498.
EMERGING MARKETS EQUITY FUND -- For the period November 15, 1993 (commencement
of operations) through October 31, 1994: $(120,061)*. For the fiscal year ended
October 31, 1995: $(26,975)*. For the fiscal year ended October 31, 1996:
$57,566.
EUROPEAN EQUITY PORTFOLIO-- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $128,335. For the six months ended
June 30, 1996: $64,388 (unaudited).
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EUROPEAN EQUITY FUND -- For the period February 29, 1996 (commencement of
operations) through June 30, 1996: $256 (unaudited).
JAPAN EQUITY PORTFOLIO -- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $147,974. For the six months ended
June 30, 1996: $60,965 (unaudited).
JAPAN EQUITY FUND -- For the period February 29, 1996 (commencement of
operations) through June 30, 1996: $171 (unaudited).
ASIA GROWTH PORTFOLIO -- For the period April 5, 1995 (commencement of
operations) through December 31, 1995: $21,823. For the six months ended
June 30, 1996: $12,972 (unaudited).
ASIA GROWTH FUND -- For the period February 29, 1996 (commencement of
operations) through June 30, 1996: $135 (unaudited).
- ------------------------------------
(*) Indicates a reimbursement by Morgan for expenses in excess of its fees under
the Prior Services Agreements. No fees were paid for the fiscal period.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin Street,
Boston, Massachusetts 02110, serves as the Trust's and each of the Portfolio's
custodian and fund accounting agent and each Fund's transfer and dividend
disbursing agent. Pursuant to the Custodian Contracts, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. In addition, the
Custodian has entered into subcustodian agreements on behalf of the Portfolios
for the Tax Exempt Money Market, Tax Exempt Bond and New York Total Return Bond
Funds with Bankers Trust Company for the purpose of holding TENR Notes and with
Bank of New York and Chemical Bank, N.A. for the purpose of holding certain
variable rate demand notes. In the case of foreign assets held outside the
United States, the Custodian employs various subcustodians who were approved by
the Trustees of the Portfolios in accordance with the regulations of the SEC.
The Custodian maintains portfolio transaction records. As Transfer 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.
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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, Federal 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, Global Strategic Income, Selected U.S. Equity, Disciplined
Equity, U.S. Small Company, International Equity, Emerging Markets Equity,
International Opportunities, Diversified, European Equity, Japan Equity and Asia
Growth Funds, 0.10%. Morgan acts as shareholder servicing agent for all
shareholders.
The table below sets forth for each Fund listed the shareholder servicing
fees paid by each Fund to Morgan, net of fee waivers and reimbursements, for the
fiscal periods indicated. See "Expenses" in the Prospectus and below for
applicable expense limitations.
MONEY MARKET FUND -- For the fiscal year ended November 30, 1994: $200,287. For
the fiscal year ended November 30, 1995: $697,914. For the fiscal year ended
November 30, 1996: $600,276.
TAX EXEMPT MONEY MARKET FUND -- For the fiscal year ended August 31, 1994:
$22,282. For the fiscal year ended August 31, 1995: $96,667. For the fiscal
year ended August 31, 1996: $103,262
FEDERAL MONEY MARKET FUND -- For the fiscal year ended October 31, 1994:
$64,191. For the fiscal year ended October 31, 1995: $101,100. For the fiscal
year ended October 31, 1996: $75,343.
SHORT TERM BOND FUND -- For the fiscal year ended October 31, 1994: $19,528.
For the fiscal year ended October 31, 1995: $24,729. For the fiscal year ended
October 31, 1996: $7,885.
BOND FUND -- For the fiscal year ended October 31, 1994: $63,383. For the
fiscal year ended October 31, 1995: $161,357. For the fiscal year ended October
31, 1996: $472,758.
TAX EXEMPT BOND FUND -- For the fiscal year ended August 31, 1994: $3,172. For
the fiscal year ended August 31, 1995: $19,310. For the fiscal year ended August
31, 1996: $59,743.
NEW YORK TOTAL RETURN BOND FUND -- For the period April 11, 1994 (commencement
of operations) through March 31, 1995: $6,116. For the fiscal year ended March
31, 1996: $21,606.
INTERNATIONAL BOND FUND -- For the period December 1, 1994 (commencement of
operations) through September 30, 1995: $1,412. For the fiscal year ended
September 30, 1996: $6,684.
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. For the fiscal year ended May 31, 1996: $151,111.
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. For the fiscal year ended May 31, 1996: $162,465.
INTERNATIONAL EQUITY FUND -- For the fiscal year ended October 31, 1994:
$63,751. For the fiscal year ended October 31, 1995: $168,565. For the fiscal
year ended October 31, 1996: $596,245.
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DIVERSIFIED FUND -- For the period July 8, 1993 (commencement of operations)
through June 30, 1994: $16,798. For the fiscal year ended June 30, 1995:
$53,030. For the fiscal year ended June 30, 1996: $127,086.
EMERGING MARKETS EQUITY FUND -- For the period November 15, 1993 (commencement
of operations) through October 31, 1994: $39,124. For the fiscal year ended
October 31, 1995: $79,381. For the fiscal year ended October 31, 1996:
$229,764.
EUROPEAN EQUITY FUND -- For the period February 29, 1996 (commencement of
operations) through June 30, 1996: $1,043 (unaudited).
JAPAN EQUITY FUND -- For the period February 29, 1996 (commencement of
operations) through June 30, 1996: $699 (unaudited).
ASIA GROWTH FUND -- For the period February 29, 1996 (commencement of
operations) through June 30, 1996: $548 (unaudited).
As discussed under "Investment Advisor," the Glass-Steagall Act and other
applicable laws and regulations limit the activities of bank holding companies
and certain of their subsidiaries in connection with registered open-end
investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and providing administrative services to the Funds and the Portfolios under the
Services Agreements and in acting as Advisor to the Portfolios under the
Investment Advisory Agreements, may raise issues under these laws. However,
Morgan believes that it may properly perform these services and the other
activities described in the Prospectus without violation of the Glass-Steagall
Act or other applicable banking laws or regulations.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing Agreement and the Services Agreements, the Trustees would
seek an alternative provider of such services. In such event, changes in the
operation of the Funds or the Portfolios might occur and a shareholder might no
longer be able to avail himself or herself of any services then being provided
to shareholders by Morgan.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolios are Price
Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036. Price
Waterhouse LLP conducts an annual audit of the financial statements of each of
the Funds and the Portfolios, assists in the preparation and/or review of each
of the Fund's and the Portfolio's federal and state income tax returns and
consults with the Funds and the Portfolios as to matters of accounting and
federal and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., Morgan and FDI
under various agreements discussed under "Trustees and Officers," "Investment
Advisor," "Co-Administrator and Distributor," "Services Agent" and "Shareholder
Servicing" above, the 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 the Funds or the
Portfolios. For the Funds, 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 Portfolios, 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
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Agent was responsible for reimbursements to the Trust and certain Portfolios and
the usual and customary expenses described above (excluding organization and
extraordinary expenses, custodian fees and brokerage expenses). For additional
information regarding waivers or expense subsidies, see "Management of the Trust
(Fund) and (the) Portfolio(s)" in the Prospectus.
PURCHASE OF SHARES
Investors may open Fund accounts and purchase shares as described in the
Prospectus under "Purchase of Shares." References in the Prospectus and this
Statement of Additional Information to customers of Morgan or an Eligible
Institution include customers of their affiliates and references to transactions
by customers with Morgan or an Eligible Institution include transactions with
their affiliates. Only Fund investors who are using the services of a financial
institution acting as 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 such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of Morgan, appropriate
investments for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by
the applicable Fund for investment and not for resale (other than for resale to
the Fund's corresponding Portfolio); (iii) be liquid securities which are not
restricted as to transfer either by law or liquidity of market; and (iv) if
stock, have a value which is readily ascertainable as evidenced by a listing on
a stock exchange, OTC market or by readily available market quotations from a
dealer in such securities. Each Fund reserves the right to accept or reject at
its own option any and all securities offered in payment for its shares.
Prospective investors may purchase shares with the assistance of an
Eligible Institution, and the Eligible Institution may charge the investor a fee
for this service and other services it provides to its customers.
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus under
"Redemption of Shares." Shareholders redeeming shares of the Money Market, Tax
Exempt Money Market or Federal 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 Trust is in the
process of seeking exemptive relief from the SEC with respect to redemptions in
kind by the Funds. If the requested relief is granted, each Fund would then be
permitted to pay redemptions to greater than 5% shareholders in securities,
rather than in cash, to the extent permitted by the SEC and applicable law. 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
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determined. The Trust on behalf of all of the Funds and their corresponding
Portfolios (except the Money Market, Tax Exempt Money Market, Non-U.S. Fixed
Income, European Equity, Japan Equity, Asia Growth, International Opportunities
and Global Strategic Income Portfolios) have elected to be governed by
Rule 18f-1 under the 1940 Act pursuant to which the Funds and the corresponding
Portfolios are obligated to redeem shares solely in cash up to the lesser of
$250,000 or one percent of the net asset value of the Fund during any 90 day
period for any one shareholder. The Trust will redeem Fund shares in kind only
if it has received a redemption in kind from the corresponding Portfolio and
therefore shareholders of the Fund that receive redemptions in kind will receive
securities of the Portfolio. The Portfolios have advised the Trust that the
Portfolios will not redeem in kind except in circumstances in which a Fund is
permitted to redeem in kind.
FURTHER REDEMPTION INFORMATION. The Trust, on behalf of a Fund, and the
Portfolios reserve the right to suspend the right of redemption and to postpone
the date of payment upon redemption as follows: (i) for up to seven days,
(ii) during periods when the New York Stock Exchange is closed for other than
weekends and holidays or when trading on such Exchange is restricted as
determined by the SEC by rule or regulation, (iii) during periods in which an
emergency, as determined by the SEC, exists that causes disposal by the
Portfolio of, or evaluation of the net asset value of, its portfolio securities
to be unreasonable or impracticable, or (iv) for such other periods as the SEC
may permit.
EXCHANGE OF SHARES
An investor may exchange shares from any JPM Institutional Fund into any
other JPM Institutional Fund or JPM 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
Federal 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,
Federal Money Market, Short Term Bond, Bond, Tax Exempt Bond, International
Bond, Global Strategic Income and New York Total Return Bond Funds is made at
the times described in the Prospectus; in addition, net investment income for
days other than business days is determined at the time net asset value is
determined on the prior business day.
NET ASSET VALUE
Each of the Funds computes its net asset value once daily on Monday through
Friday as described under "Net Asset Value" in the Prospectus. The net asset
value will not be computed on the day the following legal holidays are observed:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day. In the event that trading in
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the money markets is scheduled to end earlier than the close of the New York
Stock Exchange in observance of these holidays, the money market Funds and their
corresponding Portfolios would expect to close for purchases and redemptions an
hour in advance of the end of trading in the money markets. The Funds and the
Portfolios may also close for purchases and redemptions at such other times as
may be determined by the Board of Trustees to the extent permitted by applicable
law. 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 FEDERAL MONEY MARKET FUNDS. In
the case of the Portfolios for the Money Market, Tax Exempt Money Market and
Federal 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, GLOBAL STRATEGIC INCOME AND DIVERSIFIED FUNDS. In the case
of the Bond, Tax Exempt Bond, New York Total Return Bond, International Bond,
Global Strategic Income and Short Term Bond Funds, and the fixed income portion
of the Diversified Fund, portfolio securities with a maturity of 60 days or
more, including securities that are listed on an exchange or traded over the
counter, are valued using prices supplied daily by an independent pricing
service or services that (i) are based on the last sale price on a national
securities exchange or, in the absence of recorded sales, at the readily
available closing bid price on such exchange or at the quoted bid price in the
OTC 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 bonds, no readily available market quotations exist
for most municipal securities. The Portfolios value 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.
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Trading in securities in most foreign markets is normally completed before
the close of 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, DISCIPLINED EQUITY, U.S. SMALL COMPANY, INTERNATIONAL
EQUITY, EMERGING MARKETS EQUITY, INTERNATIONAL OPPORTUNITIES, 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 such
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 OTC market. The
value of each security for which readily available market quotations exist is
based on a decision as to the broadest and most representative market for such
security. For purposes of calculating net asset value all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S. dollars at the prevailing market rates available at the time of valuation.
Options on stock indexes traded on national securities exchanges are valued
at the close of options trading on such exchanges which is currently 4:10 P.M.,
New York time. Stock index futures and related options, which are traded on
commodities exchanges, are valued at their last sales price as of the close of
such commodities exchanges which is currently 4:15 P.M., New York time.
Securities or other assets for which market quotations are not readily available
(including certain restricted and illiquid securities) are valued at fair value
in accordance with procedures established by and under the general supervision
and responsibility of the Trustees. Such procedures include the use of
independent pricing services which use prices based upon yields or prices of
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions. Short-term investments
which mature in 60 days or less are valued at amortized cost if their original
maturity was 60 days or less, or by amortizing their value on the 61st day prior
to maturity, if their original maturity when acquired by the Portfolio was more
than 60 days, unless this is determined not to represent fair value by the
Trustees.
Trading in securities on most foreign exchanges and OTC 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 Federal 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
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beginning of a seven-day calendar period, dividing the net change in account
value of the account at the beginning of the period, and multiplying the return
over the seven-day period by 365/7. For purposes of the calculation, net change
in account value reflects the value of additional shares purchased with
dividends from the original share and dividends declared on both the original
share and any such additional shares, but does not reflect realized gains or
losses or unrealized appreciation or depreciation. Effective yield for the
Money Market, Tax Exempt Money Market and Federal 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 tax exempt.
As required by regulations of the SEC, the annualized yield for the Bond,
Tax Exempt Bond, International Bond, Global Strategic Income, 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 (11/30/96): 7-day current yield: 5.27%; 7-day effective yield:
5.41%.
TAX EXEMPT MONEY MARKET FUND (8/31/96): 7-day current yield: 3.22%; 7-day tax
equivalent yield at 39% tax rate: 5.33%; 7-day effective yield: 3.27%.
FEDERAL MONEY MARKET FUND (10/31/96): 7-day current yield: 5.03%; 7-day
effective yield: 5.16%.
SHORT TERM BOND FUND (10/31/96): 30-day yield: 5.99%.
BOND FUND (10/31/96): 30-day yield: 6.51%.
INTERNATIONAL BOND (9/30/96): 30-day yield: 5.25%.
TAX EXEMPT BOND FUND (8/31/96): 30-day yield: 4.58%; 30-day tax equivalent yield
at 39% tax rate: 7.58%.
NEW YORK TOTAL RETURN BOND FUND (9/30/96): 30-day yield: 4.67%; 30-day tax
equivalent yield at 39% tax rate: 7.73%.
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, Global Strategic Income, Selected
U.S. Equity, Disciplined Equity U.S. Small Company, International Equity,
Emerging Markets Equity, International Opportunities, 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
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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 JPM
Pierpont fund, as permitted by applicable SEC staff interpretations, if the JPM
Pierpont Fund commenced operations before the corresponding JPM Institutional
Fund. The applicable financial information in the registration statements for
The JPM Pierpont Funds (Registration Nos. 33-54632 and 811-7340) is incorporated
herein by reference.
Below is set forth historical return information for the Funds for the
periods indicated:
MONEY MARKET FUND (11/30/96): Average annual total return, 1 year: 5.46%;
average annual total return, 5 years: 4.40%; average annual total return, 10
years: 5.89%; aggregate total return, 1 year: 5.46%; aggregate total return, 5
years: 24.02%; aggregate total return, 10 years: 77.24%.
TAX EXEMPT MONEY MARKET FUND (8/31/96): Average annual total return, 1 year:
3.36%; Average annual total return, 5 years: 2.93%; average annual total return,
10 years: 3.96%; aggregate total return, 1 year: 3.36%; aggregate total return,
5 years: 15.53%; aggregate total return, 10 years: 47.46%.
FEDERAL MONEY MARKET FUND (10/31/96): Average annual total return, 1 year:
5.23%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 4.38%; aggregate total return, 1
year: 5.23%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 17.82%.
SHORT TERM BOND FUND (10/31/96): Average annual total return, 1 year: 6.01%;
average annual total return, 5 years; N/A; average annual total return,
commencement of operations(*) to period end: 4.92%; aggregate total return, 1
year: 6.01%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 17.38%.
BOND FUND (10/31/96): Average annual total return, 1 year: 5.21%; average annual
total return, 5 years: 7.55%; average annual total return, commencement of
operations(*) to period end: 8.03%; aggregate total return, 1 year: 5.21%;
aggregate total return, 5 years: 43.88%; aggregate total return, commencement of
operations(*) to period end: 94.96%.
TAX EXEMPT BOND FUND (8/31/96): Average annual total return, 1 year: 4.13%;
average annual total return, 5 years: 6.52%; average annual total return, 10
years: 6.64%; aggregate total return, 1 year: 4.13%; aggregate total return, 5
years: 37.14%; aggregate total return, 10 years: 90.20%.
NEW YORK TOTAL RETURN BOND FUND (9/30/96): Average annual total return, 1 year:
4.65%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 6.20%; aggregate total return, 1
year: 4.65%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 16.05%.
INTERNATIONAL BOND FUND (9/30/96): Average annual total return, 1 year: 12.09%;
average annual total return, 5 years: N/A; average annual total return,
commencement of operations (*) to period end: 13.67%; aggregate total return, 1
year: 12.09%; aggregate total return, 5 years: N/A; aggregate total return
commencement of operations (*) to period end: 26.47%.
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DIVERSIFIED FUND (12/31/96): Average annual total return, 1 year: 13.68%;
average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 12.43%; aggregate total return, 1
year: 13.68%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 47.35%.
SELECTED U.S. EQUITY FUND (11/30/96): Average annual total return, 1 year:
25.49%; average annual total return, 5 years: 17.12%; average annual total
return, ten years: 14.85%; aggregate total return, 1 year: 25.49%; aggregate
total return, 5 years: 120.41%; aggregate total return, ten years: 299.14%.
U.S. SMALL COMPANY FUND (11/30/96): Average annual total return, 1 year: 19.57;
average annual total return, 5 years: 16.61%; average annual total return, 10
years: 12.11%; aggregate total return, 1 year: 19.57%; aggregate total return, 5
years: 115.63%; aggregate total return, 10 years: 213.58%.
INTERNATIONAL EQUITY FUND (10/31/96): Average annual total return, 1 year:
12.54%; average annual total return, 5 years: 6.33%; average annual total
return, commencement of operations(*) to period end: 4.70%; aggregate total
return, 1 year: 12.54%; aggregate total return, 5 years: 35.93%; aggregate total
return, commencement of operations(*) to period end: 34.29%.
EMERGING MARKETS EQUITY FUND (10/31/96): Average annual total return, 1 year:
6.64%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 1.63%; aggregate total return, 1
year: 6.64%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 4.89%.
EUROPEAN EQUITY FUND (12/31/96): Average annual total return, 1 year: N/A;
average annual total return, 5 years: N/A; average annual total return
commencement of operations(*) to period end: 17.10%; aggregate total return,
1 year: N/A; aggregate total return, 5 years: N/A; aggregate total return
commencement of operations(*) to period end: 17.10%.
