As filed with the Securities and Exchange Commission on April 29, 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. 33
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 34
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 April 30, 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 expects to file Rule 24f-2 notices with respect to its
Global Strategic Income Fund (for its fiscal year ending October 31, 1997) on or
before December 30, 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 31, 1997) on or before July 30, 1997.
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 Series
Portfolio II have also executed this Registration Statement.
<PAGE>
THE JPM INSTITUTIONAL FUNDS
(ALL FUNDS EXCEPT DISCIPLINED EQUITY, INTERNATIONAL
OPPORTUNITIES, GLOBAL STRATEGIC INCOME, TREASURY MONEY MARKET
AND SERVICE MONEY MARKET 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.
<PAGE>
18. CAPITAL STOCK AND OTHER SECURITIES: Massachusetts Trust; Description of
Shares.
19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED: Net Asset
Value; Purchase of Shares; Redemption of Shares; Exchange of Shares;
Dividends and Distributions.
20. TAX STATUS: Taxes.
21. UNDERWRITERS: 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. 33 (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 Registrant's
Asia Growth, Japan Equity and European Equity Funds and Statement of Additional
Information with financial information for the fiscal year ended December 31,
1996. 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 European Equity Fund
60 State Street
Boston, Massachusetts 02109
For information call (800) 766-7722
The JPM Institutional European Equity Fund (the "Fund") seeks to provide a high
total return from a portfolio of equity securities of European companies. The
Fund is designed for investors who want an actively managed portfolio of Euro-
pean equity securities that seeks to outperform the Morgan Stanley Capital In-
ternational Europe Index which is comprised of more than 500 companies in four-
teen European countries.
The Fund is a diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The JPM Insti-
tutional Funds, an open-end management investment company organized as a Massa-
chusetts business trust (the "Trust").
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO
OF SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING
ALL OF ITS INVESTABLE ASSETS IN THE EUROPEAN EQUITY PORTFOLIO (THE
"PORTFOLIO"), A CORRESPONDING DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT
COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND INVESTS IN
THE PORTFOLIO THROUGH A TWO-TIER MASTER-FEEDER INVESTMENT FUND STRUCTURE. SEE
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE ON PAGE 3.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or the "Advisor").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and it should be retained
for future reference. Additional information about the Fund has been filed with
the Securities and Exchange Commission in a Statement of Additional Information
dated April 30, 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., 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 APRIL 30, 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......................................................... 14
Redemption of Shares....................................................... 15
Exchange of Shares......................................................... 15
Dividends and Distributions................................................ 16
Net Asset Value............................................................ 16
Organization............................................................... 16
Taxes...................................................................... 17
Additional Information..................................................... 18
Appendix................................................................... A-1
</TABLE>
<PAGE>
The JPM Institutional European Equity Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed for investors who want an actively managed portfolio of
European equity securities. The Fund seeks to achieve its investment objective
by investing all of its investable assets in The European Equity Portfolio, a
diversified open-end management investment company having the same investment
objective as the Fund. Since the investment characteristics and experience of
the Fund will correspond directly with those of the Portfolio, the discussion
in this Prospectus focuses on the investments and investment policies of the
Portfolio. The net asset value of shares in the Fund fluctuates with changes in
the value of the investments in the Portfolio.
The Portfolio may make various types of investments in seeking its objective.
Among the permissible investments and investment techniques for the Portfolio
are futures contracts, options and forward contracts on foreign currencies. The
potential risks of investing in these derivative instruments are discussed in
Additional Investment Information and Risk Factors and the Appendix. The
Portfolio may also purchase certain privately placed securities. The
Portfolio's investments in securities of foreign issuers, including issuers in
emerging markets, involve foreign investment risks and may be more volatile and
less liquid than domestic securities. For further information about these
investments, see Investment Objective and Policies below.
The Fund generally requires a minimum initial investment of $1 million. The
minimum subsequent investment is $25,000. See Purchase of Shares. If a
shareholder reduces his or her investment in the Fund to less than $1 million
for more than 30 days, the investment 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
operating expenses set forth below for the Fund and the Portfolio, as a
percentage of average net assets of the Fund. The Trustees of the Trust believe
that the aggregate per share expenses of the Fund and the Portfolio will be
approximately equal to and may be less than the expenses that the Fund would
incur if it retained the services of an investment adviser and invested its
assets directly in portfolio securities. Fund and Portfolio expenses are
discussed below under the headings Management of the Trust and the Portfolio
and Shareholder Servicing.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases*........................................... None
Sales Load Imposed on Reinvested Dividends................................. None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
- -------
* 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............................................................. 0.65%
Rule 12b-1 Fees........................................................... None
Other Expenses (after expense reimbursement).............................. 0.35%
----
Total Operating Expenses (after expense reimbursement).................... 1.00%
</TABLE>
- -------
* Fees and expenses are expressed as a percentage of average net assets of the
Fund for its most recent fiscal period and after expense reimbursement through
April 30, 1998. See Management of the Trust and the Portfolio. Without reim-
bursements, Other Expenses and Total Operating Expenses, after consideration
of certain state limitations, were 1.85% and 2.50%, respectively, for the most
recently completed fiscal period.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year..................................................................... $ 10
3 Years.................................................................... $ 32
5 Years.................................................................... $ 55
10 Years................................................................... $122
</TABLE>
The above expense table is designed to assist investors in understanding the
various direct and indirect costs and expenses that investors in the Fund bear.
The fees and expenses included in Other Expenses are the fees paid to Morgan
under the Administrative Services and the Shareholder Servicing Agreements, or-
ganization expenses, the fees paid to Pierpont Group, Inc. under the Fund Serv-
ices Agreements, the fees paid to Funds Distributor, Inc. 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 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 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
February 29, 1996
(commencement of
operations) to
December 31, 1996
-----------------
<S> <C>
Net Asset Value, Beginning of Period......................... $10.00
Income from Investment Operations:
Net Investment Income...................................... 0.12
Net Realized and Unrealized Gain on Investment and Foreign
Currency.................................................. 1.59
------
Total from Investment Operations......................... 1.71
------
Less Distributions to Shareholders from
Net Investment Income...................................... (0.10)
Net Realized Gain.......................................... (0.05)
------
Total Distributions to Shareholders...................... (0.15)
------
Net Asset Value, End of Period............................... $11.56
======
Total Return................................................. 17.10%+
======
Ratios and Supplemental Data:
Net Assets, End of Period (in Thousands)................... $6,532
Ratios to Average Net Assets:
Expenses.................................................. 1.00%(a)
Net Investment Income..................................... 1.68%(a)
Decrease Reflected in Expense Ratio due to Expense
Reimbursement............................................ 1.50%(b)
</TABLE>
- -------
+Not Annualized.
(a)Annualized.
(b)After consideration of certain state limitations.
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,
together with the policies they employ in their efforts to achieve this
objective. Additional information about the investment policies of the Fund
and the Portfolio appears in the Statement of Additional Information under
Investment Objectives and Policies. There can be no assurance that the
investment objective of the Fund or the Portfolio will be achieved.
The Fund's investment objective is to provide a high total return from a port-
folio of equity securities of European companies. Total return will consist of
realized and unrealized capital gains and losses plus income. The Fund at-
tempts to
4
<PAGE>
achieve its investment objective by investing all of its investable assets in
The European Equity Portfolio, a diversified open-end management investment
company having the same investment objective as the Fund.
The Fund is designed for investors who want an actively managed portfolio of
European equity securities that seeks to outperform the Morgan Stanley Capital
International Europe Index which is comprised of more than 500 companies in
fourteen European countries. THE FUND DOES NOT REPRESENT A COMPLETE INVESTMENT
PROGRAM NOR IS THE FUND SUITABLE FOR ALL INVESTORS.
The Portfolio seeks to achieve its investment objective through country alloca-
tion and stock valuation and selection. Based on fundamental research, quanti-
tative valuation techniques, and experienced judgment, Morgan uses a structured
decision-making process to allocate the Portfolio across European countries,
consisting of Austria, Belgium, Denmark, Germany, Finland, France, Ireland, It-
aly, the Netherlands, Norway, Spain, Sweden, Switzerland and the United King-
dom.
A European company is one that: (i) has its principal securities trading market
in a European country; or (ii) is organized under the laws of a European coun-
try; or (iii) derives 50% or more of its total revenue and/or profits from ei-
ther goods produced, sales made or services performed in European countries; or
(iv) has at least 50% of its assets located in European countries.
Using a dividend discount model and based on analysts' industry expertise, com-
panies in each country are ranked within industrial sectors according to their
relative value. Based on this valuation, Morgan selects the companies which ap-
pear the most attractive for the Portfolio. Morgan believes that under normal
market conditions, industrial sector weightings generally will be similar to
those of the Morgan Stanley Capital International Europe Index.
The Portfolio's investments are primarily denominated in foreign currencies but
it may also invest in securities denominated in the U.S. dollar or multina-
tional currency units such as the ECU. The Advisor will not routinely attempt
to hedge the Portfolio's foreign currency exposure. However, the Advisor may
from time to time engage in foreign currency exchange transactions if, based on
fundamental research, technical factors, and the judgment of experienced cur-
rency managers, it believes the transactions would be in the Portfolio's best
interest. For further information on foreign currency exchange transactions,
see Additional Investment Information and Risk Factors.
The Advisor intends to manage the Portfolio actively in pursuit of its invest-
ment objective. The Portfolio 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 objective. To the extent the Portfolio engages in short-
term trading, it may realize short-term capital gains or losses and incur in-
creased transaction costs. See Taxes below. The portfolio turnover rate for the
fiscal year ended December 31, 1996 was 57%. The average brokerage commission
rate per share paid by the Portfolio for the fiscal year ended December 31,
1996 was $0.0230.
EQUITY INVESTMENTS. In normal circumstances, the Advisor intends to keep the
Portfolio essentially fully invested with at least 65% of the value of its to-
tal assets in equity securities of European companies consisting of common
stocks and other securities with equity characteristics comprised of preferred
stock, warrants, rights, convertible securities, trust certificates, limited
partnership interests and equity participations. The Portfolio's primary equity
investments are the common stock of companies based in the developed countries
of Europe. Such investments will be made in at least three European countries.
The common stock in which the Portfolio may invest includes the common stock of
any class or series or any similar equity interest, such as trust or limited
partnership interests. These equity investments may or may not pay dividends
and may or may not carry voting rights. In addition to its equity investments
in European companies, the Portfolio may invest up to 5% of its assets in eq-
uity securities of issuers in emerging European markets such as Eastern Euro-
pean countries and Turkey. See Additional Investment Information and Risk Fac-
tors. The Portfolio invests in securities listed on foreign or domestic securi-
ties exchanges and securities traded in foreign or domestic over-the-counter
(OTC) markets, and may invest in certain restricted or unlisted securities.