JAPAN EQUITY FUND (12/31/96): Average annual total return, 1 year: N/A; average
annual total return, 5 years: N/A; average annual total return commencement of
operations(*) to period end: (13.30)%; aggregate total return, 1 year: N/A;
aggregate total return, 5 years: N/A; aggregate total return commencement of
operations(*) to period end: (13.30)%.
ASIA GROWTH FUND (12/31/96): Average annual total return, 1 year: N/A; average
annual total return, 5 years: N/A; average annual total return commencement of
operations(*) to period end: 2.13%; aggregate total return, 1 year: N/A;
aggregate total return, 5 years: N/A; aggregate total return commencement of
operations(*) to period end: 2.13%.
- --------------------
(*) The Federal Money Market, Short Term Bond, Diversified, Emerging Markets
Equity, New York Total Return Bond, International Bond, European Equity, Japan
Equity and Asia Growth Funds commenced operations on January 4, 1993, July 8,
1993, July 8, 1993, November 15, 1993, April 11, 1994, December 1, 1994,
February 29, 1996, February 29, 1996, and February 29, 1996, respectively. The
predecessor JPM 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.
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Comparative performance information may be used from time to time in
advertising the Funds' shares, including appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.
In order to illustrate the benefits of balanced investing across asset
classes over longer periods of time, the Diversified Fund may use performance
data that will be based on the return of, as appropriate, the S&P 500 Index, the
Salomon Brothers Broad Investment Grade Bond Index, the Frank Russell 2000 and
2500 Indexes, and the EAFE Index. The quoted performance will illustrate what
results could have been achieved had the Fund invested specified percentages of
the Fund's assets in classes of securities that would have produced a return
equal to the relevant index over the time period at issue.
From time to time, the Funds may quote performance in terms of yield,
actual distributions, total return, or capital appreciation in reports, sales
literature, and advertisements published by the Funds. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See "Additional
Information" in the Prospectus.
PORTFOLIO TRANSACTIONS
The Advisor places orders for all Portfolios for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute 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, FEDERAL MONEY MARKET, BOND, SHORT
TERM BOND, TAX EXEMPT BOND, NEW YORK TOTAL RETURN BOND, INTERNATIONAL BOND AND
GLOBAL STRATEGIC INCOME FUNDS. Portfolio transactions for the Portfolios
corresponding to the Money Market, Tax Exempt Money Market, Federal Money
Market, Bond, Short Term Bond, Tax Exempt Bond, New York Total Return Bond,
International Bond and Global Strategic Income 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, Federal Money Market, Bond, Tax Exempt Bond, New York Total
Return Bond, Short Term Bond, International Bond and Global Strategic Income
Funds may engage in short-term trading consistent with their objectives. See
"Investment Objectives and Policies -- Portfolio Turnover." The Tax Exempt
Money Market Portfolio will not seek profits through short-term trading, but the
Portfolio may dispose of any portfolio security prior to its maturity if it
believes such disposition is appropriate even if this action realizes profits or
losses.
In connection with portfolio transactions for the Portfolios, the Advisor
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 Federal Money Market Funds have a policy of investing only in securities
with maturities of less than thirteen months, which policy will result in high
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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, DISCIPLINED EQUITY, U.S. SMALL COMPANY, INTERNATIONAL
EQUITY, EMERGING MARKETS EQUITY, INTERNATIONAL OPPORTUNITIES, 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, the Advisor 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, the
Advisor decides that the broker chosen will provide the best possible execution.
The Advisor monitors 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 the Advisor has
allocated brokerage business in the past include economic statistics and
forecasting services, industry and company analyses, portfolio strategy
services, quantitative data, and consulting services from economists and
political analysts. Research services furnished by brokers are used for the
benefit of all the Advisor's clients and not solely or necessarily for the
benefit of an individual Portfolio. The Advisor believes that the value of
research services received is not determinable and does not significantly reduce
its expenses. The Portfolios do not reduce their fee to the Advisor by any
amount that might be attributable to the value of such services.
The Portfolios or their predecessors corresponding to the Selected U.S.
Equity, U.S. Small Company, International Equity, Emerging Markets Equity,
Diversified, European Equity, Japan Equity and Asia Growth Funds paid the
following approximate brokerage commissions for the indicated fiscal periods:
SELECTED U.S. EQUITY FUND (May): 1996: $1,375,696; 1995: $1,179,132; 1994:
$744,676.
U.S. SMALL COMPANY FUND (May): 1996: $1,554,459; 1995:$1,217,016; 1994:
$1,760,320.
INTERNATIONAL EQUITY FUND (October): 1996: $2,303,648; 1995: $1,691,642; 1994:
$1,413,238.
DIVERSIFIED FUND (June): 1996: $220,206; 1995: $145,589; 1994: $78,737.
EMERGING MARKETS EQUITY FUND (October): 1996: $1,840,532; 1995: $1,475,147;
1994: $1,262,905.
EUROPEAN EQUITY FUND (December): 1995: $143,417.
JAPAN EQUITY FUND (December): 1995: $0.
ASIA GROWTH FUND (December): 1995: $27,322.
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The increases in brokerage commissions reflected above were due to
increased portfolio activity and an increase in net investments by investors in
a Portfolio or its predecessor.
Subject to the overriding objective of obtaining the best possible
execution of orders, the Advisor may allocate a portion of a Portfolio's
brokerage transactions to affiliates of the Advisor. In order for affiliates of
the Advisor 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 Co-Administrator, the Distributor or the Advisor or any other
"affiliated person" (as defined in the 1940 Act) of the Co-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 the Advisor deems the purchase or sale of a
security to be in the best interests of a Portfolio as well as other customers
including other Portfolios, the Advisor 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 the Advisor in the manner it considers to be most equitable and
consistent with its 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.
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Effective January 9, 1997, the name of the Federal Money Market Fund was
change from the JPM Institutional Treasury Money Market Fund to the JPM
Institutional Federal Money Market Fund, and the Fund's corresponding Portfolio
changed its name accordingly.
Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust which is not the case for a corporation. However, the Trust's Declaration
of Trust provides that the shareholders shall not be subject to any personal
liability for the acts or obligations of any Fund and that every written
agreement, obligation, instrument or undertaking made on behalf of any Fund
shall contain a provision to the effect that the shareholders are not personally
liable thereunder.
No personal liability will attach to the shareholders under any undertaking
containing such provision when adequate notice of such provision is given,
except possibly in a few jurisdictions. With respect to all types of claims in
the latter jurisdictions, (i) tort claims, (ii) contract claims where the
provision referred to is omitted from the undertaking, (iii) claims for taxes,
and (iv) certain statutory liabilities in other jurisdictions, a shareholder may
be held personally liable to the extent that claims are not satisfied by the
Fund. However, upon payment of such liability, the shareholder will be entitled
to
reimbursement from the general assets of the Fund. The Trustees intend to
conduct the operations of the Trust in such a way so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Funds.
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of a Fund is liable to a
Fund or to a shareholder, and that no Trustee, officer, employee, or agent is
liable to any third persons in connection with the affairs of a Fund, except as
such liability may arise from his or its own bad faith, willful misfeasance,
gross negligence or reckless disregard of his or its duties to such third
persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of a
Fund. With the exceptions stated, the Trust's Declaration of Trust provides
that a Trustee, officer, employee, or agent is entitled to be indemnified
against all liability in connection with the affairs of a Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
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 nineteen series described in this Statement of Additional
Information have been authorized and are available for sale to the public. Each
share represents an equal proportional interest in a Fund with each other share.
Upon liquidation of a Fund, holders are entitled to share pro rata in the net
assets of a Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of a Fund have no preemptive or conversion rights
and are fully paid and nonassessable. The rights of redemption and exchange are
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described in the Prospectus and elsewhere in this Statement of Additional
Information.
The shareholders of the Trust are entitled to a full vote for each full
share held and to a fractional vote for each fractional share. Subject to the
1940 Act, the Trustees themselves have the power to alter the number and the
terms of office of the Trustees, to lengthen their own terms, or to make their
terms of unlimited duration subject to certain removal procedures, and appoint
their own successors, PROVIDED, HOWEVER, that immediately after such appointment
the requisite majority of the Trustees have been elected by the shareholders of
the Trust. The voting rights of shareholders are not cumulative so that holders
of more than 50% of the shares voting can, if they choose, elect all Trustees
being selected while the shareholders of the remaining shares would be unable to
elect any Trustees. It is the intention of the Trust not to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for
action by shareholder vote as may be required by either the 1940 Act or the
Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in writing
or vote of more than two-thirds of its outstanding shares, to remove a Trustee.
The Trustees will call a meeting of shareholders to vote on removal of a Trustee
upon the written request of the record holders of 10% of the Trust's shares. In
addition, whenever ten or more shareholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate either shares having a net asset value of at least $25,000 or at least
1% of the Trust's outstanding shares, whichever is less, shall apply to the
Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or
(2) inform such applicants as to the approximate number of shareholders of
record, and the approximate cost of mailing to them the proposed communication
and form of request. If the Trustees elect to follow the latter course, the
Trustees, upon the written request of such applicants, accompanied by a tender
of the material to be mailed and of the reasonable expenses of mailing, shall,
with reasonable promptness, mail such material to all shareholders of record at
their addresses as recorded on the books, unless within five business days after
such tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements 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 nineteen 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
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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 January 31, 1997, the following owned of record or, to the knowledge
of management, beneficially owned more than 5% of the outstanding shares of:
Federal Money Market Fund--Morgan as Agent for Cantor Fitzgerald, Inc.
(40.57%), Bank of New York as Series 1993-3 Coll a/c (20.18%), Bank of New
York as Series 1993-1 Coll a/c (13.45%), Dr. S. and/or Mrs. I. Berson
(5.12%);
Money Market Fund--Citibank-Private Bank (22.95%); Odyssey Partners LP c/o
L. Levitt CFO (13.48), JPMIM as Agent for Great Western Employee Savings
Incentive Plan (6.03), Micrus c/o Gary Ricks-Program Manager (5.68%),
Kilroy Realty LP (5.46%);
Tax Exempt Money Market Fund--Morgan as Agent for S.R. Wexner (24.59%),
E.H. Skove (16.97%), Morgan as Agent for T.F. and J.D. Pyle (11.36%),
Morgan as Agent for C. Davis (7.97%), E.K. Zilkha, Zilkha & Sons, Inc.
(6.72%);
Bond Fund--Nationsbank TX Trustee FBO Boy Scouts of America Retirement
Benefits Trust (5.26%);
Short Term Bond Fund--M.P. & P. Schulhof JT Wros (32.28%), Morgan as Agent
for Warner Lambert Benefits Trust (28.02%), Morgan as Agent for Florida
Atlantic Univ. Foundation (10.83%), Morgan as Agent for G.C. Bible Trust
(5.32%);
Tax Exempt Bond Fund--Morgan as Agent for E. Hanovia, Inc. (7.95%), Morgan
as Agent for General Re Employee Benefit Trust (6.16%);
New York Total Return Bond Fund--Morgan as Agent for Trust U/W of L.H.P.
Klotz fbo R. Klotz (14.34%); Morgan as Agent for Shubert Organization
(13.62%), Edward S. Gordon, Stacy L. Wallach and Anthony M. Saytanides,
Escrow Agents for Edward S. Gordon Company, Inc. (5.91%), Morgan as Agent
for J. Corry (5.98%), Morgan as Agent for E.A. Barish (5.54%);
International Bond Fund--Morgan as Agent for Albany Medical Center
Insurance Trust-Fleet Trust as Custodian (60.62%), Morgan as Agent for
General Motors Savings Plan (23.92%), Morgan as Agent for Community Funds
Inc. Dewitt Wallace Readers Digest Special Project Fund (14.47%);
Selected U.S. Equity Fund--Morgan as Trustee for Major League Baseball
Master Pension Trust (8.89%), Wachovia Bank of North Carolina, Trustee for
Newmont Gold Co. Master Pension Trust (7.74%), Boston & Co. Mutual
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Funds Operations (6.63%), Morgan as Agent for Diversified Growth Fund Attn
M.C. Halaburda (6.63%), Lin Television Corp. Retirement Plan (6.27%);
U.S. Small Company--Morgan as Agent for S. Lutz Trust (5.06%);
Diversified Fund--Celtic Insurance Company Ltd. (12.86%), Boston Foundation
Inc. (11.43%), Morgan as Agent for Unifi Inc. Profit Sharing Plan Trust
(10.70%), Westinghouse Personal Investment Plan (7.54%), BG Sulzle Inc.
Employee Pension (6.01%), Retirement Plan for Employees of Association
American Arbitration Pension Committee (5.79%), T.J. Martell Foundation c/o
Christopher McDonnell (5.36%);
Emerging Markets Equity--Batrus & Co. (9.88%), Morgan as Agent for A.P.
Sloan Foundation (7.15%);
International Equity Fund--Blue Cross Blue Shield of North Carolina Steven
Cherrier, Vice President (5.05%);
European Equity Fund--Morgan as Agent for M.D. Palm (45.21%); Morgan as
Agent for P. Ponzek Irrevocable Trust (30.10%); Morgan as Agent for J.A.
Johnson/M. Isaacs (8.85%), Morgan as Agent for B. Price (8.64%), Morgan as
Agent for J. M. Watkins (6.90%);
Japan Equity Fund--Morgan as Agent for Hep Living Trust DTD (69.29%),
National Financial Services Corp. (25.44%), Morgan as Agent for M.C. Ross
Living Trust (5.26%);
Asia Growth Fund--Morgan as Agent for P. Ponzek Irrevocable Trust (25.52%),
Morgan as Agent for Bertelsen Family Trust (17.05%), Morgan as Agent for
J.M. Watkins (10.24%), Morgan as Agent for M.D. Palm (9.97%), Morgan as
Agent for W.B. Bond Trust (8.99%), Morgan as Agent for M.L. Clark (6.02%),
Morgan as Agent for J.A. Johnson and M. Isaacs (6.01%); and
Disciplined Equity Fund-- MGT Trust Co of NY as Agent for 500 Property
Management Corp. (36.70%), Morgan as Agent for G. Herring (19.99%), Morgan
as Agent for J.L. Kenner (15.01%), Morgan as Agent for G.J. Phocas (6.82%),
Easter Seal Society for Children's Foundation (6.67%).
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
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options and futures with respect to stocks or securities); and (c) diversify its
holdings so that, at the end of each quarter of its taxable year, (i) at least
50% of the value of the Fund's total assets is represented by cash, cash items,
U.S. Government securities, securities of other regulated investment companies,
and other securities limited, in respect of any one issuer, to an amount not
greater than 5% of the Fund's total assets, and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or securities of other regulated investment companies).
As a regulated investment company, a Fund (as opposed to its shareholders) will
not be subject to federal income taxes on the net investment income and capital
gain that it distributes to its shareholders, provided that at least 90% of its
net investment income and realized net short-term capital gain in excess of net
long-term capital loss for the taxable year is distributed in accordance with
the Code's timing requirements.
Under the Code, a Fund will be subject to a 4% excise tax on a portion of
its undistributed taxable income and capital gains 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 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 is properly designated as consisting 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, certain foreign currency gains, and
realized net short-term capital gain in excess of net long-term capital loss
(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, Disciplined 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 subject to applicable limitations under the Code.
Distributions to corporate shareholders of the Money Market, Tax Exempt Money
Market, Federal Money Market, Tax Exempt Bond, New York Total Return Bond, Bond,
Short Term Bond, International Bond, Global Strategic Income, International
Equity, Emerging Markets Equity, International Opportunities, European Equity,
Japan Equity and Asia Growth Funds are not eligible for the dividends received
deduction. Distributions of net long-term capital gain (i.e., net long-term
capital gain in excess of net short-term capital loss) are taxable to
shareholders of a Fund as long-term capital gain, 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
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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 Federal 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. Subject to certain limited
exceptions, capital losses cannot be used to offset ordinary income. 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 a put is acquired or a call option is
written thereon or the straddle rules described below are otherwise applicable.
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.
Except as described below, 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 generally
treated as ordinary income or ordinary loss. Similarly, gains or losses on the
disposition of debt securities held by a Portfolio, if any, denominated in
foreign currency, to the extent attributable to fluctuations in exchange rates
between the acquisition and disposition dates are also treated as ordinary
income or loss.
Forward currency contracts, options and futures contracts entered into by a
Portfolio may create "straddles" for U.S. federal income tax purposes and this
may affect the character and timing of gains or losses realized by the Portfolio
on forward currency contracts, options and futures contracts or on the
underlying securities. Certain straddles treated as short sales for tax
purposes 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 taxable 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
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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 a portion of 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 deemed unpaid taxes arising
from such distributions or gains. Alternatively, a Fund may in some cases be
permitted to include each year in its income and distribute to shareholders a
pro rata portion of the foreign investment fund's income, whether or not
distributed to the Fund.
Pursuant to proposed regulations, open-end regulated investment companies
such as the Portfolios would be entitled to elect to mark to market their stock
in certain PFICs. Marking to market in this context means recognizing as gain
for each taxable year the excess, as of the end of that year, of the fair market
value of each PFIC's stock over the owner's adjusted basis in that stock
(including mark to market gains of a prior year for which an election was in
effect).
FOREIGN SHAREHOLDERS. Dividends of net investment income and distributions
of realized net short-term gain in excess of net long-term loss 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 treated as 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
or foreign entity, a Fund may be required to withhold U.S. federal income tax as
"backup withholding" at the rate of 31% from distributions treated as long-term
capital gains and from the proceeds of redemptions, exchanges or other
dispositions of Fund shares 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, Global
Strategic Income, Selected U.S. Equity, Disciplined Equity, U.S. Small Company,
International Equity, Emerging Markets Equity, International Opportunities,
Diversified, European Equity, Japan Equity and Asia Growth Funds may be subject
to foreign withholding taxes or other foreign taxes with respect to income
(possibly including, in some cases, capital gains) received from sources within
foreign countries. In the case of the International Bond, Global Strategic
Income, International Equity, Emerging Markets Equity, International
Opportunities, European Equity, Japan Equity and Asia Growth Funds, so long as
more than 50% in value of the total assets of the Fund (including its share of
the assets of the corresponding Portfolio) at the close of any taxable year
consists of stock or securities of foreign corporations, the Fund may elect to
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treat any foreign income taxes deemed 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 (in addition to the dividends and distributions he
receives) his proportionate share of the amount of foreign income taxes deemed
paid by the Fund and will be entitled to claim either a credit (subject to the
limitations discussed below) or, if he itemizes deductions, a deduction for his
share of the foreign income taxes in computing federal income tax liability.
(No deduction will be permitted in computing an individual's alternative minimum
tax liability.) A shareholder who is a nonresident alien individual or a
foreign corporation may be subject to U.S. withholding tax on the income
resulting from the election described in this paragraph, but may not be able to
claim a credit or deduction against such U.S. tax for the foreign taxes treated
as having been paid by such shareholder. A tax-exempt shareholder will not
ordinarily benefit from this election. Shareholders who choose to utilize a
credit (rather than a deduction) for foreign taxes will be subject to the
limitation that the credit may not exceed the shareholder's U.S. tax (determined
without regard to the availability of the credit) attributable to his or her
total foreign source taxable income. For this purpose, the portion of dividends
and distributions paid by each of the International Bond, Global Strategic
Income, International Equity, Emerging Markets Equity, International
Opportunities, 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, if the election is
made, shareholders may nevertheless be unable to claim a credit for the full
amount of their proportionate shares of the foreign income taxes paid by the
International Bond, Global Strategic Income, International Equity, Emerging
Markets Equity, International Opportunities, 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 each Fund
continues to qualify as a regulated investment company under Subchapter M of the
Code. The Portfolios are organized as New York trusts. The Portfolios are not
subject to any federal income taxation or income or franchise tax in the State
of New York or The Commonwealth of Massachusetts. The investment by a Fund in
its corresponding Portfolio does not cause the Fund to be liable for any income
or franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus, the
term "majority of the outstanding voting securities" means the vote of (i) 67%
or more of the Fund's shares or the Portfolio's outstanding voting securities
present at a meeting, if the holders of more than 50% of the Fund's
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outstanding shares or the Portfolio's outstanding voting securities 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
Prospectus 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
Prospectus 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
Prospectus 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 following financial statements of each Fund (except for the
International Opportunities, Disciplined Equity and Global Strategic Income
Funds) and each of the Japan Equity, European Equity and Asia Growth Portfolios,
are incorporated herein by reference from their respective annual report and, if
applicable, semi-annual report filings made with the SEC pursuant to Section
30(b) of the 1940 Act and Rule 30b2-1 thereunder. Any of the following
financial reports are available without charge upon request by calling J.P.
Morgan Funds Services at (800) 766-7722. Each Fund's financial statements
include the financial statements of the Fund's corresponding Portfolio. The
audited statement of assets and liabilities as of February 20, 1997 and
independent auditors' report thereon for each of the Global Strategic Income
Fund and the Global Strategic Income Portfolio are attached hereto.
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<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Date of Semi-Annual
Report; Date Date of Annual
Semi-Annual Report Report; Date Annual
Filed; and Accession Report Filed; and
Name of Fund/Portfolio Number Accession Number
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The JPM Institutional Money Market Fund N/A 11/30/96
01/30/97
0000912057-97-002304
The JPM Institutional Tax Exempt Money Market Fund N/A 08/31/96
11/06/96
0000912057-96-024854
The JPM Institutional Federal Money Market Fund N/A 10/31/96
12/30/96
0000912057-96-030430
The JPM Institutional Short Term Bond Fund N/A 10/31/96
01/08/97
0000912057-97-000396
The JPM Institutional Bond Fund N/A 10/31/96
01/08/97
0000912057-97-000419
The JPM Institutional Tax Exempt Bond Fund N/A 08/31/96
11/06/96
0000912057-96-024847
The JPM Institutional Selected U.S. Equity Fund 11/30/96 02/04/97
05/31/96 08/07/96
0000912057-97-003000 0000912057-96-016487
The JPM Institutional U.S. Small Company Fund 11/30/96 02/04/97
05/31/96 08/07/96
0000912057-97-002995 0000912057-96-016490
The JPM Institutional International Equity Fund N/A 10/31/96
01/07/97
0000912057-97-000342
The JPM Institutional Diversified Fund N/A 06/30/96
09/06/96
0000912057-96-019775
The JPM Institutional Emerging Markets Equity Fund N/A 10/31/96
01/08/97
0000912057-97-000391
</TABLE>
92
<PAGE>
<TABLE>
<S> <C> <C>
The JPM Institutional New York Total Return Bond Fund 09/30/96 12/03/96
03/31/96 06/05/96
0000912057-96-028127 0000912057-96-011621
The JPM Institutional Japan Equity Fund 06/30/96 N/A
09/06/96
0000912057-96-019721
The Japan Equity Portfolio N/A 12/31/95
03/12/96
0000912057-96-004391
The JPM Institutional European Equity Fund 06/30/96 N/A
09/06/96
0000912057-96-019720
The European Equity Portfolio N/A 12/31/95
03/12/96
0000912057-96-004390
The JPM Institutional Asia Growth Fund 06/30/96 N/A
09/06/96
0000912057-96-019737
The Asia Growth Portfolio N/A 12/31/95
03/12/96
0000912057-96-004389
The JPM Institutional International Bond Fund N/A 09/30/96
12/06/96
0000912057-96-028534
- --------------------------------------------------------------------------------------------------------------
</TABLE>
93
<PAGE>
THE JPM INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 20, 1997
- -----------------------------------------------------------------------------
ASSETS
Investment in The Global Strategic Income
Portfolio ("Portfolio"), at value $100,000
Deferred Organization Expenses 36,300
--------
Total Assets 136,300
--------
LIABILITIES
Organization Expenses Payable 36,300
--------
Total Liabilities 36,300
--------
NET ASSETS
Applicable to 10,000 Shares of Beneficial
Interest Outstanding (par value $0.001,
unlimited shares authorized) $100,000
--------
--------
Net Asset Value, Offering and Redemption
Price Per Share $ 10.00
--------
--------
The Accompanying Notes are an Integral Part of the Financial Statement.
94
<PAGE>
THE JPM INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENT
FEBRUARY 20, 1997
- -----------------------------------------------------------------------------
1. ORGANIZATION
The JPM Institutional Global Strategic Income Fund (the "Fund") is a series of
The JPM Institutional Funds, a Massachusetts business trust (the "Trust")
organized on November 4, 1992 and an open-end management investment company
registered under the Investment Company Act of 1940, as amended. The Fund was
established on October 10, 1996, and has been inactive since that date except
for matters relating to its organization, registration under federal securities
laws and the sale of 10,000 shares (the "initial shares") of the Fund to FDI
Distribution Services, Inc. ("FDSI"), the parent company of Funds Distributor,
Inc. ("FDI"), the Trust's co-administrator and distributor.
The Fund will invest all of its investable assets in The Global Strategic Income
Portfolio (the "Portfolio"), a trust organized under the laws of the state of
New York. The Portfolio intends to register as an open-end management investment
company and has the same investment objective and policies as the Fund.
The Fund has incurred $36,300 in organization expenses. 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 Fund.
2. SERVICE AGREEMENTS WITH AFFILIATES
The Trust has entered into (i) an Administrative Services Agreement with Morgan
Guaranty Trust Company of New York ("Morgan") to provide administrative and
related services to the Trust and (ii) a Shareholder Servicing Agreement with
Morgan pursuant to which Morgan will provide shareholder servicing to
shareholders of the Fund. The Trust is a party to a Co-Administration Agreement
and Distribution Agreement with FDI pursuant to which FDI provides
co-administration and distribution services, respectively, for the Trust. The
officers of the Trust, excluding its Chief Executive Officer, are employees of
FDI. The Trust has entered into a Fund Services Agreement with Pierpont Group,
Inc. to assist the Trustees in exercising their overall responsibilities for the
affairs of the Trust. The Trustees of the Trust represent all the existing
shareholders of Pierpont Group, Inc.
95
<PAGE>
1177 Avenue of the Americas Telephone 212 596 7000
New York, NY 10036 Facsimile 212 596 8910
PRICE WATERHOUSE LLP [logo]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholder
of The JPM Institutional Global Strategic Income Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The JPM
Institutional Global Strategic Income Fund (one of the series constituting part
of The JPM Institutional Funds, hereafter referred to as the "Fund") at February
20, 1997, in conformity with generally accepted accounting principles. This
financial statement is the responsibility of the Fund'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 our opinion expressed
above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York 10036
February 20, 1997
96
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 20, 1997
- -----------------------------------------------------------------------------
ASSETS
Cash $100,010
Deferred Organization Expenses 17,700
--------
Total Assets 117,710
--------
LIABILITIES
Organization Expenses Payable 17,700
--------
Total Liabilities 17,700
--------
NET ASSETS
Applicable to Investors' Beneficial Interests $100,010
--------
--------
The Accompanying Notes are an Integral Part of the Financial Statement.
97
<PAGE>
THE GLOBAL STRATEGIC INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENT
FEBRUARY 20, 1997
- -----------------------------------------------------------------------------
1. ORGANIZATION
The Global Strategic Income Portfolio (the "Portfolio") is a trust organized
under the laws of the State of New York on January 9, 1997 and has been inactive
since that date except for matters relating to its organization, 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
$100,000 (the "initial interest") to The JPM Institutional Global Strategic
Income Fund (the "Fund") and $10 to Funds Distributor, Inc. ("FDI"), a wholly
owned indirect subsidiary of Boston Institutional Group, Inc.
The Portfolio has incurred $17,700 in organization expenses. Morgan Guaranty
Trust Company of New York ("Morgan") has agreed to pay the organization expenses
of the Portfolio. The Portfolio has agreed to reimburse Morgan for these costs
which are being 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. As long as there is another investor in the Portfolio, the
Portfolio will receive upon a redemption by FDI Distribution Services, Inc. (the
purchaser of the Fund's initial shares) from the Fund a pro rata portion of the
unamortized organization expenses of the Portfolio. The Fund has agreed that if
it withdraws any of such interest prior to the fifth anniversary of the date the
Portfolio commenced operations, the Fund will reduce the amount of its
withdrawal from the Portfolio in an amount equal to the number resulting from
multiplying the Portfolio's total unamortized organizational expenses by a
fraction, the numerator of which is equal to the amount of initial interest
redeemed by it and the denominator of which is equal to the amount of such
interest held by it outstanding as of the date of such withdrawal, as long as
the administrative position of the staff of the Securities and Exchange
Commission requires such reimbursement.
2. VALUATION OF INVESTORS' BENEFICIAL INTERESTS
At 4:15 p.m. New York time on each business day of the Portfolio, the value of
an investor's beneficial interest in the Portfolio is equal to the product of i)
the aggregate net asset value of the Portfolio, effective for that day, and ii)
the percentage representing that investor's pro rata share of the aggregate
beneficial interests in the Portfolio, on that day.
3. SERVICE AGREEMENTS WITH AFFILIATES
The Portfolio has entered into an Investment Advisory Agreement with Morgan to
provide investment advice and portfolio management services to the Portfolio.
The Portfolio has also entered into an Administrative Services Agreement with
Morgan to provide administrative and related services to the Portfolio. The
Portfolio is a party to a Co-Administration Agreement with FDI pursuant to which
FDI provides co-administration services for the Portfolio. The officers of the
Portfolio, excluding its Chief Executive Officer, are employees of FDI. Pursuant
to a separate agreement, FDI also serves as exclusive placement agent for the
Portfolio's beneficial interests. The Portfolio has entered into a Fund Services
Agreement with Pierpont Group, Inc. to assist the Trustees in exercising their
overall responsibilities for the affairs of the Portfolio. The Trustees of the
Portfolio represent all the existing shareholders of Pierpont Group, Inc.
98
<PAGE>
1177 Avenue of the Americas Telephone 212 596 7000
New York, NY 10036 Facsimile 212 596 8910
PRICE WATERHOUSE LLP [logo]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors
of The Global Strategic Income Portfolio
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The Global Strategic
Income Portfolio (the "Portfolio) at February 20, 1997, 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 our opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York 10036
February 20, 1997
99
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
CORPORATE AND MUNICIPAL BONDS
AAA - Debt rated AAA has the highest ratings assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB - Debt rated BB is regarded as having less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B - An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC - An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC - An obligation rated CC is currently highly vulnerable to nonpayment.
C - The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
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
A-1
<PAGE>
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest rating
assigned by Standard & Poor's and has a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory capacity
to pay principal and interest.
MOODY'S
CORPORATE AND MUNICIPAL BONDS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in 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.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A-2
<PAGE>
Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well established access to a range of financial markets and assured sources of
alternate liquidity.
SHORT-TERM TAX EXEMPT NOTES
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest rating
assigned by Moody's for notes judged to be the best quality. Notes with this
rating enjoy strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of protection not
as large as MIG-1.
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 supplement (dated
March 20, 1996) to the Annual Information Statement of the State of New York
dated June 23, 1995 and other sources of information.
GENERAL
New York (the "State") is among the most populous states in the nation and
has a relatively high level of personal wealth. The State's economy is diverse
with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location, air
transport facilities and natural harbors have made it an important link in
international commerce. Travel and tourism constitute an important part of the
economy. The State has a declining proportion of its workforce engaged in
manufacturing and an increasing proportion engaged in service industries. This
transition reflects a national trend.
The State has historically been one of the wealthiest states in the nation.
The State economy has grown more slowly than that of the nation as a whole,
resulting in the gradual erosion of its relative economic affluence. Statewide,
urban centers have experienced significant changes involving migration of the
more affluent to the suburbs and an influx of generally less affluent residents.
Regionally, the older northeast cities have suffered because of the relative
success that the South and the West have had in attracting people and business.
New York City (the "City") has also had to face greater competition as other
major cities have developed financial and business capabilities which make them
less dependent on the specialized services traditionally available almost
exclusively in the City.
Although industry and commerce are broadly spread across the State,
particular activities are concentrated in the following areas: Westchester
County -- headquarters for several major corporations; Buffalo -- diverse
manufacturing base; Rochester -- manufacture of photographic and optical
equipment; Syracuse and Utica-Rome area -- production of machinery and
transportation equipment; Albany-Troy-Schenectady -- government and education
center and production of electrical products; Binghampton -- original site of
the International Business Machines Corporation and continued concentration of
employment in computer and other high technology manufacturing; and New York
City -- headquarters for the nation's securities business and for a major
portion of the nation's major commercial banks, diversified financial
institutions and life insurance companies. In addition, the City houses the
home offices of major radio and television broadcasting networks, many national
magazines and a substantial portion of the nation's book publishers. The City
also retains leadership in the design and manufacture of men's and women's
apparel and is traditionally a tourist destination.
ECONOMIC OUTLOOK
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the federal government, that
are not under the control of the State. The state financial plan is based upon
forecasts of national and State economic activity. Economic forecasts have at
times failed to predict precisely the timing and magnitude of changes in the
B-1
<PAGE>
national and the State economies. Many uncertainties exist in forecasts of both
the national and State economies, including consumer attitudes toward spending,
the extent of corporate and governmental restructuring, federal financial and
monetary policies, the availability of credit, the level of interest rates, and
the condition of the world economy. All these could have an adverse effect on
the State. There can be no assurance that the State's economy will not
experience financial results in the current fiscal year that are worse than
predicted, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
The national economy achieved the desired "soft landing" in 1995, as growth
slowed from 6.2 percent in 1994 to a rate sufficiently slow to inhibit the
build-up of inflationary pressures. This was achieved without any material
pause in the economic expansion, although recession worries flared in the late
spring and early summer. Growth in the national economy is expected to moderate
during 1996, with the nation's gross domestic product projected to expand by 4.6
percent in 1996 versus 5.0 percent in 1995. Declining short-term interest
rates, slowing employment growth and continued moderate inflation also
characterize the projected path for the nation's economy in the year ahead.
The annual growth rates of most economic indicators for the State improved
from 1994 to 1995, as the pace of private sector employment expansion and
personal income and wage growth all accelerated. Government employment fell as
workforce reductions were implemented at federal, state and local levels.
Similar to the nation, some moderation of growth is expected in the year ahead.
Private sector employment is expected to continue to rise, although somewhat
more slowly than in 1995, while public employment should continue to fall,
reflecting government budget cutbacks. Anticipated continued restraint in wage
settlements, a lower rate of employment growth and falling interest rates are
expected to slow personal income growth significantly.
The State has for many years had a very high State and local tax burden
relative to other states. The State and its localities have used these taxes to
develop and maintain their transportation networks, public schools and colleges,
public health systems, other social services and recreational facilities.
Despite these benefits, the burden of State and local taxation, in combination
with the many other causes of regional economic dislocation, may have
contributed to the decisions of some businesses and individuals to relocate
outside, or not locate within, the State.
To stimulate the State's economic growth, the State has developed programs,
including the provision of direct financial assistance, designed to assist
businesses to expand existing operations located within the State and to attract
new businesses to the State. Local industrial development agencies raised an
aggregate of approximately $7.8 billion in separate tax-exempt bond issues
through December 31, 1993. There are currently over 100 county, city, town and
village agencies. In addition, the New York State Urban Development Corporation
is empowered to issue, subject to certain State constitutional restrictions and
to approval by the Public Authorities Control Board, bonds and notes on behalf
of private corporations for economic development projects. The State has also
taken advantage of changes in federal bank regulations to establish a free
international banking zone in the City.
In addition, the State has provided various tax incentives to encourage
business relocation and expansion. These programs include direct tax abatements
from local property taxes for new facilities (subject to locality approval) and
investment tax credits that are applied against the State corporation franchise
tax. Furthermore, legislation passed in 1986 authorizes the creation of up to
40 "economic development zones" in economically distressed regions of the State.
Businesses in these zones are provided a variety of tax and other incentives to
create jobs and make investments in the zones.
B-2
<PAGE>
The executive budget contains comparatively few tax initiatives. However,
the Governor has set aside $50 million to finance a program of additional tax
cuts designed to spur private sector job creation in the State. The Governor
intends to work jointly with the business community and the legislature to
determine the elements of the program. For financial plan purposes, the
$50 million is shown as a charge against the personal income tax, implemented
through a deposit to the refund reserve. Additional tax reductions were called
for by the Governor in his annual message to the legislature of January 3, 1996,
but no specific implementation plans have been announced.
STATE FINANCIAL PLAN
The State Constitution requires the Governor to submit to the legislature a
balanced executive budget which contains a complete plan of expenditures (the
"State Financial Plan") for the ensuing fiscal year and all moneys and revenues
estimated to be available therefor, accompanied by bills containing all proposed
appropriations or reappropriations and any new or modified revenue measures to
be enacted in connection with the executive budget. A final budget must be
approved before the statutory deadline of April 1. The State Financial Plan is
updated quarterly pursuant to law.
The State's fiscal year, which commenced on April 1, 1996, and ends on
March 31, 1997, is referred to herein as the State's 1996-97 fiscal year.
The State revised the cash-basis 1995-96 State Financial Plan on
December 15, 1995, in conjunction with the release of the executive budget for
the 1996-97 fiscal year.
The 1995-96 General Fund Financial Plan continues to be balanced, with
reductions in projected receipts offset by an equivalent reduction in projected
disbursements. Modest changes were made to the mid-year update, reflecting two
more months of actual results, deficiency requests by State agencies (the
largest of which is for school aid resulting from revisions to data submitted by
school districts), and administrative efficiencies achieved by State agencies.
Total General Fund receipts are expected to be approximately $73 million lower
than estimated at the time of the mid-year update. Tax receipts are now
projected to be $29.57 billion, $8 million less than in the earlier plan.
Miscellaneous receipts and transfers from other funds are estimated at
$3.15 billion, $65 million lower than in the mid-year update. The largest
single change in these estimates is attributable to the lag in achieving
$50 million in proceeds from sales of State assets, which are unlikely to be
completed prior to the end of the fiscal year.
Projected General Fund disbursements are reduced by a total of $73 million,
with changes made in most major categories of the 1995-96 State Financial Plan.
The reduction in overall spending masks the impact of deficiency requests
totaling more than $140 million, primarily for school aid and tuition assistance
to college students. Offsetting reductions in spending are attributable to the
continued maintenance of strict controls on spending through the fiscal year by
State agencies, yielding savings of $50 million. Reductions of $49 million in
support for capital projects reflect a stringent review of all capital spending.
Reductions of $30 million in debt service costs reflect savings from refundings
undertaken in the current fiscal year, as well as savings from lower interest
rates in the financial market. Finally, the 1995-96 Financial Plan reflects
reestimates based on actual results through November, the largest of which is a
reduction of $70 million in projected costs for income maintenance. This
reduction is consistent with declining caseload projections.