5
<PAGE>
The Portfolio may also invest in money market instruments and bonds denomi-
nated in U.S. dollars and other currencies, purchase securities on a when-is-
sued or delayed delivery basis, enter into repurchase and reverse repurchase
agreements, lend its portfolio securities, purchase certain privately placed
securities and enter into forward foreign currency exchange contracts. In ad-
dition, the Portfolio may use options on securities and indexes of securities,
futures contracts and options on futures contracts for hedging and risk man-
agement purposes. Forward foreign currency exchange contracts, options and
futures contracts are derivative instruments. For a discussion of these in-
vestments and investment techniques, see Additional Investment Information and
Risk Factors.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
FOREIGN INVESTMENT INFORMATION. The Portfolio invests primarily in foreign se-
curities. Investment in securities of foreign issuers involves somewhat dif-
ferent investment risks from those affecting securities of U.S. domestic is-
suers. There may be limited publicly available information with respect to
foreign issuers, and foreign issuers are not generally subject to uniform ac-
counting, auditing and financial standards and requirements comparable to
those applicable to domestic companies. Dividends and interest paid by foreign
issuers may be subject to withholding and other foreign taxes which may de-
crease the net return on foreign investments as compared to dividends and in-
terest paid to the Portfolio by domestic companies.
Investors should realize that the value of the Portfolio's investments in for-
eign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation, na-
tionalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or depre-
ciation of portfolio securities and could favorably or unfavorably affect the
Portfolio's operations. Furthermore, the economies of individual foreign na-
tions may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital re-
investment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a
judgment against a foreign issuer. Any foreign investments made by the Portfo-
lio must be made in compliance with U.S. and foreign currency restrictions and
tax laws restricting the amounts and types of foreign investments.
In addition, while the volume of transactions effected on foreign stock ex-
changes has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, the Portfolio's for-
eign investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settle-
ment periods for foreign securities, which are often longer than those for se-
curities of U.S. issuers, may affect portfolio liquidity. In buying and sell-
ing securities on foreign exchanges, purchasers normally pay fixed commissions
that are generally higher than the negotiated commissions charged in the
United States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.
Although the Portfolio invests primarily in securities of established issuers
in developed European countries, it may also invest in equity securities of
companies in European emerging market countries. Investments in securities of
issuers in European emerging market countries may involve a high degree of
risk and many may be considered speculative. These investments carry all of
the risks of investing in securities of foreign issuers outlined in this sec-
tion to a heightened degree. These heightened risks include (i) greater risks
of expropriation, confiscatory taxation, nationalization, and less social, po-
litical and economic stability; (ii) the small current size of the markets for
securities of emerging markets issuers and the currently low or nonexistent
volume of trading, resulting in lack of liquidity and in price volatility;
(iii) certain national policies which may restrict the Portfolio's investment
opportunities including restrictions on investing in issuers or industries
deemed sensitive to relevant national interests; and (iv) the absence of de-
veloped legal structures governing private or foreign investment and private
property.
6
<PAGE>
The Portfolio may invest in securities of foreign issuers directly in the form
of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") and Global Depositary Receipts ("GDRs") or other similar securities
of foreign issuers. ADRs are securities, typically issued by a U.S. financial
institution (a "depositary"), that evidence ownership interests in a security
or a pool of securities issued by a foreign issuer and deposited with the de-
positary. ADRs include American Depositary Shares and New York Shares. EDRs
are receipts issued by a European financial institution. GDRs, which are some-
times referred to as Continental Depositary Receipts ("CDRs"), are securities,
typically issued by a non-U.S. financial institution, that evidence ownership
interests in a security or a pool of securities issued by either a U.S. or
foreign issuer. ADRs, EDRs, GDRs and CDRs may be available for investment
through "sponsored" or "unsponsored" facilities. A sponsored facility is es-
tablished jointly by the issuer of the security underlying the receipt and a
depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depositary receipt generally bear all costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through to the holders of the re-
ceipts voting rights with respect to the deposited securities.
Since the Portfolio's investments in foreign securities involve foreign cur-
rencies, the value of its assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. See Foreign Currency Exchange Trans-
actions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and sells
securities and receives interest and dividends in currencies other than the
U.S. dollar, the Portfolio may enter from time to time into foreign currency
exchange transactions. The Portfolio either enters into these transactions on
a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market or uses forward contracts to purchase or sell foreign curren-
cies. The cost of the Portfolio's spot currency exchange transactions is gen-
erally the difference between the bid and offer spot rate of the currency be-
ing purchased or sold.
A forward foreign currency exchange contract is an obligation by the Portfolio
to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These con-
tracts are derivative instruments, as their value derives from the spot ex-
change rates of the currencies underlying the contract. These contracts are
entered into in the interbank market directly between currency traders (usu-
ally large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. The Portfolio will not enter into forward contracts
for speculative purposes. Neither spot transactions nor forward foreign cur-
rency exchange contracts eliminate fluctuations in the prices of the Portfo-
lio's securities or in foreign exchange rates, or prevent loss if the prices
of these securities should decline.
The Portfolio may enter into foreign currency exchange transactions in an at-
tempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or antici-
pated securities transactions. The Portfolio may also enter into forward con-
tracts to hedge against a change in foreign currency exchange rates that would
cause a decline in the value of existing investments denominated or princi-
pally traded in a foreign currency. To do this, the Portfolio would enter into
a forward contract to sell the foreign currency in which the investment is de-
nominated or principally traded in exchange for U.S. dollars or in exchange
for another foreign currency. The Portfolio will only enter into forward con-
tracts to sell a foreign currency in exchange for another foreign currency if
the Advisor expects the foreign currency purchased to appreciate against the
U.S. dollar.
Although these transactions are intended to minimize the risk of loss due to a
decline in the value of the hedged cur- rency, at the same time they limit any
potential gain that might be realized should the value of the hedged currency
7
<PAGE>
increase. In addition, forward contracts that convert a foreign currency into
another foreign currency will cause the Portfolio to assume the risk of fluc-
tuations in the value of the currency purchased against the hedged currency
and the U.S. dollar. The precise matching of the forward contract amounts and
the value of the securities involved will not generally be possible because
the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The projec-
tion of currency market movements is extremely difficult, and the successful
execution of a hedging strategy is highly uncertain.
CONVERTIBLE SECURITIES. The convertible securities in which the Portfolio may
invest include any debt securities or preferred stock which may be converted
into common stock or which carry the right to purchase common stock. Convert-
ible securities entitle the holder to exchange the securities for a specified
number of shares of common stock, usually of the same company, at specified
prices within a certain period of time.
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
security may be valued at less than its purchase price. The Portfolio main-
tains with the Custodian a separate account with a segregated portfolio of se-
curities 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.
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
8
<PAGE>
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 Portfo-
lio any income accruing thereon. Loans will be subject to termination by the
Portfolio in the normal settlement time, generally three business days after
notice, or by the borrower on one day's notice. Borrowed securities must be re-
turned when the loan is terminated. Any gain or loss in the market price of the
borrowed securities which occurs during the term of the loan inures to the
Portfolio and its respective investors. The Portfolio may pay reasonable find-
ers' and custodial fees in connection with a loan. In addition, the Portfolio
will consider all facts and circumstances, including the creditworthiness of
the borrowing financial institution, and the Portfolio will not make any loans
in excess of one year.
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, un-
less otherwise permitted by applicable law.
REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase it at a mutually agreed upon date and price,
reflecting the interest rate effective for the term of the agreement. For the
purposes of the Investment Company Act of 1940 (the "1940 Act"), it is consid-
ered a form of borrowing by the Portfolio and, therefore, is a form of lever-
age. 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 Invest-
ment Objectives and Policies in the Statement of Additional Information.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may not acquire any il- liquid 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 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 valued
by the Portfolio. The price the Portfolio pays for illiquid securities or re-
ceives upon resale may be lower than the price paid or received for similar se-
curities with a more liquid market. Accordingly the valuation of these securi-
ties will reflect any limitations on their liquidity.
The Portfolio may also purchase Rule 144A securities sold to institutional in-
vestors without registration under the 1933 Act. These securities may be deter-
mined to be liquid in accordance with guidelines established by the Advisor and
approved by the Trustees. The Trustees will monitor the Advisor's implementa-
tion of these guidelines on a periodic basis.
FUTURES AND OPTIONS TRANSACTIONS. The Portfolio may (a) purchase and sell
(write) exchange traded and OTC put and call options on equity securities or
indexes of equity securities, (b) purchase and sell futures contracts on in-
dexes of equity securities, and (c) purchase and sell (write) put and call op-
tions on futures contracts on indexes of equity securities. Each of these in-
struments is a derivative instrument as its value derives from the underlying
asset or index.
The Portfolio may use futures contracts and options for hedging and risk man-
agement purposes. The Portfolio may not use futures contracts and options for
speculation.
The Portfolio may utilize options and futures contracts to manage its exposure
to changing interest rates and/or security prices. Some options and futures
strategies, including selling futures contracts and buying puts, tend to hedge
the
9
<PAGE>
Portfolio's investments against price fluctuations. Other strategies, including
buying futures contracts, writing puts and calls, and buying calls, tend to
increase market exposure. Options and futures contracts may be combined with
each other or with forward contracts in order to adjust the risk and return
characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Advisor and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which involves
investment strategies and risks different from those associated with ordinary
portfolio securities transactions, and there can be no guarantee that their use
will increase the Portfolio's return. While the use of these instruments by the
Portfolio may reduce certain risks associated with owning its portfolio securi-
ties, these techniques themselves entail certain other risks. If the Advisor
applies a strategy at an inappropriate time or judges market conditions or
trends incorrectly, options and futures strategies may lower the Portfolio's
return. Certain strategies limit the Portfolio's possibilities to realize gains
as well as limiting its exposure to losses. The Portfolio could also experience
losses if the prices of its options and futures positions were poorly corre-
lated with its other investments or if it could not close out its positions be-
cause of an illiquid secondary market. In addition, the Portfolio will incur
transaction costs, including trading commissions and option premiums, in con-
nection with its futures and options transactions and these transactions could
significantly increase the Portfolio's turnover rate.
The Portfolio may purchase put and call options on securities, indexes of secu-
rities and futures contracts, or purchase and sell futures contracts, only if
such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Portfolio's net assets, and (ii) the aggregate margin deposits required on all
such futures or options thereon held at any time do not exceed 5% of the Port-
folio's total assets. In addition, the Portfolio will not purchase or sell
(write) futures contracts, options on futures contracts or commodity options
for risk management purposes if, as a result, the aggregate initial margin and
options premiums required to establish these positions exceed 5% of the net as-
set value of the Portfolio. For more detailed information about these transac-
tions, see the Appendix to this Prospectus and Investment Objectives and Poli-
cies--Risk Management in the Statement of Additional Information.