The balance in the General Fund at the close of the 1995-96 fiscal year is
expected to be $172 million, entirely attributable to monies in the Tax
Stabilization Reserve Fund following the required $15 million payment into that
Fund. A $40 million deposit to the Contingency Reserve Fund included as part of
B-3
<PAGE>
the enacted 1995-96 budget will not be made, and the minor balance of $1 million
currently in the Fund will be transferred to the General Fund. These
Contingency Reserve Fund monies are expected to support payments from the
General Fund for litigation related to the State's Medicaid program, and for
federal disallowances.
Changes in federal aid programs currently pending in Congress are not
expected to have a material impact on the State's 1995-96 Financial Plan,
although prolonged interruptions in the receipt of federal grants could create
adverse developments, the scope of which cannot be estimated at this time. The
major remaining uncertainties in the 1995-96 State Financial Plan continue to be
those related to the economy and tax collections, which could produce either
favorable or unfavorable variances during the balance of the year.
The Governor presented his 1996-97 executive budget to the legislature on
December 15, 1995, one month before the legal deadline. The executive budget
also contains financial projections for the State's 1997-98 and 1998-99 fiscal
years and an updated Capital Plan. As provided by the State Constitution, the
Governor submitted amendments to his 1996-97 executive budget within 30 days
following submission. Those amendments are reflected in the discussion of the
1996-97 executive budget contained herein. There can be no assurance that the
legislature will enact the executive budget as proposed by the Governor into
law, or that the State's adopted budget projections will not differ materially
and adversely from the projections.
The 1996-97 Financial Plan projects balance on a cash basis in the General
Fund. It reflects a continuing strategy of substantially reduced State
spending, including program restructuring, reductions in social welfare
spending, and efficiency and productivity initiatives. Total General Fund
receipts and transfers from other funds are projected to be $31.32 billion, a
decrease of $1.4 billion from total receipts projected in the current fiscal
year. Total General Fund disbursements and transfers to other funds are
projected to be $31.22 billion, a decrease of $l.5 billion from spending totals
projected for the current fiscal year. After adjustments and transfers for
comparability between the 1995-96 and 1996-97 State Financial Plans, the
executive budget proposes an absolute year-to-year decline in General Fund
spending of 5.8 percent. Spending from all funding sources (including federal
aid) is proposed to increase by 0.4 percent from the prior fiscal year after
adjustments and transfers for comparability.
The executive budget proposes $3.9 billion in actions to balance the
1996-97 Financial Plan. Before reflecting any actions proposed by the Governor
to restrain spending, General Fund disbursements for 1996-97 were projected at
$35 billion, an increase of $2.3 billion or 7 percent from 1995-96. This
increase would have resulted from growth in Medicaid, inflationary increases in
school aid, higher fixed costs such as pensions and debt service, collective
bargaining agreements, inflation, and the loss of non-recurring resources that
offset spending in 1995-96. Receipts would have been expected to fall by
$l.6 billion. This reduction would have been attributable to modest growth in
the State's economy and underlying tax base, the loss of non-recurring revenues
available in 1995-96 and implementation of previously enacted tax reduction
programs.
The executive budget proposes to close this gap primarily through a series
of spending reductions and cost containment measures. The executive budget
projects (i) over $1.8 billion in savings from cost containment and other
actions in social welfare programs, including Medicaid, welfare and various
health and mental health programs; (ii) $1.3 billion in savings from a reduced
State General Fund share of Medicaid made available from anticipated changes in
the federal Medicaid program, including an increase in the federal share of
Medicaid; (iii) over $450 million in savings from reforms and cost avoidance in
educational services (including school aid and higher education), while
providing fiscal
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relief from certain State mandates that increase local spending; and (iv)
$350 million in savings from efficiencies and reductions in other State
programs. The assumption regarding an increased share of federal Medicaid
funding has received bipartisan congressional support and would benefit the
State and 31 other states.
The 1996-97 Financial Plan projects receipts of $31.32 billion and spending
of $31.22 billion, allowing for a deposit of $85 million to the Contingency
Reserve Fund and a required repayment of $15 million to the Tax Stabilization
Reserve Fund. Detailed explanations of the 1996-97 Financial Plan follow a
discussion of the economic outlook.
The Governor has submitted several amendments to the executive budget.
These amendments have a nominal impact on the State's Financial Plan for 1996-97
and the subsequent years. The net impact of the amendments leaves unchanged the
total estimated amount of General Fund spending in 1996-97, which continues to
be projected at $31.22 billion. All funds spending in 1996-97 is increased by
$68 million, primarily reflecting adjustments to projections of federal funds,
and now totals $63.87 billion.
The budget amendments advanced by the Governor involving largely technical
revisions, with General Fund spending increases fully offset by spending
decreases. Reductions in estimated 1996-97 disbursements are recommended
primarily for welfare (associated with updated projections showing a declining
caseload) and debt service (reflecting lower interest rates and recent bond
sales). Disbursement increases are projected for snow and ice control, the AIDS
Institute, Health Department utilization review programs and other items.
Estimated disbursements for other funds are increased to accommodate updated
projections of federal funding in certain categorical grant programs and reduced
for welfare as noted for the General Fund.
GOVERNMENT FUNDS
The four governmental fund types that comprise the State Financial Plan are
the General Fund, the Special Revenue Funds, the Capital Projects Funds, and the
Debt Service Funds.
GENERAL FUND RECEIPTS
The 1996-97 Financial Plan projects General Fund receipts (including
transfers from other funds) of $31.32 billion, a decrease of $1.40 billion from
the 1995-96 projected level. Measured against 1995-96 levels that have been
adjusted for purposes of comparability, the decline is $1.83 billion or
5.5 percent. These 1995-96 comparability adjustments include adding back
personal income tax collections that were not recognized in 1995-96 as a result
of Local Government Assistance Corporation ("LGAC")-related transactions in that
year, and the addition of special revenue funds moved in the executive budget to
the General Fund. The estimate of taxes for 1996-97 reflects overall growth in
the yield of the tax structures (when adjusted for tax law and administrative
changes) of slightly less than 3.5 percent, reflecting a slower growing economy
and continued moderate inflation. The effects of this growth are offset by the
impact of previously enacted tax reductions. The value of these tax reductions
is currently estimated to be approximately $500 million in 1994-95, nearly
$1.5 billion in 1995-96 and over $3.7 billion in 1996-97.
Personal income tax collections for 1996-97 are now expected to be
$16.05 billion, a decline of nearly $827 million from the projected 1995-96
level. These estimates reflect growth in "constant law" liability of about
4.5 percent in 1996, down from an estimated 6.5 percent growth in 1995. This
increase is more than offset by personal income tax reductions already in law,
which are estimated to produce taxpayer savings in 1996-97 of almost
$2.5 billion, or $1.8 billion more than in the current year.
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User tax and fee receipts are projected at $6.7 billion in 1996-97, up
$48 million from 1995-96 projected levels. Total collections in this category
are dominated by the State sales and use tax, which accounts for 75 percent of
total receipts in the category. The moderate economic expansion experienced
this year and anticipated for next year produces estimated growth in the yield
of the sales and use tax of 3.2 percent in 1995-96 and 3.3 percent in 1996-97.
Total business taxes are now projected at $4.55 billion in 1996-97. While
"constant-law" liability growth is anticipated to continue in 1996-97, the
effect of additional tax reductions taking effect in 1996 will lead to a
year-to-year decline between 1996-96 and 1996-97 of $441 million. These
business tax reductions, which are estimated to depress receipts by over
$600 million in the current year, will grow to nearly $l.0 billion in 1996-97.
Other tax receipts are now projected at $1.01 billion, down $51 million
from the 1995-96 projected level. The decline in receipts in this category
reflects the effects of tax reductions enacted in the last two years as well as
the earmarking of a portion of the real estate transfer tax to the Environmental
Protection Fund. Tax cuts in this category, largely in the real property gains
tax and the estate tax, are estimated at $32 million in 1994-95, $67 million in
1995-96 and $115 million in 1996-97.
Miscellaneous receipts, which include license revenues, fee and fine
income, investment income and abandoned property proceeds, as well as the
proceeds of the largest share of the State's medical provider assessment and
various one-time transactions, are now estimated to total $1.41 billion in
1996-97. This represents a decline of $119 million from 1995-96 projected
levels. Transfers from other funds consist primarily of sales tax revenues in
excess of debt service requirements used to support debt service payments to
LGAC. Projected amounts in this category for 1996-97 total $1.61 billion, a
decline of $8 million from 1995-96 levels.
DISBURSEMENTS
The 1996-97 Financial Plan projects General Fund disbursements of
$31.22 billion. Projected spending decreases $1.48 billion, or 4.5 percent,
from the estimated current year. After adjustments to 1995-96 levels for
purposes of comparability, the decline is $l.91 billion or 5.8 percent. These
comparability adjustments are composed of two major actions. The first
eliminates the impact of LGAC financings, which depressed General Fund spending
in 1995-96 by $271 million. The second adjustment adds $159 million in
projected 1995-96 spending currently budgeted in Special Revenue Funds, but
recommended as part of the General Fund in the 1996-97 budget.
Support for local governments is projected to decrease $1.7 billion,
primarily reflecting decreased support for social programs. General Fund
support for Medicaid is projected to be $1.65 billion lower than 1995-96, as a
result of both new cost containment proposals and the anticipated use of
$1.3 billion in federal Medicaid revenues that would become available assuming
enactment of proposed federal changes in this program. This proposed offset to
the State share of Medicaid would require the implementation of a federal block
grant for Medicaid and an increase in the federal share of Medicaid from 50
percent to 60 percent. Welfare costs also decline ($164 million), reflecting
projected caseload declines, time limits on benefits, reductions in benefits,
and continuation of workfare and anti-fraud initiatives begun in 1995-96.
General Fund support for education programs would increase by $188 million.
However, this increase results from changes in the school aid payment schedule,
and the payment in 1995-96 of a portion of school aid from LGAC bond proceeds.
School aid is expected to increase $26 million on a school year basis. Support
for both State University (SUNY) and City University (CUNY) would
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decline, and the State's tuition assistance program would be reduced to achieve
savings.
Support for State agency operations would decline to $6.0 billion in
1996-97 including transfers to support SUNY operations. Annual decreases for
agencies range widely from as low as 0.3 percent to as high as 25 percent. This
decline reflects the reductions to the State's workforce. The executive budget
recommends reductions of approximately 7,400 positions, undertaken primarily
through attrition and other actions. Assuming these reductions are implemented,
the State's workforce will have declined by more than 20,000 positions between
January 1995 and the end of the 1996-97 fiscal year.
General State charges are projected to total $2.32 billion in 1996-97, an
increase of $252 million from 1995-96 projected levels. Pension costs are
expected to increase by $177 million in 1996-97, primarily as a result of the
return of the New York State and Local Retirement System from the projected unit
credit actuarial method to the aggregate cost actuarial method. Health
insurance costs are projected to increase 6 percent for calendar years 1996 and
1997. Workers' compensation costs are projected to grow by 4.5 percent.
General Fund debt service includes short-term obligations of the State's
commercial paper program and debt service on its long-term bonds, which are
reflected as transfers to the General Debt Service Fund. Projected short-term
debt service costs are expected to be $12 million for 1996-97. Transfers in
support of debt service are projected to grow by 5.5 percent to $1.62 billion in
1996-97, as the State continues to use bonds to support its capital projects.
However, the rate of increase in debt service has slowed considerably from the
pace of the previous decade. In 1996-97, bonds are expected to support
44 percent of the State's capital project disbursements, compared to 48 percent
in 1995-96. The $172 million transfer to the Capital Projects Fund in 1996-97
has been reduced by $154 million from projected levels for 1995-96, reflecting
project eliminations and the deposit of funds released as a result of a
refunding of certain Housing Finance Agency bonds supported by State
appropriations. General Fund support for the operations of SUNY is proposed for
transfer into a single unified fund for all SUNY operations.
NON-RECURRING RESOURCES
The Division of the Budget estimates that the 1996-97 Financial Plan
includes approximately $123 million in non-recurring resources, comprising
0.4 percent of the General Fund budget--a decrease of almost 86 percent from
last year's level. These include $47 million in various Medicaid actions,
$40 million from a refunding of Housing Finance Agency bonds, $19 million in
recoupment of payments to providers in health and mental health, and $17 million
in revenue transfers. These non-recurring savings are almost entirely offset by
non-recurring costs within the 1996-97 budget. In addition, the recommendations
included in the executive budget are expected to provide fully annualized
savings in 1997-98 which more than offset the non-recurring resources used in
1996-97.
GENERAL FUND CLOSING FUND BALANCE
The 1996-97 closing fund balance in the General Fund is projected to be
$272 million. The required deposit to the Tax Stabilization Reserve Fund adds
$15 million to the 1995-96 balance of $172 million in that fund, bringing the
total to $187 million at the close of 1996-97. The retraining General Fund
balance reflects the deposit of $85 million to the Contingency Reserve Fund, to
provide resources to finance potential costs associated with litigation against
the State. This deposit is expected to be made pursuant to legislation
submitted with the executive budget which will require the State share of
certain non-recurring federal recoveries to be deposited to the Contingency
Reserve Fund.
SPECIAL REVENUE FUNDS
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For 1996-97, the Financial Plan projects disbursements of $28.93 billion
from Special Revenue Funds. This includes $7.65 billion from Special Revenue
Funds containing State revenues, and $21.28 billion from funds containing
federal grants, primarily for social welfare programs.
The 1996-97 executive budget recommends that all of the SUNY's revenues be
consolidated in a single fund, permitting SUNY more flexibility and control in
the use of its revenues. As a result of this proposal, General Fund support
would be transferred to this fund, rather than spent directly from the General
Fund. SUNY's spending from this fund is projected to total $2.55 billion in
1996-97. The Mass Transportation Operating Assistance Fund and the Dedicated
Mass Transportation Trust Fund, which receive taxes earmarked for mass
transportation programs throughout the State, are projected to have total
disbursements of $1.23 billion in 1996-97. Disbursements also include
$1.63 billion in lottery proceeds which, after payment of administrative
expenses, permit the distribution of $1.43 billion for education purposes. One
hundred million dollars of lottery proceeds will be reserved in a separate
account for a local school tax reduction program to be agreed upon by the
Governor and the legislature for disbursement in State fiscal year 1997-98.
Disbursements of $650 million in 1996-97 from the Disproportionate Share
Medicaid Assistance Fund constitutes most of the remaining estimated State
Special Revenue Funds disbursements.
Federal special revenue fund projections for 1996-97 were developed in the
midst of considerable uncertainty as to the ultimate composition of the federal
budget, including uncertainties regarding major federal entitlement reforms.
Disbursements are estimated at $21.27 billion in 1996-97, an increase of
$2.02 billion, or 10.5 percent from 1995-96. The projections included in the
1996-97 State Financial Plan assume that the federal Medicaid program will be
reformed generally along the lines of the congressional MediGrant program. This
would include an increase from 50 percent to 60 percent in the federal share of
New York's Medicaid expenses. A repeal of the federal Boren amendment regarding
provider rates is also anticipated. As a result of these changes, the executive
budget projects the receipt of $13.1 billion in total federal Medicaid
reimbursements in 1996-97, an increase of approximately $915 million from the
1995-96 level.
The second largest projected increase in federal reimbursement is for the
State's welfare program. The State is projected to receive $2.5 billion, up
$421 million from 1995-96 levels, primarily because of increased funding
anticipated from the proposed federal welfare block grant. All other federal
spending is projected at $5.7 billion for 1996-97, an increase of $626 million.
CAPITAL PROJECTS FUNDS
Disbursements from the Capital Projects funds in 1996-97 are estimated at
$3.76 billion. This estimate is $332 million less than the 1995-96 projections.
The spending reductions are the result of program restructuring, achieved in
1995-96 and continued in the 1996-97 Financial Plan. The spending plan
includes:
$2.5 billion in disbursements for the second year of the five-year
$12.6 billion state and local highway and bridge program;
Environmental Protection Fund spending of $106.5 million;
Correctional services spending of $153 million; and
SUNY and CUNY capital spending of $196 million and $87 million,
respectively.
The share of capital projects to be financed by "pay-as-you-go" resources
is projected to hold steady in 1996-97 at approximately 27 percent.
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State-supported bond issuances finance 44 percent of capital projects, with
federal grants financing the remaining 29 percent.
DEBT SERVICE FUNDS
Disbursements from Debt Service Funds are estimated at $2.64 billion in
1996-97, an increase of $206 million or 9 percent from 1995-96. Of this
increase, $85 million is attributable to transportation bonding for the state
and local highway and bridge programs which are financed by the Dedicated
Highway and Bridge Trust Fund, $35 million is for corrections including new debt
service on prisons recently purchased from New York City, and $27 million is for
the mental hygiene programs financed through the Mental Health Services Fund.
Debt service for LGAC bonds increases only slightly after years of significant
increases, as the new-money bond issuance portion of the LGAC program was
completed in state fiscal year 1995-96. Increased debt service costs primarily
reflect prior capital commitments financed by bonds issued by the state and its
public authorities, the reduced use of capitalized interest, and the use of
shorter term bonds, such as the 10 year average maturity for the Dedicated
Highway and Bridge Trust Fund bonds.
CASH FLOW
In State fiscal year 1996-97, the General Fund cash flow will not depend on
either short-term spring borrowing or the issuance of LGAC bonds. The new-money
bond issuance portion of the LGAC program was completed in 1995-96, and
provisions prohibiting the state from returning to a reliance upon cash flow
manipulation to balance its budget will remain in bond covenants until the LGAC
bonds are retired.
The 1996-97 cash flow projects substantial closing balances in each quarter
of the fiscal year, with excesses in receipts over disbursements for the first
three quarters until the last quarter of the fiscal year when local assistance
payments (primarily for school aid) drive a deficiency. The closing fund
balance is projected at $272 million. The cash flow projections assume
continuation of legislation enacted in 1995-96 that permits the state to use
balances in the Lottery Fund for cash flow purposes. These temporary transfers
are returned during the second quarter of the fiscal year so that all lottery
monies and advances of additional aid can be paid to school districts in
September.
OUTYEAR PROJECTIONS OF RECEIPTS AND DISBURSEMENTS
The 1996-97 executive budget includes actions that would have an impact on
receipts and disbursements in future fiscal years. The Governor has proposed
closing the 1996-97 budget gap primarily through expenditure reductions and
without increases in taxes or deferrals of scheduled tax reductions. After
accounting for proposed changes to the executive budget submitted during the
30-day amendment period, the net impact of these actions is expected to produce
a potential imbalance in the 1997-98 fiscal year of $l.44 billion and in the
1998-99 fiscal year of $2.46 billion, assuming implementation of the 1996-97
executive budget recommendations. For 1997-98, receipts are estimated at
$30.62 billion and disbursements at $32.05 billion. For 1998-99, receipts are
estimated at $31.85 billion and disbursements at $34.32 billion.
The outyear receipts estimates assume implementation of current law tax
reductions and the impact of the recommendations affecting receipts proposed in
the executive budget, including new tax relief. Tax reductions proposed by the
Governor in his annual message to the legislature of January 3, 1996 are not
included in these estimates. Already enacted tax reductions, which are estimated
to total more than $3.7 billion in 1996-97, rise to approximately $5.6 billion
in 1997-98 and approximately $6.0 billion in the following year. Tax reductions
recommended in the executive budget have a fully annualized cost of $75 million.
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The economic scenario assumes steady, moderate growth in the national economy
through the period. Underlying "constant law" growth in receipts approximates 4
percent in 1997-98 and 4.5 percent in 1998-99. No extraordinary one-time
receipts are anticipated at this time. In addition, the projections assume a
continuation of federal tax law in effect as of year end 1995.
Outyear projections of spending, absent the impact of recommendations in
the executive budget and future executive and legislative action, would grow by
3.0 and 3.5 percent in 1997-98 and 1998-99, respectively. Spending growth is
fueled mainly by Medicaid costs. The outyear value of the recommendations
contained in the executive budget grow steadily over the next two years,
moderating the outyear growth. Projected disbursements for 1997-98 grow by only
2.7 percent, with restrained growth in all categories of the State Financial
Plan. However, in 1998-99, the increased diversion of lottery proceeds to fund
school tax relief combines with an extra payroll and Medicaid cycle to drive
growth in disbursements of just over 7 percent.
Reduced bond issuances in 1996-97 will help hold down future debt service
growth. State-supported debt is projected to grow at 3.7 percent average annual
rate over the next five years. Outstanding debt as a percentage of personal
income is projected to decline to under 6 percent over this same period.
PRIOR FISCAL YEARS
New York State's financial operations have improved during recent fiscal
years. During the period 1989-90 through 1991-92, the State incurred General
Fund operating deficits that were closed with receipts from the issuance of tax
and revenue anticipation notes ("TRANs"). First, the national recession, and
then the lingering economic slowdown in the New York and regional economy,
resulted in repeated shortfalls in receipts and three budget deficits. Through
fiscal year 1995, the State recorded balanced budgets on a cash basis, with
substantial fund balances in each year as described below.
1994-95 FISCAL YEAR
New York State ended its 1994-95 fiscal year with the General Fund in
balance. The closing fund balance of $158 million reflects $157 million in the
Tax Stabilization Reserve Fund and $1 million in the Contingency Reserve Fund
("CRF"). The CRF was established in State Fiscal year 1993-94, funded partly
with surplus moneys, to assist the State in financing the 1994-95 fiscal year
costs of extraordinary litigation known or anticipated at that time; the opening
fund balance in State fiscal year 1994-95 was $265 million. The $241 million
change in the fund balance reflects the use of $264 million in the CRF as
planned, as well as the required deposit of $23 million to the Tax Stabilization
Reserve Fund. In addition, $278 million was on deposit in the tax refund reserve
account, $250 million of which was deposited at the end of the State's 1994-95
fiscal year to continue the process of restructuring the State's cash flow as
part of the LGAC program.
Compared to the State Financial Plan for 1994-95 as formulated on June 16,
1994, reported receipts fell short of original projections by $1.163 billion,
primarily in the categories of personal income and business taxes. Of this
amount, the personal income tax accounts for $800 million, reflecting weak
estimated tax collections and lower withholding due to reduced wage and salary
growth, more severe reductions in brokerage industry bonuses than projected
earlier, and deferral of capital gains realizations in anticipation of potential
federal tax changes. Business taxes fell short by $373 million, primarily
reflecting lower payments from banks as substantial overpayments of 1993
liability depressed net collections in the 1994-95 fiscal year. These shortfalls
were offset by better performance in the remaining taxes, particularly the user
taxes and fees, which exceeded projections by $210 million. Of this amount
$227 million was attributable to certain restatements for accounting treatment
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purposes pertaining to the CRF and LGAC; these restatements had no impact on
balance in the General Fund.
Disbursements were also reduced from original projections by $848 million.
After adjusting for the net impact of restatements relating to the CRF and LGAC
which raised disbursements by $38 million, the variance is $886 million. Well
over two-thirds of this variance is in the category of grants to local
governments, primarily reflecting the conservative nature of the original
estimates of projected costs for social services and other programs. Lower
education costs are attributable to the availability of $110 million in
additional lottery proceeds and the use of LGAC bond proceeds.
The spending reductions also reflect $188 million in actions initiated in
January 1995 by the Governor to reduce spending to avert a potential gap in the
1994-95 State Financial Plan. These actions included savings from a hiring
freeze, halting the development of certain services, and the suspension of
non-essential capital projects. These actions, together with $71 million in
other measures comprised the Governor's $259 million gap-closing plan, submitted
to the legislature in connection with the 1995-96 executive budget.
1993-94 FISCAL YEAR
The State ended its 1993-94 fiscal year with a balance of $1.140 billion in
the tax refund reserve account, $265 million in the CRF and $134 million in its
Tax Stabilization Reserve Fund. These fund balances were primarily the result of
an improving national economy, State employment growth, tax collections that
exceeded earlier projections and disbursements that were below expectations.
Deposits to the personal income tax refund reserve have the effect of reducing
reported personal income tax receipts in the fiscal year when made and
withdrawals from such reserve increase receipts in the fiscal year when made.
The balance in the tax refund reserve account was used to pay taxpayer refunds.
Of the $1.140 billion deposited in the tax refund reserve account,
$1.026 billion was available for budgetary planning purposes in the 1994-95
fiscal year. The remaining $114 million was redeposited in the tax refund
reserve account at the end of the State's 1994-95 fiscal year to continue the
process of restructuring the State's cash flow as part of the LGAC program. The
balance in the CRF was reserved to meet the cost of litigation facing the State
in its 1994-95 fiscal year.
Before the deposit of $1.140 billion in the tax refund reserve account,
General Fund receipts in 1993-94 exceeded those originally projected when the
State Financial Plan for that year was formulated on April 16, 1993 by
$1.002 billion. Greater-than-expected receipts in the personal income tax, the
bank tax, the corporation franchise tax and the estate tax accounted for most of
this variance, and more than offset weaker-than-projected collections from the
sales and use tax and miscellaneous receipts. Collections from individual taxes
were affected by various factors including changes in federal business laws,
sustained profitability of banks, strong performance of securities firms, and
higher-than-expected consumption of tobacco products following price cuts.
The higher receipts resulted, in part, because the New York economy
performed better than forecasted. Employment growth started in the first quarter
of the State's 1993-94 fiscal year, and, although this lagged behind the
national economic recovery, the growth in New York began earlier than
forecasted. The New York economy exhibited signs of strength in the service
sector, in construction, and in trade. Long Island and the Mid-Hudson Valley
continued to lag behind the rest of the State in economic growth. The State
Division of the Budget believes that approximately 100,000 jobs were added
during the 1993-94 fiscal year.
Disbursements and transfers from the General Fund were $303 million below
the level projected in April 1993, an amount that would have been $423 million
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had the State not accelerated the payment of Medicaid billings, which in the
April 1993 State Financial Plan were planned to be deferred into the 1994-95
fiscal year. Compared to the estimates included in the State Financial Plan
formulated in April 1993, lower disbursements resulted from lower spending for
Medicaid, capital projects, and debt service (due to refundings) and
$114 million used to restructure the State's cash flow as part of the LGAC
program. Disbursements were higher than expected for general support for public
schools, the State share of income maintenance, overtime for prison guards, and
highway snow and ice removal. The State also made the first of six required
payments to the State of Delaware related to the settlement of Delaware's
litigation against the State regarding the disposition of abandoned property
receipts.
During the 1993-94 fiscal year, the State also established and funded the
CRF as a way to assist the State in financing the cost of litigation affecting
the State. The CRF was initially funded with a transfer of $100 million
attributable to the positive margin recorded in the 1992-93 fiscal year. In
addition, the State augmented this initial deposit with $132 million in debt
service savings attributable to the refinancing of State and public authority
bonds during 1993-94. A year-end transfer of $36 million was also made to the
CRF, which, after a disbursement for authorized fund purposes, brought the CRF
balance at the end of 1993-94 to $265 million. This amount was $165 million
higher than the amount originally targeted for this reserve fund.
1992-93 FISCAL YEAR
The State ended its 1992-93 fiscal year with a balance of $671 million in
the tax refund reserve account and $67 million in the Tax Stabilization Reserve
Fund.
The State's 1992-93 fiscal year was characterized by performance that was
better than projected for the national and regional economies. National gross
domestic product, State personal income, and State employment and unemployment
performed better than originally projected in April 1992. This favorable
economic performance, particularly at year end, combined with a tax-induced
acceleration of income into 1992, was the primary cause of the General Fund
surplus. Personal income tax collections were more than $700 million higher than
originally projected (before reflecting the tax refund reserve account
transaction), primarily in the withholding and estimated payment components of
the tax.
There were large, but mainly offsetting, variances in other categories of
receipts. Significantly higher-than-projected business tax collections and the
receipt of unbudgeted payments from the Medical Malpractice Insurance
Association ("MMIA") and the New York Racing Association approximately offset
the loss of an anticipated $200 million federal reimbursement, the loss of
certain budgeted hospital differential revenue as a result of unfavorable court
decisions, and shortfalls in certain miscellaneous revenues.
Disbursements and transfers to other funds were $45 million above
projections in April 1992, although this includes a $150 million payment to
health insurers (financed with a receipt from the MMIA made pursuant to
legislation passed in January 1993). All other disbursements were $105 million
lower than projected. This reduction primarily reflected lower costs in
virtually all categories of spending, including Medicaid, local health programs,
agency operations, fringe benefits, capital projects and debt service as
partially offset by higher-than-anticipated costs for education programs.
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CERTAIN LITIGATION
The legal proceedings noted below involve State finances, State programs
and miscellaneous tort, real property and contract claims in which the State is
a defendant and the monetary damages sought are substantial. These proceedings
could affect adversely the financial condition of the State in the 1995-96
fiscal year or thereafter. The State will describe newly initiated proceedings.
Among the more significant of these cases are those that involve: (i) the
validity of agreements and treaties by which various Indian tribes transferred
to New York title to certain land in New York; (ii) certain aspects of New
York's Medicaid rates and regulations, including reimbursements to providers of
mandatory and optional Medicaid services, and the eligibility for and nature of
home care services; (iii) challenges to provisions of Section 2807-C of the
Public Health Law, which impose a 13% surcharge on inpatient hospital bills paid
by commercial insurers and employee welfare benefit plans and portions of
Chapter 55 of the laws of 1992, which require hospitals to impose and remit to
the State an 11% surcharge on hospital bills paid by commercial insurers and
which require health maintenance organizations to remit to the State a surcharge
of up to 9%; (iv) two cases challenge provisions of Section 2807-c of the Public
Health Law, which impose a 13 percent surcharge on inpatient hospital bills paid
by commercial insurers and employee welfare benefit plans, and portions of
Chapter 55 of the Laws of 1992 which require hospitals to impose and remit to
the State an 11 percent surcharge on hospital bills paid by commercial insurers
and which require health maintenance organizations to remit to the State a
surcharge of up to 9 percent--in The Travelers Insurance Company v. Cuomo, et
al., commenced June 2, 1992, and The Health Insurance Association of America, et
al. v. Chassin, a al., commenced July 20, 1992, both in the United States
District Court for the Southern District of New York and consolidated,
plaintiffs allege that the surcharges are preempted by federal law (by decision
dated April 26, 1995, the United States Supreme Court upheld the surcharges as
not preempted by federal law); (v) challenges to the practice of reimbursing
certain Office of Mental Health patient care expenses from the client's Social
Security benefits; and (vi) alleged responsibility of New York officials to
assist in remedying racial segregation in the City of Yonkers. In addition,
aspects of petroleum business taxes are the subject of administrative claims and
litigation.
THE CITY OF NEW YORK
The fiscal health of the State of New York is closely related to the fiscal
health of its localities, particularly the City, which has required and
continues to require significant financial assistance from New York. The City's
independently audited operating results for each of its 1981 through 1993 fiscal
years showed a General Fund surplus reported in accordance with GAAP. In
addition, the City's financial statements for the 1995 fiscal year received an
unqualified opinion from the City's independent auditors, the eleventh
consecutive year the City received such an opinion.
As required by the Office of the State Deputy Comptroller for the City of
New York (the "OSDC"), the 1997-1998 Financial Plan reflects a program of
proposed actions by the City to close the gaps between projected revenues and
expenditures of $1.4 billion, $2.2 billion and 2.9 billion for the 1998, 1999
and 2000 fiscal years, respectively. These actions, a substantial number of
which are not specified in detail, include additional agency spending
reductions, reduction in entitlements, government procurement initiatives,
revenue initiatives and the availability of the general reserve.
The OSDC and the State Financial Control Board continue their respective
budgetary oversight activities.
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
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established the Municipal Assistance Corporation for the City of New York (the
"MAC") to provide financing assistance to the City; the New York State Financial
Control Board (the "Control Board") to oversee the City's financial affairs; the
Office of the State Deputy Comptroller for the City of New York to assist the
Control Board in exercising its powers and responsibilities; and a "Control
Period" from 1975 to 1986 during which the City was subject to certain
statutorily-prescribed fiscal-monitoring arrangements. Although the Control
Board terminated the Control Period in 1986 when certain statutory conditions
were met, thus suspending certain Control Board powers, the Control Board, MAC
and OSDC continue to exercise various fiscal-monitoring functions over the City,
and upon the occurrence or "substantial likelihood and imminence" of the
occurrence of certain events, including, but not limited to a City operating
budget deficit of more than $100 million, the Control Board is required by law
to reimpose a Control Period. Currently, the City and its Covered Organizations
(I.E., those which receive or may receive monies from the City directly,
indirectly or contingently) operate under a four-year financial plan which the
City prepares annually and periodically updates.
The staffs of the OSDC and the Control Board issue periodic reports on the
City's financial plans, as modified, analyzing forecasts of revenues and
expenditures, cash flow, and debt service requirements, as well as compliance
with the financial plan, as modified, by the City and its Covered Organizations.
OSDC staff reports issued during the mid-1980's noted that the City's budgets
benefitted from a rapid rise in the City's economy, which boosted the City's
collection of property, business and income taxes. These resources were used to
increase the City's work force and the scope of discretionary and mandated City
services. Subsequent OSDC staff reports examined the 1987 stock market crash and
the 1989-92 recession, which affected the New York City region more severely
than the nation, and attributed an erosion of City revenues and increasing
strain on City expenditures to that recession. According to a recent OSDC staff
report, the City's economy is now slowly recovering, but the scope of that
recovery is uncertain and unlikely, in the foreseeable future, to match the
expansion of the mid-1980's. Also, staff reports of OSDC and the Control Board
have indicated that the City's recent balanced budgets have been accomplished,
in part, through the use of non-recurring resources, tax increases and
additional State assistance; that the City has not yet brought its long-term
expenditures in line with recurring revenues; and that the City is therefore
likely to continue to face future projected budget gaps requiring the City to
increase revenues and/or reduce expenditures. According to the most recent staff
reports of OSDC and the Control Board, during the four-year period covered by
the current financial plan, the City is relying on obtaining substantial
resources from initiatives needing approval and cooperation of its municipal
labor unions, Covered Organizations, and City Council, as well as the State and
federal governments, among others.
The City requires significant amounts of financing for seasonal and capital
purposes. The City's capital financing program projects long-term financing
requirements of approximately $16.1 billion for the City's fiscal years 1997
through 2000. The major capital requirements include expenditures for the
City's water supply and sewage disposal systems, roads, bridges, mass transit,
schools, hospitals and housing.
OTHER LOCALITIES
In addition to the City, certain localities, including the City of Yonkers,
could have financial problems leading to requests for additional State
assistance during the State's 1995-96 fiscal year and thereafter.
Municipalities and school districts have engaged in substantial short-term and
long-term borrowings.
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
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the State, the City or any of the public authorities were to suffer serious
financial difficulties jeopardizing their respective access to the public credit
markets, the marketability of notes and bonds issued by localities within the
State could be adversely affected. Localities also face anticipated and
potential problems resulting from certain pending litigation, judicial decisions
and long-range economic trends. Long-range potential problems of declining urban
population, increasing expenditures and other economic trends could adversely
affect localities and require increasing State assistance in the future.
AUTHORITIES
The fiscal stability of the State is related, in part, to the fiscal
stability of its public authorities. Public authorities are not subject to the
constitutional restrictions on the incurrence of debt which apply to the State
itself and may issue bonds and notes within the amounts, and as otherwise
restricted by, their legislative authorization. As of September 30, 1994, there
were 18 public authorities that had aggregate outstanding debt of $70.3 billion.
Some authorities also receive moneys from State appropriations to pay for the
operating costs of certain of their programs.
The Metropolitan Transit Authority (the "MTA"), which receives the bulk of
the appropriated moneys from the State, oversees the operation of the City's bus
and subway system by its affiliates, the New York City Transit Authority and
Manhattan and Bronx Surface Transit Operating Authority (collectively, the
"TA"). The MTA has depended and will continue to depend upon federal, state and
local government support to operate the transit system because fare revenues are
insufficient.
Over the past several years, the State has enacted several taxes (including
a surcharge on the profits of banks, insurance corporations and general business
corporations doing business in the 12-county region served by the MTA and a
special one-quarter of one percent regional sales and use tax) that provide
additional revenues for mass transit purposes, including assistance to the MTA.
In addition, a one-quarter of one percent regional mortgages recording tax paid
on certain mortgages creates an additional source of recurring revenues for the
MTA. Further, in 1993, the State dedicated a portion of the State petroleum
business tax to assist the MTA. For the 1995-96 State fiscal year, total State
assistance to the MTA is estimated at approximately $1.1 billion.
In 1993, State legislation authorized the funding of a five-year
$9.56 billion MTA capital plan for the five-year period, 1992 through 1996 (the
"1992-96 Capital Program"). The MTA has received approval of the 1992-96 Capital
Program based on this legislation from the 1992-96 Capital Program Review Board,
as State law requires. This is the third five-year plan since the legislature
authorized procedures for the adoption, approval and amendment of a five-year
plan in 1981 for a capital program designed to upgrade the performance of the
MTA's transportation systems and to supplement, replace and rehabilitate
facilities and equipment. The MTA, the Triborough Bridge and Tunnel Authority,
and the TA are collectively authorized to issue an aggregate of $3.1 billion of
bonds (net of certain statutory exclusions) to finance a portion of the 1992-96
Capital Program. The 1992-96 Capital Program is expected to be financed in
significant part through dedication of State petroleum business taxes referred
to above.
There can be no assurance that all the necessary governmental actions for
the Capital Program will be taken, that funding sources currently identified
will not be decreased or eliminated, or that the 1992-96 Capital Program, or
parts thereof, will not be delayed or reduced. Furthermore, the power of the MTA
to 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,
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which could, among other things, impair the MTA's ability to meet its operating
expenses without additional State assistance.
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APPENDIX C
INVESTING IN JAPAN AND ASIAN GROWTH MARKETS
JAPAN AND ITS SECURITIES MARKETS
The Japan Equity Portfolio will be subject to general economic and
political conditions in Japan. These include future political and economic
developments, the possible imposition of, or changes in, exchange controls or
other Japanese governmental laws or restrictions applicable to such investments,
diplomatic developments, political or social unrest and natural disasters.
Japan is largely dependent upon foreign economies for raw materials. For
instance, almost all of its oil is imported, the majority from the Middle East.