FIXED INCOME INVESTMENTS. The Portfolio is permitted to invest in money market
instruments and bonds although it intends to stay invested in equity securities
to the extent practical in light of its objective. The Portfolio may invest in
fixed income instruments of foreign or domestic issuers denominated in U.S.
dollars and other currencies. Under normal circumstances the Portfolio will
purchase money market instruments to invest temporary cash balances or to main-
tain liquidity to meet redemptions. However, the Portfolio may also invest in
money market instruments and bonds without limitation as a temporary defensive
measure taken in the Advisor's judgment during, or in anticipation of, adverse
market conditions. For more detailed information about these investments, see
Investment Objectives and Policies in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio are
subject to the following fundamental limitations: (a) the Portfolio may not in-
vest more than 5% of its total assets in the securities of any one issuer, ex-
cept U.S. government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer.
The investment objective of the Fund and the Portfolio, together with the in-
vestment restrictions described below and in the Statement of Additional Infor-
mation, except as noted, are deemed fundamental policies, i.e., they may be
changed only with the approval of the holders of a majority of the outstanding
voting securities of the Fund and the Portfolio. The Fund has the same invest-
ment restrictions as the Portfolio, except that the Fund may invest all of its
investable assets
10
<PAGE>
in another open-end investment company with the same investment objective and
restrictions (such as the Portfolio). References below to the Portfolio's in-
vestment restrictions also include the Fund's investment restrictions.
The Portfolio may not purchase securities or other obligations of issuers con-
ducting their principal business activity in the same industry if its invest-
ments in such industry would exceed 25% of the value of the Portfolio's total
assets, except this limitation shall not apply to investments in U.S. Govern-
ment securities. In addition, the Portfolio may not borrow money except that
the Portfolio may (a) borrow money from banks for temporary or emergency pur-
poses (not for leveraging purposes) and (b) enter into reverse repurchase
agreements for any purpose, provided that (a) and (b) in total do not exceed
one-third of the Portfolio's total assets less liabilities (other than
borrowings); and the Portfolio may not issue senior securities except as per-
mitted by the 1940 Act or any rule, order or interpretation thereunder. See Ad-
ditional Investment Information and Risk Factors--Loans of Portfolio Securities
and Reverse Repurchase Agreements.
For a more detailed discussion of the above investment restrictions, as well as
a description of certain other investment restrictions, see Investment 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.
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 those funds. See Trustees and Officers in
the Statement of Additional Information. The principal offices of Pierpont
Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017.
ADVISOR. The Fund has not retained the services of an investment adviser be-
cause the Fund seeks to achieve its investment objective by investing all of
its investable assets in the Portfolio. The Portfolio has retained the services
of Morgan
11
<PAGE>
as Investment Advisor. Morgan, with principal offices at 60 Wall Street, New
York, New York 10260, is a New York trust company which conducts a general
banking and trust business. Morgan is a wholly owned subsidiary of J.P. Morgan
& Co. Incorporated ("J.P. Morgan"), a bank holding company organized under the
laws of Delaware. Through offices in New York City and abroad, J.P. Morgan,
through the Advisor and other subsidiaries, offers a wide range of services to
governmental, institutional, corporate and individual customers and acts as in-
vestment adviser to individual and institutional clients with combined assets
under management of over $208 billion. Morgan provides investment advice and
portfolio management services to the Portfolio. Subject to the supervision of
the Portfolio's Trustees, Morgan makes the Portfolio's day-to-day investment
decisions, arranges for the execution of portfolio transactions and generally
manages the Portfolio's investments. See Investment Advisor in the Statement of
Additional Information.
Morgan uses a sophisticated, disciplined, collaborative process for managing
all asset classes. For equity portfolios, this process utilizes fundamental re-
search, systematic stock selection, disciplined portfolio construction and, in
the case of foreign equities, country exposure and currency management. Morgan
has managed portfolios of equity securities of international, including Europe-
an, companies on behalf of its clients since 1974. The portfolio managers mak-
ing investments in European equity securities work in conjunction with Morgan's
European equity analysts, as well as capital market, credit and economic re-
search analysts, traders and administrative officers. The European equity ana-
lysts, located in London, each cover a different industry, monitoring a uni-
verse of approximately 600 companies in Europe.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio (the inception date of
each person's responsibility for the Portfolio and his business experience for
the past five years is indicated parenthetically): Paul A. Quinsee, Vice Presi-
dent (since March, 1995, employed by Morgan since February, 1992 and by
Citibank, N.A. prior to 1992 as a portfolio manager of international equity in-
vestments) and Rudolph Leuthold, Managing Director (since March, 1995, employed
by Morgan since prior to 1992 as a portfolio manager of international equity
investments).
As compensation for the services rendered and related expenses borne by Morgan
under the Investment Advisory Agreement with the Portfolio, the Portfolio has
agreed to pay Morgan a fee, which is computed daily and may be paid monthly, at
the annual rate of 0.65% of the Portfolio's average daily net assets.
Under separate agreements, Morgan also provides administrative and related
services to the Fund and the Portfolio and shareholder services to shareholders
of the Fund. See Administrative Services Agent and Shareholder Servicing below.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.
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 an-
nual 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 com
-
12
<PAGE>
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, the Portfolio and certain other registered investment
companies managed 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
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 April 30,
1998 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
1.00% 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 0.10% 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 Funds 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.
13
<PAGE>
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Mor-
gan as shareholder servicing agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the 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 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
subaccounting, answering client inquiries regarding the Trust, assisting cli-
ents in changing dividend options, account designations and addresses, provid-
ing periodic statements showing the client's account balance and integrating
these statements with those of other transactions and balances in the client's
other accounts serviced by the Eligible Institution, transmitting proxy state-
ments, periodic reports, updated prospectuses and other communications to
shareholders and, with respect to meetings of shareholders, collecting, tabu-
lating and forwarding executed proxies and obtaining such other information
and performing such other services as Morgan or the Eligible Institution's
clients may reasonably request and agree upon with the Eligible Institution.
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.
14
<PAGE>
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
Morgan or his Eligible Institution, as appropriate, to submit a redemption re-
quest to the Fund or may telephone J.P. Morgan Funds Services directly at (800)
766-7722 and give the Shareholder Service Representative a preassigned share-
holder Personal Identification Number and the amount of the redemption. The
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 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 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 trans-
ferred 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 applicable minimum investment amount of $1 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 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.
15
<PAGE>
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.
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 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.
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 nonassessable by the Fund. The Trust does not intend to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for ac-
tion by shareholder vote as may be required by either the 1940 Act or the Dec-
laration of Trust. The Trustees will call a meeting of shareholders to vote on
removal of a Trustee upon the written request of the record holders of ten 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.
16
<PAGE>
The Portfolio in which all of the assets of the Fund are invested is a series
(subtrust) of The Series Portfolio, a trust organized under the laws of the
State of New York. The Series Portfolio's Declaration of Trust provides that
the Fund and other entities investing in the Portfolio (e.g., other 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 lim-
ited to circumstances in which both inadequate insurance existed and the Port-
folio itself was unable to meet its obligations. Accordingly, the Trustees of
the Trust believe that neither the Fund nor its shareholders will be adversely
affected by reason of the Fund's investing in the Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are sub-
ject to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to 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% of its total assets, no more than 5% of its
total assets are invested in the securities of a single issuer, except U.S.
Government securities. As a regulated investment company, the Fund should not
be subject to federal income taxes or federal excise taxes if all of its net
investment income and capital gains less any available capital loss
carryforwards are distributed to shareholders within allowable time limits.
The Portfolio intends to qualify as an association treated as a partnership
for federal income tax purposes. As such, the Portfolio should not be subject
to tax. The Fund's status as a regulated investment company is dependent on,
among other things, the Portfolio's continued qualification as a partnership
for federal income tax purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to 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 U.S.
corporations.
Distributions of net long-term capital gains in excess of net short-term capi-
tal losses are taxable to shareholders of the Fund as long-term capital gains
regardless of how long a shareholder has held shares in the Fund and regard-
less of 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 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
17
<PAGE>
distributions received by the shareholder with respect to such shares. In ad-
dition, 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
and gross income derived from sources within any foreign country or possession
of the United States, if any, to be treated as paid by the shareholders. If
the Fund makes the election, each shareholder will be required to include in
income his proportionate share of the amount of foreign income taxes paid by
the Fund and will be entitled to claim either a credit (which is subject to
certain limitations) or, if the shareholder itemizes deductions, a deduction
for his share of the foreign income taxes in computing his federal income tax
liability. (No deduction will be permitted to individuals in computing their
alternative minimum tax liability.)
Distributions of foreign exchange gains resulting from certain transactions,
including the sale of foreign currencies, are taxed as ordinary income.
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The finan-
cial statements appearing in annual reports are audited by independent accoun-
tants. Shareholders also will be sent confirmations of each purchase and re-
demption and monthly statements, reflecting all other account activity, in-
cluding dividends and any distributions reinvested in additional shares or
credited as cash.
All shareholders are given the privilege to initiate transactions automati-
cally by telephone upon opening an account. However, an investor should be
aware that a transaction authorized by telephone and reasonably believed to be
genuine by the Fund, Morgan, his Eligible Institution or the Distributor may
subject the investor to risk of loss if such instruction is subsequently found
not to be genuine. The Fund will employ reasonable procedures, including re-
quiring investors to give their Personal Identification Number and tape re-
cording of telephone instructions, to confirm that instructions communicated
from investors by telephone are genuine; if it does not, 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 Composite Stock Price Index, the Dow Jones In-
dustrial Average, the Frank Russell Indexes, the Morgan Stanley Europe, Aus-
tralia and Far East Index, Morgan Stanley Capital International Europe Index,
the Financial Times World Stock Index and other industry publications.
The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of op-
erations, if less) assuming that all distributions and dividends by the Fund
were reinvested on the reinvestment dates during the period and less all re-
curring fees. This method of calculating total return is required by regula-
tions of the Securities and Exchange Commission. Total return data similarly
calculated, unless otherwise indicated, over other specified periods of time
may also be used. See Performance Data in the Statement of Additional Informa-
tion. All perfor-
mance figures are based on historical earnings and are not intended to indi-
cate future performance. Shareholders may obtain performance information by
calling Morgan at (800) 766-7722.
18
<PAGE>
APPENDIX
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio ob-
tains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays
the current market price for the option (known as the option premium). Options
have various types of underlying instruments, including specific securities,
indexes of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by al-
lowing it to expire or by exercising the option. The Portfolio may also close
out a put option position by entering into an offsetting transaction, if a liq-
uid market exists. If the option is allowed to expire, the Portfolio will lose
the entire premium it paid. If the Portfolio exercises a put option on a secu-
rity, it will sell the instrument underlying the option at the strike price. If
the Portfolio exercises an option on an index, settlement is in cash and does
not involve the actual sale of securities. If an option is American style, it
may be exercised on any day up to its expiration date. A European style option
may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the in-
strument underlying the option does not fall enough to offset the cost of pur-
chasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase,
rather than sell, the instrument underlying the option at the option's strike
price. A call buyer typically attempts to participate in potential price in-
creases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect
to suffer a loss if security prices do not rise sufficiently to offset the cost
of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put option,
it takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the instrument underlying the option if the other party to
the option chooses to exercise it. The Portfolio may seek to terminate its po-
sition in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a
put option the Portfolio has written, however, the Portfolio must continue to
be prepared to pay the strike price while the option is outstanding, regardless
of price changes, and must continue to post margin as discussed below.