Oil prices therefore have a major impact on the domestic economy, as is
evidenced by the current account deficits triggered by the two oil crises of the
1970s. While Japan is working to reduce its dependence on foreign materials,
its lack of natural resources poses a significant obstacle to this effort.
GEOLOGICAL FACTORS. The islands of Japan lie in the western Pacific Ocean,
off the eastern coast of the continent of Asia. Japan has in the past
experienced earthquakes and tidal waves of varying degrees of severity, and the
risks of such phenomena, and damage resulting therefrom, continue to exist.
ASIAN GROWTH MARKETS
The Asia Growth Portfolio will be subject to certain risks and special
considerations, including those set forth below, which are not typically
associated with investing in securities of U.S. companies. In particular,
securities markets in Asian growth markets have been subject to substantial
price volatility, often without warning. This potential for sudden market
declines should be weighed and balanced against the potential for rapid growth
in Asian growth markets. Further, certain securities that the Portfolio may
purchase, and investment techniques in which the Portfolio may engage, involve
risks, including those set forth below.
INVESTMENT AND REPATRIATION RESTRICTIONS
Foreign investment in the securities markets of several Asian growth
markets is restricted or controlled to varying degrees. These restrictions may
limit investment in certain of the Asian growth markets and may increase
expenses of the Portfolio. For example, certain countries may require
governmental approval prior to investments by foreign persons in a particular
company or industry sector or limit investment by foreign persons to only a
specific class of securities of a company which may have less advantageous terms
(including price) than securities of the company available for purchase by
nationals. Certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. In addition,
the repatriation of both investment income and capital from several of the Asian
growth markets is subject to restrictions such as the need for certain
government consents. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of the operation of the Portfolio. For example, Taiwan imposes a
waiting period on the repatriation of investment capital for certain foreign
investors. Although these restrictions may in the future make it undesirable to
invest in the countries to which they apply, the Advisor does not believe that
any current repatriation restrictions would preclude the Portfolio from
effectively managing its assets.
If, because of restrictions on repatriation or conversion, the Portfolio
were unable to distribute substantially all of its net investment income and
long-term capital gains within applicable time periods, the Portfolio could be
subject to U.S. federal income and excise taxes which would not otherwise be
incurred and may cease to qualify for the favorable tax treatment afforded to
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regulated investment companies under the Code, in which case it would become
subject to U.S. federal income tax on all of its income and gains.
Generally, there are restrictions on foreign investment in certain Asian
growth markets, although these restrictions vary in form and content. In India,
Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand, the
Portfolio may be limited by government regulation or a company's charter to a
maximum percentage of equity ownership in any one company.
The Advisor has applied for approval from Indian governmental authorities
to invest in India on behalf of the Portfolio as a foreign institutional
investor (an "FII"). Under the guidelines that apply currently for FIIs, no FII
(or members of an affiliated group investing through one or more FIIs) may hold
more than 5% of the total issued capital of any Indian company. In addition,
all non-resident portfolio investments, including those of all FIIs and their
clients, may not exceed 24% of the issued share capital of any Indian company;
however, the 24% limit does not apply to investments by FIIs through authorized
offshore funds and offshore equity issues. Further, at least 70% of the total
investments made by an FII pursuant to its FII authorization must be in equity
and equity related instruments such as convertible debentures and tradeable
warrants. Under a recently adopted policy, FIIs may purchase new issues of
equity securities directly from an Indian company, subject to certain
conditions. The procedures for such direct subscription by FIIs of such equity
securities are unclear and it is likely that a further limit, in addition to the
24% limit referred to above, may be imposed. The guidelines that apply for FIIs
are relatively recent and thus experience as to their application has been
limited. At present, FII authorizations are granted for five years and may be
renewed with the approval of India governmental authorities.
Korea generally prohibits foreign investment in Won-denominated debt
securities and Sri Lanka prohibits foreign investment in government debt
securities. In the Philippines, the Portfolio may generally invest in "B"
shares of Philippine issuers engaged in partly nationalized business activities,
which shares are made available to foreigners, and the market prices, liquidity
and rights of which may vary from shares owned by nationals. Similarly, in the
People's Republic of China (the "PRC"), the Portfolio may only invest in "B"
shares of securities traded on The Shanghai Securities Exchange and The Shenzhen
Stock Exchange, currently the two officially recognized securities exchanges in
the PRC. "B" shares traded on The Shanghai Securities Exchange are settled in
U.S. dollars and those traded on The Shenzhen Stock Exchange are generally
settled in Hong Kong dollars.
In Hong Kong, Korea, the Philippines, Taiwan and Thailand, there are
restrictions on the percentage of permitted foreign investment in shares of
certain companies, mainly those in highly regulated industries, although in
Taiwan there are limitations on foreign ownership of shares of any listed
company. In addition, Korea also prohibits foreign investment in specified
telecommunications companies and the Philippines prohibits foreign investment in
mass media companies and companies providing certain professional services.
MARKET CHARACTERISTICS
DIFFERENCES BETWEEN THE U.S. AND ASIAN SECURITIES MARKETS. The securities
markets of Asian growth markets have substantially less volume than the New York
Stock Exchange, and equity and debt securities of most companies in Asian growth
markets are less liquid and more volatile than equity and debt securities of
U.S. companies of comparable size. Some of the stock exchanges in Asian growth
markets, such as those in the PRC, are in the earliest stages of their
development. Many companies traded on securities markets in Asian growth
markets
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are smaller, newer and less seasoned than companies whose securities are traded
on securities markets in the United States. Investments in smaller companies
involve greater risk than is customarily associated with investing in larger
companies. Smaller companies may have limited product lines, markets or
financial or managerial resources and may be more susceptible to losses and
risks of bankruptcy. Additionally, market making and arbitrage activities are
generally less extensive in such markets, which may contribute to increased
volatility and reduced liquidity of such markets. Accordingly, each of these
markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. To the extent that any Asian
growth market experiences rapid increases in its money supply and investment in
equity securities for speculative purposes, the equity securities traded in any
such country may trade at price-earnings multiples higher than those of
comparable companies trading on securities markets in the United States, which
may not be sustainable. Securities markets in Asian growth markets may also be
subject to substantial governmental control, which may cause sudden or prolonged
disruptions in market prices unrelated to supply and demand considerations.
This may also be true of currency markets.
Brokerage commissions and other transaction costs on securities exchanges
in Asian growth markets are generally higher than in the United States. In
addition, security settlements may in some instance be subject to delays and
related administrative uncertainties, including risk of loss associated with the
credit of local brokers.
GOVERNMENT SUPERVISION OF ASIAN SECURITIES MARKETS; LEGAL SYSTEMS. There
is less government supervision and regulation of foreign securities exchanges,
listed companies and brokers in Asian growth markets than exists in the United
States. Less information, therefore, may be available to the Fund than in
respect of investments in the United States. Further, in certain Asian growth
markets, less information may be available to the Fund than to local market
participants. Brokers in Asian growth markets may not be as well capitalized as
those in the United States, so that they are more susceptible to financial
failure in times of market, political, or economic stress. In addition,
existing laws and regulations are often inconsistently applied. As legal
systems in some of the Asian growth markets develop, foreign investors may be
adversely affected by new laws and regulations, changes to existing laws and
regulations and preemption of local laws and regulations by national laws. In
circumstances where adequate laws exist, it may not be possible to obtain swift
and equitable enforcement of the law. Currently a mixture of legal and
structural restrictions affect the securities markets of certain Asian growth
markets.
Korea, in an attempt to avoid market manipulation, requires institutional
investors to deposit in their broker's account a percentage of the amount to be
invested prior to execution of a purchase order. That deposit requirement will
expose the Fund to the broker's credit risk. These examples demonstrate that
legal and structural developments can be expected to affect the Portfolio,
potentially affecting liquidity of positions held by the Portfolio, in
unexpected and significant ways from time to time.
FINANCIAL INFORMATION AND STANDARDS. Issuers in Asian growth markets
generally are subject to accounting, auditing and financial standards and
requirements that differ, in some cases significantly, from those applicable to
U.S. issuers. In particular, the assets and profits appearing on the financial
statements of an Asian growth market issuer may not reflect its financial
position or results of operations in accordance with U.S. generally accepted
accounting principles. In addition, for an issuer that keeps accounting records
in local currency, inflation accounting rules may require, for both tax and
accounting purposes, that certain assets and liabilities be restated on the
issuer's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or
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profits. Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the real condition of
those issuers and securities markets. Moreover, substantially less information
may be publicly available about issuers in Asian growth markets than is
available about U.S. issuers.
SOCIAL, POLITICAL AND ECONOMIC FACTORS
Asian growth markets may be subject to a greater degree of social,
political and economic instability than is the case in the United States and
Western European countries. Such instability may result from, among other
things, the following: (i) authoritarian governments or military involvement in
political and economic decision-making, and changes in government through extra-
constitutional means; (ii) popular unrest associated with demand for improved
political, economic and social conditions; (iii) internal insurgencies, (iv) war
or hostile relations with neighboring countries; and (v) ethnic, religious and
racial disaffection. Such social, political and economic instability could
significantly disrupt the principal financial markets in which the Portfolio
invests and adversely affect the value of the Portfolio's assets. In addition,
there may be the possibility of asset expropriations or future confiscatory
levels of taxation affecting the Portfolio.
Few Asian growth markets have western-style or fully democratic
governments. Some governments in the region are authoritarian and influenced by
security forces. During the course of the last 25 years, governments in the
region have been installed or removed as a result of military coups, while
others have periodically demonstrated repressive police state characteristics.
Disparities of wealth, among other factors, have also led to social unrest in
some Asian growth markets, accompanied, in certain cases, by violence and labor
unrest. Ethnic, religious and racial disaffection, as evidenced in India,
Pakistan and Sri Lanka, have created social, economic and political problems.
Several Asian growth markets have or in the past have had hostile
relationships with neighboring nations or have experienced internal insurgency.
Thailand has experienced border conflicts with Laos and Cambodia, and India is
engaged in border disputes with several of its neighbors, including the PRC and
Pakistan. Tension between the Tamil and Sinhalese communities in Sri Lanka has
resulted in periodic outbreaks of violence. An uneasy truce exists between
North Korea and South Korea, and the recurrence of hostilities remains possible.
Reunification of North Korea and South Korea could have a detrimental effect on
the economy of South Korea. Also, the PRC continues to claim sovereignty over
Taiwan. The PRC is acknowledged to possess nuclear weapons capability; North
Korea is alleged to possess or be in the process of developing such a
capability.
The economies of most Asian growth markets are heavily dependent upon
international trade and are accordingly affected by protective barriers and the
economic conditions of their trading partners, principally, the United States,
Japan, the PRC and the European Community. The enactment by the United States
or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of the Asian growth markets. In addition, the
economies of some Asian growth markets, Indonesia and Malaysia, for example, are
vulnerable to weakness in world prices for their commodity exports, including
crude oil.
Governments in certain Asian growth markets participate to a significant
degree, through ownership interest or regulation, in their respective economies.
Action by these governments could have a significant adverse effect on market
prices of securities and payment of dividends.
The PRC has only recently permitted private economic activities and the PRC
government has exercised and continues to exercise substantial control over
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virtually every sector of the PRC economy through regulation and state
ownership. Continued economic growth and development in the PRC, as well as
opportunities for foreign investment, and prospects of private sector
enterprises, in the PRC, will depend in many respects on the implementation of
the PRC's current program of economic reform, which cannot be assured.
In Hong Kong, British proposals to extend limited democracy have caused a
political rift with the PRC, which is scheduled to assume sovereignty over the
colony in 1997. Although the PRC has committed by treaty to preserve the
economic and social freedoms enjoyed in Hong Kong for 50 years after regaining
control of Hong Kong, the continuation of the current form of the economic
system in Hong Kong after the reversion will depend on the actions of the
government of the PRC. In addition, such reversion has increased sensitivity in
Hong Kong to political developments and statements by public figures in the PRC.
Business confidence in Hong Kong, therefore, can be significantly affected by
such developments and statements, which in turn can affect markets and business
performance.
With respect to investments in Taiwan, it should be noted that Taiwan lacks
formal diplomatic relations with many nations, although it conducts trade and
financial relations with most major economic powers. Both the government of the
PRC and the government of the Republic of China in Taiwan claim sovereignty over
all of China. Although relations between Taiwan and the PRC are currently
peaceful, renewed frictions or hostility could interrupt operations of Taiwanese
companies in which the Portfolio invests and create uncertainty that could
adversely affect the value and marketability of its Taiwan investments.
With regard to India, agriculture occupies a more prominent position in the
Indian economy than in the United States, and the Indian economy therefore is
more susceptible to adverse changes in weather. The government of India has
exercised and continues to exercise significant influence over many aspects of
the economy, and the number of public sector enterprises in India is
substantial. Accordingly government actions in the future could have a
significant effect on the Indian economy which could affect private sector
companies, market conditions and prices and yields of securities held by the
Portfolio. Religious and ethnic unrest persists in India. The long standing
grievances between the Hindu and Muslim populations resulted in communal
violence during 1993 in the aftermath of the destruction of a mosque in Ayodhya
by radical elements of the Hindu population. The Indian government is also
confronted by separatist movements in several states and the long standing
border dispute with Pakistan over the State of Jammu and Kashmir, a majority of
whose population is Muslim, remains unsolved. In addition, Indian stock
exchanges have in the past been subject to repeated closure including for ten
days in December 1993 due to a broker's strike, and there can be no assurance
that this will not recur.
THINLY TRADED MARKETS
Compared to securities traded in the United States, all securities of Asian
growth market issuers may generally be considered to be thinly traded. Even
relatively widely held securities in such countries may not be able to absorb
trades of a size customarily transacted by institutional investors, without
price disruptions. Accordingly, the Portfolio's ability to reposition itself
will be more constrained than would be the case for a typical equity mutual
fund.
SETTLEMENT PROCEDURES AND DELAYS
Settlement procedures in Asian growth markets are less developed and
reliable than those in the United States and in other developed markets, and the
Portfolio may experience settlement delays or other material difficulties. This
problem is particularly severe in India where settlement is through physical
delivery and, where currently, a severe shortage of vault capacity exists among
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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.
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
The following financial statements are included in Part A:
Financial Highlights: The JPM Institutional Money Market Fund, The JPM
Institutional Tax Exempt Money Market Fund, The JPM Institutional Federal Money
Market Fund, The JPM Institutional Short Term Bond Fund, The JPM Institutional
Bond Fund, The JPM Institutional Tax Exempt Bond Fund, The JPM Institutional
Selected U.S. Equity Fund, The JPM Institutional U.S. 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 International 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, 1996
Statement of Operations for the fiscal year ended November 30, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements November 30, 1996
The Money Market Portfolio
Schedule of Investments at November 30, 1996
Statement of Assets and Liabilities at November 30, 1996
Statement of Operations for the fiscal year ended November 30, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements November 30, 1996
The JPM Institutional Tax Exempt Money Market Fund
Statement of Assets and Liabilities at August 31, 1996
Statement of Operations for the fiscal year ended August 31, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements August 31, 1996
The Tax Exempt Money Market Portfolio
Schedule of Investments at August 31, 1996
Statement of Assets and Liabilities at August 31, 1996
Statement of Operations for the fiscal year ended August 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements August 31, 1996
The JPM Institutional Federal Money Market Fund
Statement of Assets and Liabilities at October 31, 1996
Statement of Operations for the fiscal year ended October 31, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1996
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The Federal Money Market Portfolio
Schedule of Investments at October 31, 1996
Statement of Assets and Liabilities at October 31, 1996
Statement of Operations for the fiscal year ended October 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements October 31, 1996
The JPM Institutional Short Term Bond Fund
Statement of Assets and Liabilities at October 31, 1996
Statement of Operations for the fiscal year ended October 31, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1996
The Short Term Bond Portfolio
Schedule of Investments at October 31, 1996
Statement of Assets and Liabilities at October 31, 1996
Statement of Operations for the fiscal year ended October 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements October 31, 1996
The JPM Institutional Bond Fund
Statement of Assets and Liabilities at October 31, 1996
Statement of Operations for the fiscal year ended October 31, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1996
The U.S. Fixed Income Portfolio
Schedule of Investments at October 31, 1996
Statement of Assets and Liabilities at October 31, 1996
Statement of Operations for the fiscal year ended October 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements October 31, 1996
The JPM Institutional Tax Exempt Bond Fund
Statement of Assets and Liabilities at August 31, 1996
Statement of Operations for the fiscal year ended August 31, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements August 31, 1996
The Tax Exempt Bond Portfolio
Schedule of Investments at August 31, 1996
Statement of Assets and Liabilities at August 31, 1996
Statement of Operations for the fiscal year ended August 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements August 31, 1996
The JPM Institutional Selected U.S. Equity Fund
Statement of Assets and Liabilities at May 31, 1996
Statement of Operations for the Fiscal Year Ended May 31, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements May 31, 1996
Statement of Assets and Liabilities at November 30, 1996 (unaudited)
Statement of Operations for the six months ended November 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
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Financial Highlights (unaudited)
Notes to Financial Statements November 30, 1996 (unaudited)
The Selected U.S. Equity Portfolio
Schedule of Investments at May 31, 1996
Statement of Assets and Liabilities at May 31, 1996
Statement of Operations for the Fiscal Year Ended May 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements May 31, 1996
Schedule of Investments at November 30, 1996 (unaudited)
Statement of Assets and Liabilities at November 30, 1996 (unaudited)
Statement of Operations for the six months ended November 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements November 30, 1996 (unaudited)
The JPM Institutional U.S. Small Company Fund
Statement of Assets and Liabilities at May 31, 1996
Statement of Operations for the Fiscal Year Ended May 31, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements May 31, 1996
Statement of Assets and Liabilities at November 30, 1996 (unaudited)
Statement of Operations for the six months ended November 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements November 30, 1996 (unaudited)
The U.S. Small Company Portfolio
Schedule of Investments at May 31, 1996
Statement of Assets and Liabilities at May 31, 1996
Statement of Operations for the Fiscal Year Ended May 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements May 31, 1996
Schedule of Investments at November 30, 1996 (unaudited)
Statement of Assets and Liabilities at November 30, 1996 (unaudited)
Statement of Operations for the six months ended November 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements November 30, 1996 (unaudited)
The JPM Institutional International Equity Fund
Statement of Assets and Liabilities at October 31, 1996
Statement of Operations for the fiscal year ended October 31, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1996
The Non-U.S. Equity Portfolio
Schedule of Investments at October 31, 1996
Statement of Assets and Liabilities at October 31, 1996
Statement of Operations for the fiscal year ended October 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements October 31, 1996
The JPM Institutional Diversified Fund
Statement of Assets and Liabilities at June 30, 1996
Statement of Operations for the Fiscal Year Ended June 30, 1996
Statement of Changes in Net Assets
C-3
<PAGE>
Financial Highlights
Notes to Financial Statements June 30, 1996
The Diversified Portfolio
Schedule of Investments at June 30, 1996
Statement of Assets and Liabilities at June 30, 1996
Statement of Operations for the Fiscal Year Ended June 30, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements June 30, 1996
The JPM Institutional Emerging Markets Equity Fund
Statement of Assets and Liabilities at October 31, 1996
Statement of Operations for the fiscal year ended October 31, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1996
The Emerging Markets Equity Portfolio
Schedule of Investments at October 31, 1996
Statement of Assets and Liabilities at October 31, 1996
Statement of Operations for the fiscal year ended October 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements October 31, 1996
The JPM Institutional New York Total Return Bond Fund
Statement of Assets and Liabilities at March 31, 1996
Statement of Operations for the fiscal year ended March 31, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements March 31, 1996
Statement of Assets and Liabilities at September 30, 1996 (unaudited)
Statement of Operations for the six months ended September 30, 1996
(unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements September 30, 1996 (unaudited)
The New York Total Return Bond Portfolio
Schedule of Investments at March 31, 1996
Statement of Assets and Liabilities at March 31, 1996
Statement of Operations for the fiscal year ended March 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements March 31, 1996
Schedule of Investments at September 30, 1996 (unaudited)
Statement of Assets and Liabilities at September 30, 1996 (unaudited)
Statement of Operations for the six months ended September 30, 1996
(unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements September 30, 1996 (unaudited)
The JPM Institutional Japan Equity Fund
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the period February 29, 1996 (commencement of
operations) through June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements June 30, 1996 (unaudited)
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<PAGE>
The Japan Equity Portfolio
Schedule of Investments at December 31, 1995
Statement of Assets and Liabilities at December 31, 1995
Statement of Operations for the period March 28, 1995 (commencement of
operations) through December 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements December 31, 1995
Schedule of Investments at June 30, 1996 (unaudited)
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the six months ended June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements June 30, 1996 (unaudited)
The JPM Institutional European Equity Fund
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the period February 29, 1996 (commencement of
operations) through June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements June 30, 1996 (unaudited)
The European Equity Portfolio
Schedule of Investments at December 31, 1995
Statement of Assets and Liabilities at December 31, 1995
Statement of Operations for the period March 28, 1995 (commencement of
operations) through December 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements December 31, 1995
Schedule of Investments at June 30, 1996 (unaudited)
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the six months ended June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements June 30, 1996 (unaudited)
The JPM Institutional Asia Growth Fund
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the period February 29, 1996 (commencement of
operations) through June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements June 30, 1996 (unaudited)
The Asia Growth Portfolio
Schedule of Investments at December 31, 1995
Statement of Assets and Liabilities at December 31, 1995
Statement of Operations for the period April 4, 1995 (commencement of
operations) through December 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements December 31, 1995
Schedule of Investments at June 30, 1996 (unaudited)
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the six months ended June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements June 30, 1996 (unaudited)
C-5
<PAGE>
The JPM Institutional International Bond Fund
Statement of Assets and Liabilities at September 30, 1996
Statement of Operations for the period ended September 30, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements September 30, 1996
The Non-U.S. Fixed Income Portfolio
Schedule of Investments at September 30, 1996
Statement of Assets and Liabilities at September 30, 1996
Statement of Operations for the six period ended September 30, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements September 30, 1996
The JPM Institutional Global Strategic Income Fund
Statement of Assets and Liabilities at February 20, 1997
The Global Strategic Income Portfolio
Statement of Assets and Liabilities at February 20, 1997
(b) Exhibits
Exhibit Number
1. Declaration of Trust, as amended, was filed as Exhibit No. 1 to
Post-Effective Amendment No. 25 to the Registration Statement filed on
September 26, 1996 (Accession Number 0000912057-96-021281).