If the price of the underlying instrument rises, a put writer would generally
expect to profit, although its gain would be limited to the amount of the pre-
mium it received. If security prices remain the same over time, it is likely
that the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would expect
to suffer a loss. This loss should be less than the loss from purchasing and
holding the underlying instrument directly, however, because the premium re-
ceived for writing the option should offset a portion of the decline.
Writing a call option obligates the Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the op-
tion. The characteristics of writing call options are similar to those of writ-
ing put options, 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. Options on securities indexes are similar to options on se-
curities, except that the exercise of securities index options is settled by
cash payment and does not involve the actual purchase or sale of securities. In
A-1
<PAGE>
addition, these options are designed to reflect price fluctuations in a group
of securities or segment of the securities market rather than price fluctua-
tions in a single security. The Portfolio, in purchasing or selling index op-
tions, 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 Portfolio's
investment restrictions. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.
The Portfolio will segregate liquid assets in connection with its use of op-
tions and futures contracts to the extent required by the staff of the Securi-
ties and Exchange Commission. Securities held in a segregated account cannot be
sold while the futures contract or option is outstanding, unless they are re-
placed with other suitable assets. As a result, there is a possibility that
segregation of a large percentage of the Portfolio's assets could impede port-
folio management or the Portfolio's ability to meet redemption requests or
other current obligations.
For further information about the Portfolio's use of futures and options and a
more detailed discussion of associated risks, see Investment Objectives and
Policies in the Statement of Additional Information.
A-2
<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.
PROS300-974
The JPM Institutional European
Equity Fund
PROSPECTUS
April 30, 1997
<PAGE>
PROSPECTUS
The JPM Institutional Japan Equity Fund
60 State Street
Boston, Massachusetts 02109
For information call (800) 766-7722
The JPM Institutional Japan Equity Fund (the "Fund") seeks to provide a high
total return from a portfolio of equity securities of Japanese companies. The
Fund is designed for investors who want an actively managed portfolio of Japa-
nese equity securities that seeks to outperform the Tokyo Stock Price Index
("TOPIX"), a composite market-capitalization weighted index of all common
stocks listed on the First Section of the Tokyo Stock Exchange.
The Fund is a non-diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The JPM Insti-
tutional Funds, an open-end management investment company organized as a Massa-
chusetts business trust (the "Trust").
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO
OF SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING
ALL OF ITS INVESTABLE ASSETS IN THE JAPAN EQUITY PORTFOLIO (THE "PORTFOLIO"), A
CORRESPONDING NON-DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT COMPANY HAVING THE
SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND INVESTS IN THE PORTFOLIO
THROUGH A TWO-TIER MASTER-FEEDER INVESTMENT FUND STRUCTURE. SEE SPECIAL
INFORMATION CONCERNING INVESTMENT STRUCTURE ON PAGE 3.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or the "Advisor").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and it should be retained
for future reference. Additional information about the Fund has been filed with
the Securities and Exchange Commission in a Statement of Additional Information
dated April 30, 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., 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 APRIL 30, 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...................................................................... 17
Additional Information..................................................... 18
Appendix................................................................... A-1
</TABLE>
<PAGE>
The JPM Institutional Japan Equity Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed for investors who seek to broaden their investments by
adding exposure to Japanese equity securities. The Fund seeks to achieve its
investment objective by investing all of its investable assets in The Japan
Equity Portfolio, a non-diversified open-end management investment company
having the same investment objective as the Fund. Since the investment
characteristics and experience of the Fund will correspond directly with those
of the Portfolio, the discussion in this Prospectus focuses on the investments
and investment policies of the Portfolio. The net asset value of shares in the
Fund fluctuates with changes in the value of the investments in the Portfolio.
The Portfolio may make various types of investments in seeking its objective.
Among the permissible investments and investment techniques for the Portfolio
are futures contracts, options and forward contracts on foreign currencies. The
potential risks of investing in these derivative instruments are discussed in
Additional Investment Information and Risk Factors and the Appendix. The
Portfolio may also purchase certain privately placed securities. The
Portfolio's investments in securities of Japanese issuers involve foreign
investment risks and may be more volatile and less liquid than domestic
securities. For further information about these investments, see Investment
Objective and Policies below.
The Fund generally requires a minimum initial investment of $1 million. The
minimum subsequent investment is $25,000. See Purchase of Shares. If a
shareholder reduces his or her investment in the Fund to less than $1 million
for more than 30 days, the investment 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
operating expenses set forth below for the Fund and the Portfolio, as a
percentage of average net assets of the Fund. The Trustees of the Trust believe
that the aggregate per share expenses of the Fund and the Portfolio will be
approximately equal to and may be less than the expenses that the Fund would
incur if it retained the services of an investment adviser and invested its
assets directly in portfolio securities. Fund and Portfolio expenses are
discussed below under the headings Management of the Trust and the Portfolio
and Shareholder Servicing.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases*........................................... None
Sales Load Imposed on Reinvested Dividends................................. None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
* 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............................................................. 0.65%
Rule 12b-1 Fees........................................................... None
Other Expenses (after expense reimbursement).............................. 0.35%
----
Total Operating Expenses (after expense reimbursement).................... 1.00%
</TABLE>
- -------
* Fees and expenses are expressed as a percentage of average net assets of the
Fund for its most recent fiscal period and after expense reimbursement through
April 30, 1998. See Management of the Trust and the Portfolio. Without reim-
bursements, Other Expenses and Total Operating Expenses, after consideration
of certain state limitations, were 1.85% and 2.50%, respectively, for the most
recently completed fiscal period.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year..................................................................... $ 10
3 Years.................................................................... $ 32
5 Years.................................................................... $ 55
10 Years................................................................... $122
</TABLE>
The above expense table is designed to assist investors in understanding the
various direct and indirect costs and expenses that investors in the Fund bear.
The fees and expenses included in Other Expenses are the fees paid to Morgan
under the Administrative Services and the Shareholder Servicing Agreements, or-
ganization expenses, the fees paid to Pierpont Group, Inc. under the Fund Serv-
ices Agreements, the fees paid to Funds Distributor, Inc. 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 redemption
or exchange fees of any kind. See Purchase of Shares and Redemption of Shares.
THE EXAMPLE IS HYPOTHETICAL; IT IS INCLUDED SOLELY FOR ILLUSTRATIVE PURPOSES.
IT SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE PERFORMANCE; ACTUAL EX-
PENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
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 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
February 29, 1996
(commencement of
operations) to
December 31, 1996
-----------------
<S> <C>
Net Asset Value, Beginning of Period......................... $10.00
------
Income from Investment Operations:
Net Investment Loss........................................ (0.05)
Net Realized and Unrealized Gain on Investments and Foreign
Currency.................................................. (1.28)
------
Total from Investment Operations........................... (1.33)
------
Net Asset Value, End of Period............................... $ 8.67
======
Total Return................................................. (13.30)%(a)
======
Ratios and Supplemental Data:
Net Assets at end of Period (in thousands)................. $1,502
Ratios to Average Net Assets:
Expenses................................................. 0.89% (b)
Net Investment Loss...................................... (0.28)%(b)
Decrease Reflected in Expense Ratio due to Expense Reim-
bursement............................................... 1.61 %(c)
</TABLE>
- -------
(a) Not Annualized.
(b) Annualized.
(c) After consideration of certain state limitations.
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,
together with the policies they employ in their efforts to achieve this
objective. Additional information about the investment policies of the Fund and
the Portfolio appears in the Statement of Additional Information under
Investment Objectives and Policies. There can be no assurance that the
investment objective of the Fund or the Portfolio will be achieved.
The Fund's investment objective is to provide a high total return from a port-
folio of equity securities of Japanese companies. Total return will consist of
realized and unrealized capital gains and losses plus income. The Fund attempts
to achieve its investment objective by investing all of its investable assets
in The Japan Equity Portfolio, a non-diversified open-end management investment
company having the same investment objective as the Fund.
The Fund is designed for investors who want an actively managed portfolio of
Japanese equity securities that seeks to outperform the Tokyo Stock Price Index
(TOPIX), a composite market-capitalization weighted index of all common stocks
listed on the First Section of the Tokyo Stock Exchange. THE FUND DOES NOT REP-
RESENT A COMPLETE INVESTMENT PROGRAM NOR IS THE FUND SUITABLE FOR ALL INVEST-
ORS.
4
<PAGE>
A Japanese company is one that: (i) has its principal securities trading market
in Japan; or (ii) is organized under the laws of Japan; or (iii) derives 50% or
more of its total revenues and/or profits from either goods produced, sales
made or services performed in Japan; or (iv) has at least 50% of its assets lo-
cated in Japan.
Morgan seeks to enhance the Portfolio's total return relative to that of the
TOPIX through fundamental research, stock valuation and the exploitation of un-
derlying market inefficiencies. Based on internal fundamental research, Morgan
uses a proprietary valuation model to establish the relative valuation of indi-
vidual Japanese companies within industrial sectors. Morgan then buys and sells
securities within each industrial sector based on this valuation process. In
addition to stocks, the Advisor actively uses convertible securities and war-
rants to seek to enhance overall portfolio performance.
In addition, Morgan uses a disciplined portfolio construction process to seek
to reduce the Portfolio's volatility relative to the TOPIX. Morgan attempts to
keep the industrial sector weightings, the average market capitalization and
other broad characteristics of the Portfolio comparable to those of the TOPIX.
The Advisor intends to manage the Portfolio actively in pursuit of its invest-
ment objective. The Portfolio 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 objective. To the extent the Portfolio engages in short-
term trading, it may realize short-term capital gains or losses and incur in-
creased transaction costs. See Taxes below. The portfolio turnover rate for the
fiscal year ended December 31, 1996 was 86%. The average brokerage commission
rate per share paid by the Portfolio for the fiscal year ended December 31,
1996 was $0.0005.
The Portfolio's equity investments will be primarily denominated in yen, but
the Portfolio may also invest in securities denominated in other foreign cur-
rencies, the U.S. dollar or multinational currency units such as the ECU. The
Advisor will not routinely attempt to hedge the Portfolio's foreign currency
exposure. However, the Advisor may from time to time engage in foreign currency
exchange transactions if, based on fundamental research, technical factors, and
the judgment of experienced currency managers, it believes the transactions
would be in the Portfolio's best interest. For further information on foreign
currency exchange transactions, see Additional Investment Information and Risk
Factors.