1(a). Amendment No. 5 to Declaration of Trust; Fifth Amended and Restated
Establishment and Designation of Series of Shares of Beneficial
Interest.*
1(b). Amendment No. 6 to Declaration of Trust; Sixth Amended and Restated
Establishment and Designation of Series of Shares of Beneficial
Interest. (filed herewith)
2. Restated By-Laws of Registrant.*
4. Form of Share Certificate.*
6. Distribution Agreement between Registrant and Funds Distributor, Inc.
("FDI").*
8. Custodian Contract between Registrant and State Street Bank and Trust
Company ("State Street").*
9(a). Co-Administration Agreement between Registrant and FDI.*
9(b). 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.*
9(d). Restated Administrative Services Agreement between Registrant and
Morgan Guaranty.*
9(e). Fund Services Agreement, as amended, between Registrant and Pierpont
Group, Inc.*
10. Opinion and consent of Sullivan & Cromwell.*
C-6
<PAGE>
11. Consents of independent accountants. (filed herewith)
13. Purchase agreements with respect to Registrant's initial shares.*
16. Schedule for computation of performance quotations.*
17. Financial Data Schedules.(filed herewith)
18. Powers of Attorney.*
- -------------------------
* Incorporated herein by reference to Post-Effective No. 29 to the
Registration Statement on Form N-1A filed on December 26, 1996 (Accession
Number 0001016964-96-000061).
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 January 31, 1997.
The JPM Institutional Money Market Fund: 256
The JPM Institutional Federal Money Market Fund: 57
The JPM Institutional Bond Fund: 181
The JPM Institutional Diversified Fund: 73
The JPM Institutional U.S. Small Company Fund: 512
The JPM Institutional International Equity Fund: 606
The JPM Institutional Emerging Markets Equity Fund: 702
The JPM Institutional International Bond Fund: 46
The JPM Institutional Short Term Bond Fund: 47
The JPM Institutional Selected U.S. Equity Fund: 152
The JPM Institutional Tax Exempt Money Market Fund: 113
The JPM Institutional Tax Exempt Bond Fund: 187
The JPM Institutional New York Total Return Bond Fund: 88
The JPM Institutional European Equity Fund: 30
The JPM Institutional Japan Equity Fund: 29
The JPM Institutional Asia Growth Fund: 39
The JPM Institutional Disciplined Equity Fund: 29
The JPM Institutional International Opportunities Fund: 0
The JPM Institutional Global Strategic Income Fund: 0
ITEM 27. INDEMNIFICATION.
Reference is made to Section 5.3 of Registrant's Declaration of Trust and
Section 5 of Registrant's Distribution Agreement.
Registrant, its Trustees and officers are insured against certain expenses in
connection with the defense of claims, demands, actions, suits, or proceedings,
and certain liabilities that might be imposed as a result of such actions,
suits or proceedings.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to directors, trustees,
officers and controlling persons of the Registrant and the principal underwriter
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the 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
C-7
<PAGE>
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, trustee, officer, or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suite or proceeding) is asserted against the Registrant by such
director, trustee, officer or controlling person or principal underwriter in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Not Applicable.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) FDI, located at 60 State Street, Suite 1300, Boston, Massachusetts 02109, is
the principal underwriter of the Registrant's shares.
FDI acts as principal underwriter of the following investment companies other
than the Registrant:
BJB Investment Funds
Burridge Funds
Foreign Fund, Inc.
Fremont Mutual Funds, Inc.
Harris Insight Funds Trust
H.T. Insight Funds, Inc. d/b/a
Harris Insight Funds
LKCM Fund
Monetta Fund, Inc.
Monetta Trust
The Munder Framlington Funds Trust
The Munder Funds, Inc.
The Munder Funds Trust
The PanAgora Institutional Funds
RCM Capital Funds, Inc.
RCM Equity Funds, Inc.
The Skyline Funds
St. Clair Money Market Fund
Waterhouse Investors Cash Management Funds, Inc.
The JPM Pierpont Funds
JPM Series Trust
JPM Series Trust II
FDI is registered with the Securities and Exchange Commission as a broker-dealer
and is a member of the National Association of Securities Dealers. FDI is an
indirect wholly-owned subsidiary of Boston Institutional Group, Inc., a holding
company all of whose outstanding shares are owned by key employees.
(b) The information required by this Item 29(b) with respect to each director,
officer and partner of FDI is incorporated herein by reference to Schedule A of
Form BD filed by FDI with the Securities and Exchange Commission pursuant to the
Securities Act of 1934 (SEC File No. 8-20518).
(c) Not applicable.
C-8
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
PIERPONT GROUP, INC.: 461 Fifth Avenue, New York, New York 10017 (records
relating to its assisting the Trustees in carrying out their duties in
supervising the Registrant's affairs).
MORGAN GUARANTY TRUST COMPANY OF NEW YORK: 60 Wall Street, New York, New York
10260-0060, 522 Fifth Avenue, New York, New York 10036 or 9 West 57th Street,
New York, New York 10019 (records relating to its functions as shareholder
servicing agent, and administrative services agent).
STATE STREET BANK AND TRUST COMPANY: 1776 Heritage Drive, North Quincy,
Massachusetts 02171 (records relating to its functions as fund accountant,
custodian, transfer agent and dividend disbursing agent).
FUNDS DISTRIBUTOR, INC.: 60 State Street, Boston, Massachusetts 02109
(records relating to its functions as distributor and co-administrator).
ITEM 31. MANAGEMENT SERVICES.
Not Applicable.
ITEM 32. UNDERTAKINGS.
(a) If the information called for by Item 5A of Form N-1A is contained in
the latest annual report to shareholders, the Registrant shall furnish
each person to whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders upon request and
without charge.
(b) The Registrant undertakes to comply with Section 16(c) of the 1940 Act
as though such provisions of the 1940 Act were applicable to the
Registrant, except that the request referred to in the third full
paragraph thereof may only be made by shareholders who hold in the
aggregate at least 10% of the outstanding shares of the Registrant,
regardless of the net asset value of shares held by such requesting
shareholders.
(c) The Registrant undertakes to file a Post-Effective Amendment on behalf
of The JPM Institutional Disciplined Equity Fund, The JPM Institutional
International Opportunities Fund, The JPM Institutional Global Strategic
Income Fund, The JPM Institutional Latin American Equity Fund, JPM
Institutional Emerging Markets Debt Fund and The JPM Institutional Small
Company Growth Fund using financial statements which need not be
certified, within four to six months from the commencement of public
investment operations of such funds.
C-9
<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 26th
day of February, 1997.
THE JPM INSTITUTIONAL FUNDS
By /s/ Richard W. Ingram
-----------------------
Richard W. Ingram
President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities
indicated on February 26, 1997.
/s/ Richard W. Ingram
- ------------------------------
Richard W. Ingram
President and Treasurer (Principal Financial and Accounting Officer)
Matthew Healey*
- -----------------------------
Matthew Healey
Trustee, Chairman and Chief Executive Officer (Principal Executive Officer)
Frederick S. Addy*
- ------------------------------
Frederick 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/ Richard W. Ingram
----------------------------
Richard W. Ingram
as attorney-in-fact pursuant to a power of attorney previously filed.
C-10
<PAGE>
SIGNATURES
Each Portfolio has duly caused this 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 the City of Boston, and Commonwealth of Massachusetts on the 26th
day of February, 1997.
THE FEDERAL MONEY MARKET PORTFOLIO, THE TAX EXEMPT MONEY MARKET PORTFOLIO, THE
TAX EXEMPT BOND PORTFOLIO, THE NEW YORK TOTAL RETURN BOND PORTFOLIO AND THE
GLOBAL STRATEGIC INCOME PORTFOLIO
By /s/ Richard W. Ingram
----------------------------
Richard W. Ingram
President and 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 26, 1997.
/s/ Richard W. Ingram
- ----------------------------
Richard W. Ingram
President and Treasurer (Principal Financial and Accounting Officer) of the
Portfolios
Matthew Healey*
- ----------------------------
Matthew Healey
Trustee, Chairman and Chief Executive Officer (Principal Executive Officer) of
the Portfolios
Frederick S. Addy*
- ----------------------------
Frederick S. Addy
Trustee of the Portfolios
William G. Burns*
- ----------------------------
William G. Burns
Trustee of the Portfolios
Arthur C. Eschenlauer*
- ----------------------------
Arthur C. Eschenlauer
Trustee of the Portfolios
Michael P. Mallardi*
- ----------------------------
Michael P. Mallardi
Trustee of the Portfolios
*By /s/ Richard W. Ingram
----------------------------
Richard W. Ingram
as attorney-in-fact pursuant to a power of attorney previously filed.
C-11
<PAGE>
SIGNATURES
Each Portfolio has duly caused this 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 the City of George Town, Grand Cayman, on the 26th day of
February, 1997.
THE MONEY MARKET PORTFOLIO, THE SHORT TERM BOND PORTFOLIO, THE U.S. FIXED
INCOME 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 NON-U.S. FIXED INCOME PORTFOLIO AND THE
SERIES PORTFOLIO
/s/ Lenore J. McCabe
By -------------------------
Lenore J. McCabe
Assistant Secretary and 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 26, 1997.
Richard W. Ingram*
- ----------------------------
Richard W. Ingram
President and Treasurer (Principal Financial and Accounting Officer) of the
Portfolios
Matthew Healey*
- ----------------------------
Matthew Healey
Trustee, Chairman and Chief Executive Officer (Principal Executive Officer) of
the Portfolios
Frederick S. Addy*
- ----------------------------
Frederick 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/ Lenore J. McCabe
*By ------------------------
Lenore J. McCabe
as attorney-in-fact pursuant to a power of attorney previously filed.
C-12
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ------------- ----------------------
EX-99.B1b Amendment No. 6 to Declaration of Trust; Sixth Amended and
Restated Establishment and Designation of Shares of
Beneficial Interest
EX-99.B11 Consents of independent accountants
EX-27.1
to EX-27.17 Financial Data Schedules
C-13
<PAGE>
JPM10D Appendix I
THE JPM INSTITUTIONAL FUNDS
AMENDMENT NO. 6 TO DECLARATION OF TRUST
Sixth Amended and Restated Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.001 per share)
Dated as of January 9, 1997
Pursuant to Section 6.9 of the Declaration of Trust, dated as of
November 4, 1992, as amended (the "Declaration of Trust"), of The
JPM Institutional Funds (the "Trust"), the Trustees of the Trust hereby change
the name of the The JPM Institutional Treasury Money Market Fund to "The JPM
Institutional Federal Money Market Fund" so that
1. The Funds shall be redesignated or designated as follows:
The JPM Institutional Federal Money Market Fund
The JPM Institutional Money Market Fund
The JPM Institutional Tax Exempt Money Market Fund
The JPM Institutional Short Term Bond Fund
The JPM Institutional Bond Fund
The JPM Institutional Tax Exempt Bond Fund
The JPM Institutional Selected U.S. Equity Fund
The JPM Institutional U.S. Stock Fund
The JPM Institutional U.S. Small Company Fund
The JPM Institutional International Equity Fund
The JPM Institutional Diversified Fund
The JPM Institutional International Bond Fund
The JPM Institutional Emerging Markets Equity Fund
The JPM Institutional New York Total Return Bond Fund
The JPM Institutional Asia Growth Fund
The JPM Institutional Japan Equity Fund
The JPM Institutional European Equity Fund
The JPM Institutional Disciplined Equity Fund
The JPM Institutional Global Strategic Income Fund
The JPM Institutional International Opportunities Fund
The JPM Institutional Small Company Growth Fund
The JPM Institutional Emerging Markets Debt Fund
The JPM Institutional Latin American Equity Fund
and shall have the following special and relative rights:
2. Each Fund shall be authorized to hold cash, invest in securities,
instruments and other properties and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Securities Act of 1933 to the extent pertaining to the offering of
Shares of such Fund. Each Share of a Fund shall be redeemable, shall be
entitled to one vote (or fraction thereof in respect of a fractional share) on
matters on which Shares of the Fund shall be entitled to vote, shall represent
a pro rata beneficial interest in the assets allocated or belonging to the
Fund, and shall be entitled to receive its pro rata share of the net assets of
the Fund upon liquidation of the Fund, all as provided in Section 6.9 of the
Declaration of Trust. The proceeds of sales of Shares of a Fund, together with
any income and gain thereon, less any diminution or expenses thereof, shall
irrevocably belong to that Fund, unless otherwise required by law.
<PAGE>
3. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to the Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated among
the Funds as set forth in Section 6.9 of the Declaration of Trust.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, the Trustees (including any successor Trustees) shall
have the right at any time and from time to time to reallocate assets and
expenses, to change the designation of any Fund, previously, now or hereafter
created, or otherwise to change the special and relative rights of any Fund or
any such other series of Shares.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 9th day of January, 1997. This instrument may be executed by the Trustees
on separate counterparts but shall be effective only when signed by a majority
of the Trustees.
/s/ F.S. Addy
Frederick S. Addy
/s/ William G. Burns
William G. Burns
/s/ A.C. Eschenlauer
Arthur C. Eschenlauer
/s/ Matthew Healey
Matthew Healey
/s/ Michael P. Mallardi
Michael P. Mallardi
JPM10D
<PAGE>
CONSENTS OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 31 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
February 20, 1997, relating to the statements of assets and liabilities of The
JPM Institutional Global Strategic Income Fund and The Global Strategic Income
Portfolio at February 20, 1997 which appear in the Statement of Additional
Information, and to the incorporation by reference of our reports into the
Prospectus which constitutes part of this Registration Statement.
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of Registration Statement
of our reports dated July 25, 1996, 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, 1996 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 26, 1996, relating to the financial
statements and financial highlights of The JPM Institutional Diversified Fund
and the financial statements and supplementary data of The Diversified Portfolio
appearing in the June 30, 1996 Annual Report, which is also incorporated by
reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated October 16, 1996, 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, 1996 Annual Reports,
which are also incorporated by reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our report dated November 22, 1996, 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, 1996 Annual Report, which is
also incorporated by reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated December 18, 1996, relating to the financial
statements and financial highlights of The JPM Institutional Treasury Money
Market Fund, The JPM Institutional Bond Fund and The JPM
<PAGE>
Consents of Independent Accountants
Page 2
Institutional Short
Term Bond Fund and the financial statements and supplementary data of The
Treasury Money Market Portfolio, The U.S. Fixed Income Portfolio and The Short
Term Bond Portfolio, appearing in the October 31, 1996 Annual Reports, which are
also incorporated by reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated December 26, 1996, relating to the financial
statements and financial highlights of The JPM Institutional Emerging Markets
Equity Fund, and The JPM Institutional International Equity Fund and the
financial statements and supplementary data of The Emerging Markets Equity
Portfolio and The Non-U.S. Equity Portfolio appearing in the October 31, 1996
Annual Reports, which are also incorporated by reference into the Registration
Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated January 16, 1997, 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, 1996 Annual Report, which is also
incorporated by reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated February 23, 1996, relating to the financial
statements and supplementary data of The Asia Growth Portfolio, The Japan Equity
Portfolio, and The European Equity Portfolio at December 31, 1995, which are
also incorporated by reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated May 23, 1996, relating to the financial
statements and financial highlights of The JPM 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, 1996 Annual Report,
which is also incorporated by reference into the Registration Statement.