EQUITY INVESTMENTS. In normal circumstances, the Advisor intends to keep the
Portfolio essentially fully invested with at least 65% of the Portfolio's total
assets invested in equity securities of Japanese companies consisting of common
stocks and other securities with equity characteristics comprised of preferred
stock, warrants, rights, convertible securities, trust certificates, limited
partnership interests and equity participations. The Portfolio's primary equity
investments are the common stock of established Japanese companies. The common
stock in which the Portfolio may invest includes the common stock of any class
or series or any similar equity interest, such as trust or limited partnership
interests. These equity investments may or may not pay dividends and may or may
not carry voting rights. The Portfolio invests in securities listed on foreign
or domestic securities exchanges and securities traded in foreign or domestic
over-the-counter (OTC) markets, and may invest in certain restricted or un-
listed securities.
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, as amended (the "1940 Act"), in the proportion of its as-
sets that may be invested in the obligations of a single issuer. Thus, the
Portfolio may invest a greater proportion of its assets in the securities of a
smaller number of issuers and, as a result, may be subject to greater risk with
respect to its portfolio securities. The Portfolio, however, 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 below.
The Portfolio may also invest in money market instruments denominated in U.S.
dollars and other currencies, purchase securities on a when-issued or delayed
delivery basis, enter into repurchase and reverse repurchase agreements, 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
5
<PAGE>
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.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
INVESTING IN JAPAN. Investing in Japanese securities may involve the risks as-
sociated with investing in foreign securities generally. See Other Foreign In-
vestment Information. In addition, because the Portfolio invests primarily in
Japan, it will be subject to the general economic and political conditions in
Japan.
Despite recent increases, prices for exchange-listed and OTC stocks of Japa-
nese companies are currently depressed in comparison to their historical peaks
in 1989 and 1990. Nevertheless, Japanese stocks continue to trade at high
price earnings ratios relative to stocks of U.S. companies. In addition, dif-
ferences in accounting methods make it difficult to compare the earnings of
Japanese companies with those of U.S companies. Because most of the Portfo-
lio's investments are denominated in yen, changes in currency exchange rates
will affect the U.S. dollar value of the Portfolio's assets. The Japanese
economy has experienced a substantial reduction in its rate of growth. Eco-
nomic growth and the prices of Japanese stocks could be adversely affected by
a reversal of Japan's historical success in exporting its products and main-
taining low inflation and interest rates. Recent political instability and any
resulting delay in implementing regulatory reforms could also have a negative
effect on Japanese stock prices. For additional information, see Appendix C--
Investing in Japan and Asian Growth Markets--Japan and its Securities Markets
in the Statement of Additional Information.
OTHER FOREIGN INVESTMENT INFORMATION. The Portfolio invests primarily in for-
eign securities. Investment in securities of foreign issuers involves somewhat
different investment risks from those affecting securities of U.S. domestic
issuers. There may be limited publicly available information with respect to
foreign issuers, and foreign issuers are not generally subject to uniform ac-
counting, auditing and financial standards and requirements comparable to
those applicable to domestic companies. Interest paid by foreign issuers may
be subject to withholding and other foreign taxes which may decrease the net
return on foreign investments as compared to interest paid to the Portfolio by
domestic companies.
Investors should realize that the value of the Portfolio's investments in for-
eign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation, na-
tionalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or depre-
ciation of portfolio securities and could favorably or unfavorably affect the
Portfolio's operations. Furthermore, the economies of individual foreign na-
tions may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital re-
investment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign is-
suer. Any foreign investments made by the Portfolio must be made in compliance
with U.S. and foreign currency restrictions and tax laws restricting the
amounts and types of foreign investments.
The Portfolio may invest in securities of foreign issuers directly in the form
of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") and Global Depositary Receipts ("GDRs") or other similar securities
of foreign issuers. ADRs are securities, typically issued by a U.S. financial
institution (a "depositary"), that evidence ownership interests in a security
or a pool of securities issued by a foreign issuer and deposited with the de-
positary. ADRs include American Depositary Shares and New York Shares. EDRs
are receipts issued by a European financial institution. GDRs, which are some-
times referred to as Continental Depositary Receipts ("CDRs"), are securities,
typically issued by a non-U.S. financial institution, that evidence ownership
interests in a security or a pool of securities issued by either a U.S. or
foreign issuer. ADRs, EDRs, GDRs and CDRs may be available for investment
through "sponsored" or "unsponsored" facilities. A sponsored facility is es-
tablished jointly by the issuer of the security underlying the receipt and a
depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
6
<PAGE>
Holders of an unsponsored depositary receipt generally bear all costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through to the holders of the re-
ceipts voting rights with respect to the deposited securities.
Since the Portfolio's investments in foreign securities involve foreign curren-
cies, the value of its assets as measured in U.S. dollars may be affected fa-
vorably 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--principally yen--the Portfolio may enter from time to time into
foreign currency exchange transactions. The Portfolio either enters into these
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or uses forward contracts to purchase or sell
foreign currencies. The cost of the Portfolio's spot currency exchange transac-
tions is generally the difference between the bid and offer spot rate of the
currency being purchased or sold.
A forward foreign currency exchange contract is an obligation by the Portfolio
to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying the contract. These contracts are entered into in
the interbank market directly between currency traders (usually large commer-
cial banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement and is traded at a net price without com-
mission. The Portfolio will not enter into forward contracts for speculative
purposes. Neither spot transactions nor forward foreign currency exchange con-
tracts eliminate fluctuations in the prices of the Portfolio's securities or in
foreign exchange rates, or prevent loss if the prices of these securities
should decline.
The Portfolio may enter into foreign currency exchange transactions in an at-
tempt to protect against changes in foreign currency exchange rates between the
trade and settlement dates of specific securities transactions or anticipated
securities transactions. The Portfolio may also enter into forward contracts to
hedge against a change in foreign currency exchange rates that would cause a
decline in the value of existing investments denominated or principally traded
in a foreign currency. To do this, the Portfolio would enter into a forward
contract to sell the foreign currency in which the investment is denominated or
principally traded in exchange for U.S. dollars or in exchange for another for-
eign currency. The Portfolio will only enter into forward contracts to sell a
foreign currency in exchange for another foreign currency if the Advisor ex-
pects the foreign currency purchased to appreciate against the U.S. dollar.
Although these transactions are intended to minimize the risk of loss due to a
decline in the value of the hedged cur- rency, at the same time they limit any
potential gain that might be realized should the value of the hedged currency
increase. In addition, forward contracts that convert a foreign currency into
another foreign currency will cause the Portfolio to assume the risk of fluctu-
ations in the value of the currency purchased against the hedged currency and
the U.S. dollar. The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible because the fu-
ture value of such securities in foreign currencies will change as a conse-
quence of market movements in the value of such securities between the date the
forward contract is entered into and the date it matures. The projection of
currency market movements is extremely difficult, and the successful execution
of a hedging strategy is highly uncertain.
CONVERTIBLE SECURITIES. The convertible securities in which the Portfolio may
invest include any debt securities or preferred stock which may be converted
into common stock or which carry the right to purchase common stock. Con-
7
<PAGE>
vertible securities entitle the holder to exchange the securities for a speci-
fied number of shares of common stock, usually of the same company, at speci-
fied prices within a certain period of time.
COMMON STOCK WARRANTS. The Portfolio may invest in 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 re-
sult, 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.
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
security may be valued at less than its purchase price. The Portfolio main-
tains with the Custodian a separate account with a segregated portfolio of se-
curities 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.
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
8
<PAGE>
agreement transactions. See Repurchase Agreements above. The Portfolio will not
lend its securities to any officer, Trustee, Director, employee or other affil-
iate of the Portfolio, the Advisor or the Distributor, unless otherwise permit-
ted by applicable law.
REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase it at a mutually agreed upon date and price,
reflecting the interest rate effective for the term of the agreement. For the
purposes of the 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.
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. Sub-
ject to this non-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 valued
by the Portfolio. The price the Portfolio pays for illiquid securities or re-
ceives upon resale may be lower than the price paid or received for similar se-
curities with a more liquid market. Accordingly the valuation of these securi-
ties will reflect any limitations on their liquidity.
The Portfolio may also purchase Rule 144A securities sold to institutional in-
vestors without registration under the 1933 Act. These securities may be deter-
mined to be liquid in accordance with guidelines established by the Advisor and
approved by the Trustees. The Trustees will monitor the Advisor's implementa-
tion of these guidelines on a periodic basis.
FUTURES AND OPTIONS TRANSACTIONS. The Portfolio may (a) purchase and sell
(write) exchange traded and OTC put and call options on equity securities or
indexes of equity securities, (b) purchase and sell futures contracts on in-
dexes of equity securities, and (c) purchase and sell (write) put and call op-
tions on futures contracts on indexes of equity securities. Each of these in-
struments is a derivative instrument as its value derives from the underlying
asset or index.
The Portfolio may use futures contracts and options for hedging and risk man-
agement purposes. The Portfolio may not use futures contracts and options for
speculation.
The Portfolio may utilize options and futures contracts to manage its exposure
to changing interest rates and/or security prices. Some options and futures
strategies, including selling futures contracts and buying puts, tend to hedge
the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and
return characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Advisor and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which involves
investment strategies and risks different from those associated with ordinary
portfolio securities transactions, and there can be no guarantee that their use
will increase the Portfolio's return. While the use of these instruments by the
Portfolio may reduce certain risks associated with owning its portfolio securi-
ties, these techniques themselves entail certain other risks. If the Advisor
applies a strategy at an inappropriate time or judges market conditions or
trends incorrectly, options and futures strategies may lower the Portfo-
9
<PAGE>
lio's return. Certain strategies limit the Portfolio's possibilities to realize
gains as well as limiting its exposure to losses. The Portfolio could also ex-
perience losses if the prices of its options and futures positions were poorly
correlated with its other investments or if it could not close out its posi-
tions because of an illiquid secondary market. In addition, the Portfolio will
incur transaction costs, including trading commissions and option premiums, in
connection with its futures and options transactions and these transactions
could significantly increase the Portfolio's turnover rate.
The Portfolio may purchase put and call options on securities, indexes of secu-
rities and futures contracts, or purchase and sell futures contracts, only if
such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Portfolio's net assets, and (ii) the aggregate margin deposits required on all
such futures or options thereon held at any time do not exceed 5% of the Port-
folio's total assets. In addition, the Portfolio will not purchase or sell
(write) futures contracts, options on futures contracts or commodity options
for risk management purposes if, as a result, the aggregate initial margin and
options premiums required to establish these positions exceed 5% of the net as-
set value of the Portfolio. For more detailed information about these transac-
tions, see the Appendix to this Prospectus and Risk Management in the Statement
of Additional Information.
MONEY MARKET INSTRUMENTS. The Portfolio is permitted to invest in money market
instruments although it intends to stay invested in equity securities to the
extent practical in light of its objective. The Portfolio may invest in money
market instruments of foreign or domestic issuers denominated in U.S. dollars
and other currencies. Under normal circumstances the Portfolio will purchase
these securities to invest temporary cash balances or to maintain liquidity to
meet redemptions. However, the Portfolio may also invest in money market in-
struments without limitation as a temporary defensive measure taken in the Ad-
visor's judgment during, or in anticipation of, adverse market conditions. For
more detailed information about these money market investments, see Investment
Objectives and Policies in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
The investment objective of the Fund and the Portfolio, together with the in-
vestment restrictions described below and in the Statement of Additional Infor-
mation, except as noted, are deemed fundamental policies, i.e., they may be
changed only with the approval of the holders of a majority of the outstanding
voting securities of the Fund and the Portfolio. The Fund has the same invest-
ment restrictions as the Portfolio, except that the Fund may invest all of its
investable assets in another open-end investment company with the same invest-
ment objective and restrictions (such as the Portfolio). References below to
the Portfolio's investment restrictions also include the Fund's investment re-
strictions.
The Portfolio may not purchase securities or other obligations of issuers con-
ducting their principal business activity in the same industry if its invest-
ments in such industry would exceed 25% of the value of the Portfolio's total
assets, except this limitation shall not apply to investments in U.S. Govern-
ment securities. In addition, the Portfolio may not borrow money except that
the Portfolio may (a) borrow money from banks for temporary or emergency pur-
poses (not for leveraging purposes) and (b) enter into reverse repurchase
agreements for any purpose, provided that (a) and (b) in total do not exceed
one-third of the Portfolio's total assets less liabilities (other than
borrowings); and the Portfolio may not issue senior securities except as per-
mitted by the 1940 Act or any rule, order or interpretation thereunder. See Ad-
ditional Investment Information and Risk Factors--Loans of Portfolio Securities
and Reverse Repurchase Agreements.
For a more detailed discussion of the above investment restrictions, as well as
a description of certain other investment restrictions, see Investment Restric-
tions 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 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.
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 those funds. See Trustees and Officers in
the Statement of Additional Information. The principal offices of Pierpont
Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017.
ADVISOR. The Fund has not retained the services of an investment adviser be-
cause the Fund seeks to achieve its investment objective by investing all of
its investable assets in the Portfolio. The Portfolio has retained the services
of Morgan as Investment Advisor. Morgan, with principal offices at 60 Wall
Street, New York, New York 10260, is a New York trust company which 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 un-
der the laws of Delaware. Through offices in New York City and abroad, J.P.
Morgan, through the Advisor and other subsidiaries, offers a wide range of
services to governmental, institutional, corporate and individual customers and
acts as investment adviser to individual and institutional clients with com-
bined assets under management of over $208 billion. Morgan provides investment
advice and portfolio management services to the Portfolio. Subject to the su-
pervision of the Portfolio's Trustees, Morgan makes the Portfolio's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages the Portfolio's investments. See Investment Advisor in the
Statement of Additional Information.
Morgan uses a sophisticated, disciplined, collaborative process for managing
all asset classes. For equity portfolios, this process utilizes fundamental re-
search, systematic stock selection and disciplined portfolio construction. Mor-
gan has invested in equity securities of Japanese companies on behalf of its
clients for over a decade and has had a research team in Tokyo since 1972. The
portfolio managers making investments in Japanese equity securities work in
conjunction with Morgan's Japanese equity analysts, as well as capital market,
credit and economic research analysts, traders and administra-
11
<PAGE>
tive officers. The Japanese equity analysts, located in Tokyo, each cover a
different industry, monitoring a universe of over 300 Japanese companies.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio (the inception date
of each person's responsibility for the Portfolio and his business experience
for the past five years is indicated parenthetically): Masato Degawa, Vice
President (since August, 1995, employed by Morgan since September, 1993 as a
portfolio manager of Japanese equity investments and by Morgan Stanley prior
to September, 1993 as a senior analyst covering Japanese utilities and special
situations) and Yukiko Sugimoto, Vice President (since March, 1995, employed
by Morgan since prior to 1992 as a portfolio manager of Japanese equity in-
vestments).
As compensation for the services rendered and related expenses borne by Morgan
under the Investment Advisory Agreement with the Portfolio, the Portfolio has
agreed to pay Morgan a fee, which is computed daily and may be paid monthly,
at the annual rate of 0.65% of the Portfolio's average daily net assets.
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, 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 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, the Portfolio and certain other registered investment
companies managed 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, no-
tices and proxy statements to Fund shareholders, filing fees under state secu-
rities 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 April 30,
1998 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
1.00% 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 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 $1 million and a minimum sub-
sequent investment of $25,000. These minimum investment requirements may be
waived for certain investors, including investors for whom the Advisor is a
13
<PAGE>
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 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
subaccounting, answering client inquiries regarding the Trust, assisting cli-
ents in changing dividend options, account designations and addresses, provid-
ing periodic statements showing the client's account balance and integrating
these statements with those of other transactions and balances in the client's
other accounts serviced by the Eligible Institution, transmitting proxy state-
ments, periodic reports, updated prospectuses and other communications to
shareholders and, with respect to meetings of shareholders, collecting, tabu-
lating and forwarding executed proxies and obtaining such other information
and performing such other services as Morgan or the Eligible Institution's
clients may reasonably request and agree upon with the Eligible Institution.
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 Eligible Institution, as appropriate, to submit a redemption re-
quest to the Fund or may telephone J.P. Morgan Funds Services directly at
(800) 766-7722 and give the Shareholder Service Representative a preassigned
shareholder Personal Identification Number and the amount of the redemption.
The Fund executes effective redemption requests at the next determined net as-
set value per share. See Net Asset Value. See Additional Information below for
an explanation of the telephone redemption policy of The JPM Institutional
Funds.
A redemption request received by the Fund 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 the next business day in immediately
available funds 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 or
wire transferred in
14
<PAGE>
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 applicable minimum investment amount of $1 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 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.
15
<PAGE>
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 and may be computed at earlier
times as set forth in the Statement of Additional Information.
The Fund computes its net asset value once daily at 4:15 P.M. New York time on
Monday through Friday, except that the net asset value is not computed for the
Fund on the holidays listed under Net Asset Value in the Statement of Addi-
tional Information.
ORGANIZATION
The Trust was organized on November 4, 1992 as an unincorporated business
trust under Massachusetts law and is an entity commonly known as a "Massachu-
setts business trust." The Declaration of Trust permits the Trustees to issue
an unlimited number of full and fractional shares ($0.001 par value) of one or
more series. To date, 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 nonassessable by the Fund. The Trust does not intend to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for ac-
tion by shareholder vote as may be required by either the 1940 Act or the Dec-
laration of Trust. The Trustees will call a meeting of shareholders to vote on
removal of a Trustee upon the written request of the record holders of ten
percent of Trust shares and will assist shareholders in communicating with
each other as prescribed in Section 16(c) of the 1940 Act. For further organi-
zation information, including certain shareholder rights, see Description of
Shares in the Statement of Additional Information.
The Portfolio is a series (subtrust) of The Series Portfolio, a trust orga-
nized under the laws of the State of New York. The Series Portfolio's Declara-
tion of Trust provides that the Fund and other entities investing in the Port-
folio (e.g., other investment companies, insurance company separate accounts
and common and commingled trust funds) will each be liable for all obligations
of the Portfolio. However, the risk of the Fund incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in
the Portfolio.
16
<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 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% of its total assets, no more than 5% of its
total assets are invested in the securities of a single issuer, except U.S.
Government securities. As a regulated investment company, the Fund should not
be subject to federal income taxes or federal excise taxes if all of its net
investment income and capital gains less any available capital loss
carryforwards are distributed to shareholders within allowable time limits.
The Portfolio intends to qualify as an association treated as a partnership
for federal income tax purposes. As such, the Portfolio should not be subject
to tax. The Fund's status as a regulated investment company is dependent on,
among other things, the Portfolio's continued qualification as a partnership
for federal income tax purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to 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 U.S.
corporations.
Distributions of net long-term capital gains in excess of net short-term capi-
tal losses are taxable to shareholders of the Fund as long-term capital gains
regardless of how long a shareholder has held shares in the Fund and regard-
less of 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 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
17
<PAGE>
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 inter-
ests of its shareholders and will notify shareholders in writing each year if
it makes the election and of the amount of foreign income taxes and gross in-
come derived from sources within any foreign country or possession of the
United States, if any, to be treated as paid by the shareholders. If the Fund
makes the election, each shareholder will be required to include in income his
proportionate share of the amount of foreign income taxes paid by the Fund and
will be entitled to claim either a credit (which is subject to certain limita-
tions) or, if the shareholder itemizes deductions, a deduction for his share
of the foreign income taxes in computing his federal income tax liability. (No
deduction will be permitted to individuals in computing their alternative min-
imum tax liability.)
Distributions of foreign exchange gains resulting from certain transactions,
including the sale of foreign currencies, are taxed as ordinary income.
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The finan-
cial statements appearing in annual reports are audited by independent accoun-
tants. Shareholders also will be sent confirmations of each purchase and re-
demption and monthly statements, reflecting all other account activity, in-
cluding dividends and any distributions reinvested in additional shares or
credited as cash.
All shareholders are given the privilege to initiate transactions automati-
cally by telephone upon opening an account. However, an investor should be
aware that a transaction authorized by telephone and reasonably believed to be
genuine by the Fund, Morgan, his Eligible Institution or the Distributor may
subject the investor to risk of loss if such instruction is subsequently found
not to be genuine. The Fund will employ reasonable procedures, including re-
quiring investors to give their Personal Identification Number and tape re-
cording of telephone instructions, to confirm that instructions communicated
from investors by telephone are genuine; if it does not, 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 TOPIX, Standard & Poor's Composite Stock Price Index, the Dow
Jones Industrial Average, the Frank Russell Indexes, the Morgan Stanley Eu-
rope, Australia and Far East Index, the Financial Times World Stock Index and
other industry publications.
The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of op-
erations, if less) assuming that all distributions and dividends by the Fund
were reinvested on the reinvestment dates during the period and less all re-
curring fees. This method of calculating total return is required by regula-
tions of the Securities and Exchange Commission. Total return data similarly
calculated, unless otherwise indicated, over other specified periods of time
may also be used. See Performance Data in the Statement of Additional Informa-
tion. All performance figures are based on historical earnings and are not in-
tended to indicate future performance. Shareholders may obtain performance in-
formation by calling Morgan at (800) 766-7722.
18
<PAGE>
APPENDIX
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio ob-
tains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays
the current market price for the option (known as the option premium). Options
have various types of underlying instruments, including specific securities,
indexes of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by al-
lowing it to expire or by exercising the option. The Portfolio may also close
out a put option position by entering into an offsetting transaction, if a liq-
uid market exists. If the option is allowed to expire, the Portfolio will lose
the entire premium it paid. If the Portfolio exercises a put option on a secu-
rity, it will sell the instrument underlying the option at the strike price. If
the Portfolio exercises an option on an index, settlement is in cash and does
not involve the actual sale of securities. If an option is American style, it
may be exercised on any day up to its expiration date. A European style option
may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the in-
strument underlying the option does not fall enough to offset the cost of pur-
chasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase,
rather than sell, the instrument underlying the option at the option's strike
price. A call buyer typically attempts to participate in potential price in-
creases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect
to suffer a loss if security prices do not rise sufficiently to offset the cost
of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put option,
it takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the instrument underlying the option if the other party to
the option chooses to exercise it. The Portfolio may seek to terminate its po-
sition in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a
put option the Portfolio has written, however, the Portfolio must continue to
be prepared to pay the strike price while the option is outstanding, regardless
of price changes, and must continue to post margin as discussed below.