We also consent to the reference to us under the heading "Independent
Accountants" in the Statement of Additional Information.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
February 24, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED NOVEMBER 30, 1996 FOR THE JPM INSTITUTIONAL MONEY MARKET
FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 013
<NAME> THE JPM INSTITUTIONAL MONEY MARKET FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 1221986
<INVESTMENTS-AT-VALUE> 1221986
<RECEIVABLES> 270
<ASSETS-OTHER> 23
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1222279
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1878
<TOTAL-LIABILITIES> 1878
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1220315
<SHARES-COMMON-STOCK> 1220306
<SHARES-COMMON-PRIOR> 999412
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 86
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1220401
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 59013
<EXPENSES-NET> 133
<NET-INVESTMENT-INCOME> 58880
<REALIZED-GAINS-CURRENT> 85
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 58965
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 58880
<DISTRIBUTIONS-OF-GAINS> 333
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6141399
<NUMBER-OF-SHARES-REDEEMED> 5965693
<SHARES-REINVESTED> 45198
<NET-CHANGE-IN-ASSETS> 220904
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 334
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1365
<AVERAGE-NET-ASSETS> 1114246
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> 0
<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 INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED AUGUST 31, 1996 FOR THE JPM INSTITUTIONAL TAX EXEMPT MONEY
MARKET FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 007
<NAME> THE JPM INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 163717
<INVESTMENTS-AT-VALUE> 163717
<RECEIVABLES> 32
<ASSETS-OTHER> 21
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 163770
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 201
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 163593
<SHARES-COMMON-STOCK> 163593
<SHARES-COMMON-PRIOR> 100165
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 163569
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 5366
<EXPENSES-NET> 163
<NET-INVESTMENT-INCOME> 5203
<REALIZED-GAINS-CURRENT> (1)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5202
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5203
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 390767
<NUMBER-OF-SHARES-REDEEMED> 331889
<SHARES-REINVESTED> 4550
<NET-CHANGE-IN-ASSETS> 63427
<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> 279
<AVERAGE-NET-ASSETS> 158584
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .033
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .033
<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 INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED OCTOBER 31, 1996 FOR THE JPM INSTITUTIONAL FEDERAL MONEY
MARKET FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 001
<NAME> THE JPM INSTITUTIONAL FEDERAL MARKET FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 109314
<INVESTMENTS-AT-VALUE> 109314
<RECEIVABLES> 50
<ASSETS-OTHER> 26
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 109390
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 340
<TOTAL-LIABILITIES> 340
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 108991
<SHARES-COMMON-STOCK> 108991
<SHARES-COMMON-PRIOR> 145072
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 60
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 109050
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6268
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 6268
<REALIZED-GAINS-CURRENT> 62
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6330
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6268
<DISTRIBUTIONS-OF-GAINS> 38
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (36057)
<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> 123096
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> 0
<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 INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED OCTOBER 31, 1996 FOR THE JPM INSTITUTIONAL SHORT TERM BOND
FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 002
<NAME> THE JPM INSTITUTIONAL SHORT TERM BOND FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 17806
<RECEIVABLES> 27
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 18
<TOTAL-ASSETS> 17852
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 42
<TOTAL-LIABILITIES> 42
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17989
<SHARES-COMMON-STOCK> 1808
<SHARES-COMMON-PRIOR> 1924
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (11)
<ACCUMULATED-NET-GAINS> (296)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 128
<NET-ASSETS> 17810
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 691
<OTHER-INCOME> (42)
<EXPENSES-NET> 86
<NET-INVESTMENT-INCOME> 648
<REALIZED-GAINS-CURRENT> 149
<APPREC-INCREASE-CURRENT> (14)
<NET-CHANGE-FROM-OPS> 783
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 648
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5146
<NUMBER-OF-SHARES-REDEEMED> 5323
<SHARES-REINVESTED> 62
<NET-CHANGE-IN-ASSETS> (1106)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 11
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 11399
<PER-SHARE-NAV-BEGIN> 9.83
<PER-SHARE-NII> .55
<PER-SHARE-GAIN-APPREC> .02
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .55
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.85
<EXPENSE-RATIO> .37
<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 REPORT
ON FORM N-SAR DATED OCTOBER 31, 1996 FOR THE JPM INSTITUTIONAL BOND FUND AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 003
<NAME> THE JPM INSTITUTIONAL BOND FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 836656
<RECEIVABLES> 1647
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 21
<TOTAL-ASSETS> 838324
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2257
<TOTAL-LIABILITIES> 2257
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 828295
<SHARES-COMMON-STOCK> 84945
<SHARES-COMMON-PRIOR> 43964
<ACCUMULATED-NII-CURRENT> 13
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1202
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6556
<NET-ASSETS> 836066
<DIVIDEND-INCOME> 44281
<INTEREST-INCOME> 95
<OTHER-INCOME> (2460)
<EXPENSES-NET> 783
<NET-INVESTMENT-INCOME> 41134
<REALIZED-GAINS-CURRENT> 820
<APPREC-INCREASE-CURRENT> (6528)
<NET-CHANGE-FROM-OPS> 35425
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 41141
<DISTRIBUTIONS-OF-GAINS> 1214
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 48462
<NUMBER-OF-SHARES-REDEEMED> 9620
<SHARES-REINVESTED> 2139
<NET-CHANGE-IN-ASSETS> 397456
<ACCUMULATED-NII-PRIOR> 433
<ACCUMULATED-GAINS-PRIOR> 1262
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 783
<AVERAGE-NET-ASSETS> 654774
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> .61
<PER-SHARE-GAIN-APPREC> (.11)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .64
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.84
<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 REPORT
ON FORM N-SAR DATED AUGUST 31, 1996 FOR THE JPM INSTITUTIONAL TAX EXEMPT BOND
FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 006
<NAME> THE JPM INSTITUTIONAL TAX EXEMPT BOND FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 120529
<INVESTMENTS-AT-VALUE> 121190
<RECEIVABLES> 378
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 121568
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 437
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 120478
<SHARES-COMMON-STOCK> 12215
<SHARES-COMMON-PRIOR> 5982
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 661
<NET-ASSETS> 121131
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 4304
<EXPENSES-NET> 104
<NET-INVESTMENT-INCOME> 4200
<REALIZED-GAINS-CURRENT> 71
<APPREC-INCREASE-CURRENT> (1051)
<NET-CHANGE-FROM-OPS> 3220
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4201
<DISTRIBUTIONS-OF-GAINS> 117
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8525
<NUMBER-OF-SHARES-REDEEMED> (2394)
<SHARES-REINVESTED> 102
<NET-CHANGE-IN-ASSETS> 6233
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 41
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 193
<AVERAGE-NET-ASSETS> 87142
<PER-SHARE-NAV-BEGIN> 10.01
<PER-SHARE-NII> .48
<PER-SHARE-GAIN-APPREC> (0.07)
<PER-SHARE-DIVIDEND> 0.48
<PER-SHARE-DISTRIBUTIONS> 0.02
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.92
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED NOVEMBER 30, FOR THE JPM INSTITUTIONAL SELECTED U.S.
EQUITY FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 011
<NAME> THE JPM INSTITUTIONAL SELECTED U.S. EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-1-1996
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 268535
<RECEIVABLES> 29
<ASSETS-OTHER> 30
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 268594
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 92
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 207780
<SHARES-COMMON-STOCK> 18462
<SHARES-COMMON-PRIOR> 15809
<ACCUMULATED-NII-CURRENT> 2788
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 10015
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 47919
<NET-ASSETS> 268502
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1799
<EXPENSES-NET> 143
<NET-INVESTMENT-INCOME> 1656
<REALIZED-GAINS-CURRENT> 11563
<APPREC-INCREASE-CURRENT> 15919
<NET-CHANGE-FROM-OPS> 29138
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1234)
<DISTRIBUTIONS-OF-GAINS> (15031)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2714
<NUMBER-OF-SHARES-REDEEMED> (1173)
<SHARES-REINVESTED> 1112
<NET-CHANGE-IN-ASSETS> 47134
<ACCUMULATED-NII-PRIOR> 2366
<ACCUMULATED-GAINS-PRIOR> 13483
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 229
<AVERAGE-NET-ASSETS> 236440
<PER-SHARE-NAV-BEGIN> 14.00
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> 1.41
<PER-SHARE-DIVIDEND> (.07)
<PER-SHARE-DISTRIBUTIONS> (.87)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.54
<EXPENSE-RATIO> .60
<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 REPORT
ON FORM N-SAR DATED NOVEMBER 30, 1996 FOR THE JPM INSTITUTIONAL U.S. SMALL
COMPANY FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 010
<NAME> THE JPM INSTITUTIONAL U.S. SMALL COMPANY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 333618
<RECEIVABLES> 40
<ASSETS-OTHER> 31
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 333689
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 121
<TOTAL-LIABILITIES> 121
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 283775
<SHARES-COMMON-STOCK> 24788
<SHARES-COMMON-PRIOR> 20897
<ACCUMULATED-NII-CURRENT> 1258
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7558
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 40977
<NET-ASSETS> 333568
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1424
<EXPENSES-NET> 164
<NET-INVESTMENT-INCOME> 1260
<REALIZED-GAINS-CURRENT> 8087
<APPREC-INCREASE-CURRENT> (1544)
<NET-CHANGE-FROM-OPS> 7803
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1193)
<DISTRIBUTIONS-OF-GAINS> (15180)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4941
<NUMBER-OF-SHARES-REDEEMED> (1464)
<SHARES-REINVESTED> 414
<NET-CHANGE-IN-ASSETS> 41637
<ACCUMULATED-NII-PRIOR> 1191
<ACCUMULATED-GAINS-PRIOR> 14651
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 313
<AVERAGE-NET-ASSETS> 298860
<PER-SHARE-NAV-BEGIN> 13.97
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.16
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> (0.66)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.46
<EXPENSE-RATIO> 0.80
<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 REPORT
ON FORM N-SAR DATED OCTOBER 31, 1996 FOR THE JPM INSTITUTIONAL INTERNATIONAL
EQUITY FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 004
<NAME> THE JPM INSTITUTIONAL INTERNATIONAL EQUITY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 726144
<RECEIVABLES> 956
<ASSETS-OTHER> 23
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 727123
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 259
<TOTAL-LIABILITIES> 259
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 669663
<SHARES-COMMON-STOCK> 63585
<SHARES-COMMON-PRIOR> 44765
<ACCUMULATED-NII-CURRENT> 15748
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12725
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 28728
<NET-ASSETS> 726864
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 8910
<EXPENSES-NET> 1039
<NET-INVESTMENT-INCOME> 7871
<REALIZED-GAINS-CURRENT> 22039
<APPREC-INCREASE-CURRENT> 35203
<NET-CHANGE-FROM-OPS> 65113
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11370
<DISTRIBUTIONS-OF-GAINS> 2642
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 28823
<NUMBER-OF-SHARES-REDEEMED> 10512
<SHARES-REINVESTED> 509
<NET-CHANGE-IN-ASSETS> 18820
<ACCUMULATED-NII-PRIOR> 10103
<ACCUMULATED-GAINS-PRIOR> 2490
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1075
<AVERAGE-NET-ASSETS> 635163
<PER-SHARE-NAV-BEGIN> 10.44
<PER-SHARE-NII> .12
<PER-SHARE-GAIN-APPREC> 1.17
<PER-SHARE-DIVIDEND> .24
<PER-SHARE-DISTRIBUTIONS> .06
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.43
<EXPENSE-RATIO> .95
<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 REPORT
ON FORM N-SAR DATED JUNE 30, 1996 FOR THE JPM INSTITUTIONAL DIVERSIFIED FUND
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 009
<NAME>THE JPM INSTITUTIONAL DIVERSIFIED FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 192773
<RECEIVABLES> 471
<ASSETS-OTHER> 21
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 193265
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46
<TOTAL-LIABILITIES> 46
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 16081
<SHARES-COMMON-PRIOR> 14642
<ACCUMULATED-NII-CURRENT> 2938
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7062
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18512
<NET-ASSETS> 193219
<DIVIDEND-INCOME> 2289
<INTEREST-INCOME> 4408
<OTHER-INCOME> 0
<EXPENSES-NET> 1091
<NET-INVESTMENT-INCOME> 5606
<REALIZED-GAINS-CURRENT> 13037
<APPREC-INCREASE-CURRENT> 7427
<NET-CHANGE-FROM-OPS> 26070
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5653
<DISTRIBUTIONS-OF-GAINS> 8399
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5961
<NUMBER-OF-SHARES-REDEEMED> 5746
<SHARES-REINVESTED> 1224
<NET-CHANGE-IN-ASSETS> 1439
<ACCUMULATED-NII-PRIOR> 2372
<ACCUMULATED-GAINS-PRIOR> 3060
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1650
<AVERAGE-NET-ASSETS> 167593
<PER-SHARE-NAV-BEGIN> 11.26
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 1.42
<PER-SHARE-DIVIDEND> .42
<PER-SHARE-DISTRIBUTIONS> .64
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.02
<EXPENSE-RATIO> .65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED OCTOBER 31, 1996 FOR THE JPM INSTITUTIONAL EMERGING
MARKETS EQUITY FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 005
<NAME> THE JPM INSTITUTIONAL EMERGING MARKETS EQUITY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 293598
<RECEIVABLES> 60
<ASSETS-OTHER> 53
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 293711
<PAYABLE-FOR-SECURITIES> 118
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 118
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 306686
<SHARES-COMMON-STOCK> 28600
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1502
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (12333)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2261)
<NET-ASSETS> 293594
<DIVIDEND-INCOME> 4907
<INTEREST-INCOME> 932
<OTHER-INCOME> 0
<EXPENSES-NET> 3482
<NET-INVESTMENT-INCOME> 2357
<REALIZED-GAINS-CURRENT> (4661)
<APPREC-INCREASE-CURRENT> 13693
<NET-CHANGE-FROM-OPS> 11389
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1794
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19044
<NUMBER-OF-SHARES-REDEEMED> 9661
<SHARES-REINVESTED> 55
<NET-CHANGE-IN-ASSETS> 9438
<ACCUMULATED-NII-PRIOR> 1136
<ACCUMULATED-GAINS-PRIOR> (8215)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 246616
<PER-SHARE-NAV-BEGIN> 9.71
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> .56
<PER-SHARE-DIVIDEND> .08
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.27
<EXPENSE-RATIO> 1.41
<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 REPORT
ON FORM N-SAR DATED SEPTEMBER 30, 1996 FOR THE JPM INSTITUTIONAL NEW YORK
TOTAL RETURN BOND FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 008
<NAME> THE JPM INSTITUTIONAL NEW YORK TOTAL RETURN BOND FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 77725
<INVESTMENTS-AT-VALUE> 78542
<RECEIVABLES> 18
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 78566
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 255
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 77404
<SHARES-COMMON-STOCK> 7573
<SHARES-COMMON-PRIOR> 4636
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 90
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 817
<NET-ASSETS> 78311
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1440
<EXPENSES-NET> 17
<NET-INVESTMENT-INCOME> 1423
<REALIZED-GAINS-CURRENT> (3)
<APPREC-INCREASE-CURRENT> 137
<NET-CHANGE-FROM-OPS> 1557
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1423
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3124
<NUMBER-OF-SHARES-REDEEMED> 225
<SHARES-REINVESTED> 38
<NET-CHANGE-IN-ASSETS> 2937
<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> 72
<AVERAGE-NET-ASSETS> 60589
<PER-SHARE-NAV-BEGIN> 10.34
<PER-SHARE-NII> .24
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .24
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.34
<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 REPORT
ON FORM N-SAR DATED SEPTEMBER 30, 1996 FOR THE JPM INSTITUTIONAL INTERNATIONAL
BOND FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 014
<NAME> THE JPM INSTITUTIONAL INTERNATIONAL BOND FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 13468
<INVESTMENTS-AT-VALUE> 13468
<RECEIVABLES> 22
<ASSETS-OTHER> 15
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13505
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31
<TOTAL-LIABILITIES> 195
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12203
<SHARES-COMMON-STOCK> 1178
<SHARES-COMMON-PRIOR> 381
<ACCUMULATED-NII-CURRENT> 748
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 61
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 298
<NET-ASSETS> 13310
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 376
<OTHER-INCOME> 0
<EXPENSES-NET> 8
<NET-INVESTMENT-INCOME> 368
<REALIZED-GAINS-CURRENT> 590
<APPREC-INCREASE-CURRENT> (156)
<NET-CHANGE-FROM-OPS> 802
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 179
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 12659
<NUMBER-OF-SHARES-REDEEMED> (4384)
<SHARES-REINVESTED> 179
<NET-CHANGE-IN-ASSETS> 9077
<ACCUMULATED-NII-PRIOR> 164
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 117
<AVERAGE-NET-ASSETS> 6967
<PER-SHARE-NAV-BEGIN> 11.12
<PER-SHARE-NII> .31
<PER-SHARE-GAIN-APPREC> .95
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.08
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.30
<EXPENSE-RATIO> .65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED JUNE 30, 1996 FOR THE JPM INSTITUTIONAL EUROPEAN EQUITY
FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 016
<NAME> THE JPM INSTITUTIONAL EUROPEAN EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 5481
<RECEIVABLES> 0
<ASSETS-OTHER> 31
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5512
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 36
<TOTAL-LIABILITIES> 36
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5285
<SHARES-COMMON-STOCK> 525
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 37
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 134
<NET-ASSETS> 5476
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 47
<EXPENSES-NET> 10
<NET-INVESTMENT-INCOME> 37
<REALIZED-GAINS-CURRENT> 20
<APPREC-INCREASE-CURRENT> 134
<NET-CHANGE-FROM-OPS> 191
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 557
<NUMBER-OF-SHARES-REDEEMED> 32
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 525
<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> 40
<AVERAGE-NET-ASSETS> 3115
<PER-SHARE-NAV-BEGIN> 10
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> .36
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.43
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED JUNE 30, 1996 FOR THE JPM INSTITUTIONAL JAPAN EQUITY FUND
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 017
<NAME> THE JPM INSTITUTIONAL JAPAN EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 4148
<RECEIVABLES> 0
<ASSETS-OTHER> 29
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4177
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 35
<TOTAL-LIABILITIES> 35
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4147
<SHARES-COMMON-STOCK> 392
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (3)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (4)
<NET-ASSETS> 4141
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 4
<EXPENSES-NET> 7
<NET-INVESTMENT-INCOME> (3)
<REALIZED-GAINS-CURRENT> 1
<APPREC-INCREASE-CURRENT> (4)
<NET-CHANGE-FROM-OPS> (6)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 408
<NUMBER-OF-SHARES-REDEEMED> 16
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 392
<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> 37
<AVERAGE-NET-ASSETS> 2080
<PER-SHARE-NAV-BEGIN> 10
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> .57
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.56
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED JUNE 30, 1996 FOR THE JPM INSTITUTIONAL ASIA GROWTH FUND
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 015
<NAME> THE JPM INSTITUTIONAL ASIA GROWTH FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 2396
<RECEIVABLES> 0
<ASSETS-OTHER> 29
<OTHER-ITEMS-ASSETS> 2425
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 00
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 32
<TOTAL-LIABILITIES> 32
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2380
<SHARES-COMMON-STOCK> 236
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 11
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (11)
<NET-ASSETS> 2393
<DIVIDEND-INCOME> 16
<INTEREST-INCOME> 1
<OTHER-INCOME> 0
<EXPENSES-NET> 6
<NET-INVESTMENT-INCOME> 11
<REALIZED-GAINS-CURRENT> 14
<APPREC-INCREASE-CURRENT> (11)
<NET-CHANGE-FROM-OPS> 14
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 236
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 236
<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> 35
<AVERAGE-NET-ASSETS> 1636
<PER-SHARE-NAV-BEGIN> 10
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> .08
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.12
<EXPENSE-RATIO> 1.25
<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
AUDITED STATEMENT OF ASSETS AND LIABILITIES DATED FEBRUARY 20, 1997 FOR THE
JPM INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 018
<NAME> THE JPM INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> FEB-20-1997
<PERIOD-END> FEB-20-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 136
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 136
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 36
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100
<SHARES-COMMON-STOCK> 10
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 100
<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> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