If the price of the underlying instrument rises, a put writer would generally
expect to profit, although its gain would be limited to the amount of the pre-
mium it received. If security prices remain the same over time, it is likely
that the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would expect
to suffer a loss. This loss should be less than the loss from purchasing and
holding the underlying instrument directly, however, because the premium re-
ceived for writing the option should offset a portion of the decline.
Writing a call option obligates the Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the op-
tion. The characteristics of writing call options are similar to those of writ-
ing put options, 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. Options on securities indexes are similar to options on se-
curities, except that the exercise of securities index options is settled by
cash payment and does not involve the actual purchase or sale of securities. In
A-1
<PAGE>
addition, these options are designed to reflect price fluctuations in a group
of securities or segment of the securities market rather than price fluctua-
tions in a single security. The Portfolio, in purchasing or selling index op-
tions, 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 Portfolio's
investment restrictions. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.
The Portfolio will segregate liquid assets in connection with its use of op-
tions and futures contracts to the extent required by the staff of the Securi-
ties and Exchange Commission. Securities held in a segregated account cannot be
sold while the futures contract or option is outstanding, unless they are re-
placed with other suitable assets. As a result, there is a possibility that
segregation of a large percentage of the Portfolio's assets could impede port-
folio management or the Portfolio's ability to meet redemption requests or
other current obligations.
For further information about the Portfolio's use of futures and options and a
more detailed discussion of associated risks, see Investment Objectives and
Policies in the Statement of Additional Information.
A-2
<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.
PROS301-974
The JPM Institutional Japan
Equity Fund
PROSPECTUS
April 30, 1997
<PAGE>
PROSPECTUS
The JPM Institutional Asia Growth Fund
60 State Street
Boston, Massachusetts 02109
For information call (800) 766-7722
The JPM Institutional Asia Growth Fund (the "Fund") seeks to provide a high to-
tal return from a portfolio of equity securities of companies in Asian growth
markets. The Fund is designed for long-term investors who want access to the
rapidly growing Asian markets.
The Fund is a diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The JPM Insti-
tutional Funds, an open-end management investment company organized as a Massa-
chusetts business trust (the "Trust").
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO
OF SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING
ALL OF ITS INVESTABLE ASSETS IN THE ASIA GROWTH PORTFOLIO (THE "PORTFOLIO"), A
CORRESPONDING DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT COMPANY HAVING THE
SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND INVESTS IN THE PORTFOLIO
THROUGH A TWO-TIER MASTER-FEEDER INVESTMENT FUND STRUCTURE. SEE SPECIAL
INFORMATION CONCERNING INVESTMENT STRUCTURE ON PAGE 3.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or the "Advisor").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and it should be retained
for future reference. Additional information about the Fund has been filed with
the Securities and Exchange Commission in a Statement of Additional Information
dated April 30, 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., 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 APRIL 30, 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.................................................... 11
Management of the Trust and the Portfolio.................................. 11
Shareholder Servicing...................................................... 14
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Purchase of Shares......................................................... 14
Redemption of Shares....................................................... 15
Exchange of Shares......................................................... 16
Dividends and Distributions................................................ 16
Net Asset Value............................................................ 16
Organization............................................................... 16
Taxes...................................................................... 17
Additional Information..................................................... 18
Appendix................................................................... A-1
</TABLE>
<PAGE>
The JPM Institutional Asia Growth Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed for long-term investors who want access to the rapidly
growing Asian markets. The Fund seeks to achieve its investment objective by
investing all of its investable assets in The Asia Growth Portfolio, a
diversified open-end management investment company having the same investment
objective as the Fund. Since the investment characteristics and experience of
the Fund will correspond directly with those of the Portfolio, the discussion
in this Prospectus focuses on the investments and investment policies of the
Portfolio. The net asset value of shares in the Fund fluctuates with changes in
the value of the investments in the Portfolio.
The Portfolio may make various types of investments in seeking its objective.
Among the permissible investments and investment techniques for the Portfolio
are futures contracts, options and forward contracts on foreign currencies. The
potential risks of investing in these derivative instruments are discussed in
Additional Investment Information and Risk Factors and the Appendix. The
Portfolio may also purchase certain privately placed securities. The
Portfolio's investments in securities of Asian growth markets involve foreign
investment risks and may be more volatile and less liquid than domestic
securities. For further information about these investments, see Investment
Objective and Policies below.
The Fund generally requires a minimum initial investment of $500,000. The
minimum subsequent investment is $25,000. See Purchase of Shares. If a
shareholder reduces his or her investment in the Fund to less than $500,000 for
more than 30 days, the investment 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
operating expenses set forth below for the Fund and the Portfolio, as a
percentage of average net assets of the Fund. The Trustees of the Trust believe
that the aggregate per share expenses of the Fund and the Portfolio will be
approximately equal to and may be less than the expenses that the Fund would
incur if it retained the services of an investment adviser and invested its
assets directly in portfolio securities. Fund and Portfolio expenses are
discussed below under the headings Management of the Trust and the Portfolio
and Shareholder Servicing.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases*........................................... None
Sales Load Imposed on Reinvested Dividends................................. None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
- -------
* 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............................................................. 0.80%
Rule 12b-1 Fees........................................................... None
Other Expenses (after expense reimbursement).............................. 0.45%
----
Total Operating Expenses (after expense reimbursement).................... 1.25%
</TABLE>
- -------
*Fees and expenses are expressed as a percentage of average net assets of the
Fund for its most recent fiscal period and after expense reimbursement through
April 30, 1998. See Management of the Trust and the Portfolio. Without reim-
bursements, Other Expenses and Total Operating Expenses, after consideration of
certain state limitations, were 1.70% and 2.50%, respectively, for the most re-
cently completed fiscal period.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year..................................................................... $ 13
3 Years.................................................................... $ 40
5 Years.................................................................... $ 69
10 Years................................................................... $151
</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 and the Shareholder Servicing Agreements, or-
ganization expenses, the fees paid to Pierpont Group, Inc. under the Fund Serv-
ices Agreements, the fees paid to Funds Distributor, Inc. 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 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 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
February 29, 1996
(commencement of
operations) to
December 31, 1996
-----------------
<S> <C>
Net Asset Value, Beginning of Period........................ $10.00
------
Income from Investment Operations:
Net Investment Income..................................... 0.06
Net Realized and Unrealized Gain on Investment and Foreign
Currency................................................. 0.15
------
Total from Investment Operations.......................... 0.21
------
Less Distributions to Shareholders
From Net Investment Income................................ (0.06)
In Excess of Net Investment Income........................ (0.01)
------
(0.07)
Net Asset Value, End of Period.............................. $10.14
======
Total Return................................................ 2.13%(a)
======
Ratios and Supplemental Data:
Net Assets at End of Period (in thousands)................ $3,362
Ratios to Average Net Assets:
Expenses................................................ 1.25%(b)
Net Investment Income................................... 0.95%(b)
Decrease Reflected in Expense Ratio due to Expense
Reimbursement.......................................... 1.25%(b)(c)
</TABLE>
- -------
(a) Not annualized.
(b) Annualized.
(c) After consideration of certain state limitations.
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,
together with the policies they employ in their efforts to achieve this
objective. Additional information about the investment policies of the Fund and
the Portfolio appears in the Statement of Additional Information under
Investment Objectives and Policies. There can be no assurance that the
investment objective of the Fund or the Portfolio will be achieved.
The Fund's investment objective is to achieve a high total return from a port-
folio of equity securities of companies in Asian growth markets. Total return
will consist of realized and unrealized capital gains and losses plus income.
The Fund attempts to achieve its investment objective by investing all its
investable assets in The Asia Growth Portfolio, a diversified open-end manage-
ment investment company having the same investment objective as the Fund.
4
<PAGE>
The Fund is designed for long-term investors who want access to the rapidly
growing Asian markets. THE FUND DOES NOT REPRESENT A COMPLETE INVESTMENT PRO-
GRAM NOR IS THE FUND SUITABLE FOR ALL INVESTORS. MANY INVESTMENTS IN ASIAN
GROWTH MARKETS CAN BE CONSIDERED SPECULATIVE AND, THEREFORE, MAY OFFER HIGHER
POTENTIAL FOR GAINS AND LOSSES AND MAY BE MORE VOLATILE THAN INVESTMENTS IN THE
DEVELOPED MARKETS OF THE WORLD. See Additional Investment Information and Risk
Factors.
The Advisor considers "Asian growth markets" to be Bangladesh, China, India,
Indonesia, Korea, Malaysia, Pakistan, the Philippines, Sri Lanka, Thailand,
Taiwan, Hong Kong, and Singapore.
A company in an Asian growth market is one that: (i) has its principal securi-
ties trading market in an Asian growth market; or (ii) is organized under the
laws of an Asian growth market; or (iii) derives 50% or more of its total reve-
nue and/or profits from either goods produced, sales made or services performed
in Asian growth markets; or (iv) has at least 50% of its assets located in
Asian growth markets.
The Portfolio seeks to achieve its objective through country allocation and
company selection. Morgan uses a disciplined portfolio construction process to
seek to enhance returns and reduce volatility in the market value of the Port-
folio relative to its benchmark. The Portfolio's benchmark is the Morgan Stan-
ley Capital International All Country Asia Free ex-Japan Index.
Based on fundamental research, quantitative valuation techniques and experi-
enced judgment, Morgan identifies those countries where economic and political
factors, including currency movements, are likely to produce above-average re-
turns. Drawing on this analysis, Morgan allocates the Portfolio among Asian
growth markets by overweighting or underweighting selected countries against
the benchmark.
To select investments for the Portfolio, the Advisor ranks companies in each
Asian growth market within industrial sectors according to their relative val-
ue. These valuations are based on the Advisor's fundamental research and use of
quantitative tools to project a company's long-term prospects for earnings
growth and its dividend paying capability. Based on this valuation, Morgan then
selects the companies which appear most attractive for the Portfolio. Typical-
ly, the Portfolio's industrial sector weightings will be similar to those of
its benchmark.
The Advisor intends to manage the Portfolio actively in pursuit of its invest-
ment objective. The Portfolio 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 objective. To the extent the Portfolio engages in short-
term trading, it may realize short-term capital gains or losses and incur in-
creased transaction costs. See Taxes below. The portfolio turnover rate for the
fiscal year ended December 31, 1996 was 93%. The average brokerage commission
rate per share paid by the Portfolio for the fiscal year ended December 31,
1996 was $0.0069.
The Portfolio's investments are primarily in securities denominated in foreign
currencies, but it may also invest in securities denominated in the U.S. dollar
or multinational currency units such as the ECU. The Advisor will not routinely
attempt to hedge the Portfolio's foreign currency exposure. However, the Advi-
sor may from time to time engage in foreign currency exchange transactions if,
based on fundamental research, technical factors, and the judgment of experi-
enced currency managers, it believes the transactions would be in the Portfo-
lio's best interest. For further information on foreign currency exchange
transactions, see Additional Investment Information and Risk Factors.
EQUITY INVESTMENTS. In normal circumstances, the Advisor intends to keep the
Portfolio essentially fully invested with at least 65% of the value of its to-
tal assets in equity securities of companies in Asian growth markets 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
5
<PAGE>
are the common stock of companies the Advisor has identified as attractive in
the Asian growth markets. Such investments will be made in at least three dif-
ferent countries considered to be Asian growth markets. The common stock in
which the Portfolio may invest includes the common stock of any class or series
or any similar equity interest, such as trust or limited partnership interests.
These equity investments may or may not pay dividends and may or may not carry
voting rights. The Portfolio invests in securities listed on foreign or domes-
tic securities exchanges and securities traded in foreign or domestic over-the-
counter (OTC) markets, and may invest in certain restricted or unlisted securi-
ties.
Certain Asian growth markets are closed in whole or in part to equity invest-
ments by foreigners except through specifically authorized investment funds.
Securities of other investment companies may be acquired by the Portfolio to
the extent permitted under the Investment Company Act of 1940 (the "1940
Act")--that is, the Portfolio may invest up to 10% of its total assets in 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 indexes of securities, futures contracts
and options on futures contracts for hedging and risk management purposes. For-
ward foreign currency exchange contracts, options and futures contracts are de-
rivative instruments. For a discussion of these investments and investment
techniques, see Additional Investment Information and Risk Factors.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
INVESTING IN ASIAN GROWTH MARKETS. The Portfolio invests primarily in equity
securities of companies in Asian growth markets. Investments in securities of
issuers in Asian growth markets may involve a high degree of risk and many may
be considered speculative. These investments carry all of the risks of invest-
ing in securities of foreign issuers described below to a heightened degree.
These heightened risks include (i) greater risks of expropriation, confiscatory
taxation, nationalization, and less social, political and economic stability;
(ii) the small current size of the markets for securities of Asian issuers and
the currently low or nonexistent volume of trading, resulting in lack of li-
quidity and in price volatility; (iii) certain national policies which may re-
strict the Portfolio's investment opportunities including restrictions on in-
vesting in issuers or industries deemed sensitive to relevant national inter-
ests; and (iv) the absence of developed legal structures governing private or
foreign investment and private property.
Different combinations of the above risks exist in each Asian growth market.
For example, the People's Republic of China (the "PRC") continues to exercise
significant centralized control over the economy. A delay in implementing, or a
reversal of, economic reforms could adversely affect economic growth, opportu-
nities for foreign investment and the prospects of private sector enterprises.
Actions by the PRC with respect to Hong Kong, both before and after the rever-
sion to Chinese rule, could have a negative effect on business confidence, the
performance of Hong Kong companies and the prices of Hong Kong stocks.
The value of the Portfolio's investments could also be unfavorably affected by
limitations on the foreign ownership of stock imposed by Indonesia, Malaysia,
Thailand and Taiwan; by substantial delays in the settlement (through physical
delivery) of stock transactions in India; and Thailand's border disputes with
Laos and Cambodia. In addition, all of these countries have experienced or may
experience a significant degree of political instability and volatility in the
prices of their respective currencies. For additional information, see Appendix
C--Investing in Japan and Asian Growth Markets in the Statement of Additional
Information.
6
<PAGE>
OTHER FOREIGN INVESTMENT INFORMATION. Generally, investment in securities of
foreign issuers involves somewhat different investment risks from those affect-
ing securities of U.S. domestic issuers. There may be limited publicly avail-
able 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. 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 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, nation-
alization, 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 poli-
cies in the United States or abroad could result in appreciation or deprecia-
tion 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 issu-
er. 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 be-
low that of domestic security exchanges. Accordingly, the Portfolio's foreign
investments may be less liquid and their prices may be more volatile than com-
parable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securi-
ties of U.S. issuers, may affect portfolio liquidity. In buying and selling se-
curities 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 regula-
tion 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 in the form
of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs")
and Global Depositary Receipts ("GDRs") or other similar securities of foreign
issuers. ADRs are securities, typically issued by a U.S. financial institution
(a "depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. ADRs
include American Depositary Shares and New York Shares. EDRs are receipts is-
sued by a European financial institution. GDRs, which are sometimes referred to
as Continental Depositary Receipts ("CDRs"), are securities, typically issued
by a non-U.S. financial institution, that evidence ownership interests in a se-
curity or a pool of securities issued by either a U.S. or foreign issuer. ADRs,
EDRs, GDRs and CDRs may be available for investment through "sponsored" or
"unsponsored" facilities. A sponsored facility is established jointly by the
issuer of the security underlying the receipt and a depositary, whereas an
unsponsored facility may be established by a depositary without participation
by the issuer of the receipt's underlying security.
Holders of an unsponsored depositary receipt generally bear all costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through to the holders of the re-
ceipts voting rights with respect to the deposited securities.
Since the Portfolio's investments in foreign securities involve foreign curren-
cies, the value of its assets as measured in U.S. dollars may be affected fa-
vorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. See Foreign Currency Exchange Trans-
actions.
7
<PAGE>
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and sells
securities and receives interest and dividends in currencies other than the
U.S. dollar, the Portfolio may enter from time to time into foreign currency
exchange transactions. The Portfolio either enters into these transactions on
a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market or uses forward contracts to purchase or sell foreign curren-
cies. The cost of the Portfolio's spot currency exchange transactions is gen-
erally the difference between the bid and offer spot rate of the currency be-
ing purchased or sold.
A forward foreign currency exchange contract is an obligation by the Portfolio
to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These con-
tracts are derivative instruments, as their value derives from the spot ex-
change rates of the currencies underlying the contract. These contracts are
entered into in the interbank market directly between currency traders (usu-
ally large commercial banks) and their customers. A forward foreign currency
exchange contract generally has no deposit requirement and is traded at a net
price without commission. The Portfolio will not enter into forward contracts
for speculative purposes. Neither spot transactions nor forward foreign cur-
rency exchange contracts eliminate fluctuations in the prices of the Portfo-
lio's securities or in foreign exchange rates, or prevent loss if the prices
of these securities should decline.
The Portfolio may enter into foreign currency exchange transactions in an at-
tempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or antici-
pated securities transactions. The Portfolio may also enter into forward con-
tracts to hedge against a change in foreign currency exchange rates that would
cause a decline in the value of existing investments denominated or princi-
pally traded in a foreign currency. To do this, the Portfolio would enter into
a forward contract to sell the foreign currency in which the investment is de-
nominated or principally traded in exchange for U.S. dollars or in exchange
for another foreign currency. The Portfolio will only enter into forward con-
tracts to sell a foreign currency in exchange for another foreign currency if
the Advisor expects the foreign currency purchased to appreciate against the
U.S. dollar.
Although these transactions are intended to minimize the risk of loss due to a
decline in the value of the hedged cur- rency, at the same time they limit any
potential gain that might be realized should the value of the hedged currency
increase. In addition, forward contracts that convert a foreign currency into
another foreign currency will cause the Portfolio to assume the risk of fluc-
tuations in the value of the currency purchased against the hedged currency
and the U.S. dollar. The precise matching of the forward contract amounts and
the value of the securities involved will not generally be possible because
the future value of such securities in foreign currencies will change as a
consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The projec-
tion of currency market movements is extremely difficult, and the successful
execution of a hedging strategy is highly uncertain.
CONVERTIBLE SECURITIES. The convertible securities in which the Portfolio may
invest include any debt securities or preferred stock which may be converted
into common stock or which carry the right to purchase common stock. Convert-
ible securities entitle the holder to exchange the securities for a specified
number of shares of common stock, usually of the same company, at specified
prices within a certain period of time.
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.
8
<PAGE>
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase secu-
rities on a when-issued or delayed delivery basis. Delivery of and payment for
these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market fluc-
tuation during this period and for fixed income securities no interest accrues
to the Portfolio until settlement. At the time of settlement, a when-issued
security may be valued at less than its purchase price. The Portfolio main-
tains with the Custodian a separate account with a segregated portfolio of se-
curities 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.
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 the 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.
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 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 received for similar
securities with a more liquid market. Accordingly the valuation of these
securities will reflect any limitations on their liquidity.
The Portfolio may also purchase Rule 144A securities sold to institutional in-
vestors without registration under the 1933 Act. These securities may be deter-
mined to be liquid in accordance with guidelines established by the Advisor and
approved by the Trustees. The Trustees will monitor the Advisor's implementa-
tion of these guidelines on a periodic basis.
FUTURES AND OPTIONS TRANSACTIONS. The Portfolio may (a) purchase and sell
(write) exchange traded and OTC put and call options on equity securities or
indexes of equity securities, (b) purchase and sell futures contracts on in-
dexes of equity securities, and (c) purchase and sell (write) put and call op-
tions on futures contracts on indexes of equity securities. Each of these in-
struments is a derivative instrument as its value derives from the underlying
asset or index.
The Portfolio may use futures contracts and options for hedging and risk man-
agement purposes. The Portfolio may not use futures contracts and options for
speculation.
The Portfolio may utilize options and futures contracts to manage its exposure
to changing interest rates and/or security prices. Some options and futures
strategies, including selling futures contracts and buying puts, tend to hedge
the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and
return characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Advisor and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which involves
investment strategies and risks different from those associated with ordinary
portfolio securities transactions, and there can be no guarantee that their use
will increase the Portfolio's return. While the use of these instruments by the
Portfolio may reduce certain risks associated with owning its portfolio securi-
ties, these techniques themselves entail certain other risks. If the Advisor
applies a strategy at an inappropriate time or judges market conditions or
trends incorrectly, options and futures strategies may lower the Portfolio's
return. Certain strategies limit the Portfolio's possibilities to realize gains
as well as limiting its exposure to losses. The Portfolio could also experience
losses if the prices of its options and futures positions were poorly corre-
lated with its other investments or if it could not close out its positions be-
cause of an illiquid secondary market. In addition, the Portfolio will incur
transaction costs, including trading commissions and option premiums, in con-
nection with its futures and options transactions and these transactions could
significantly increase the Portfolio's turnover rate.
The Portfolio may purchase put and call options on securities, indexes of secu-
rities and futures contracts, or purchase and sell futures contracts, only if
such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Portfolio's net assets, and (ii) the aggregate margin deposits required on all
such futures or options thereon held at any time do not exceed 5% of the Port-
folio's total assets. In addition, the Portfolio will not purchase or sell
(write) futures contracts, options on futures contracts or commodity options
for risk management purposes if, as a result, the aggregate initial margin and
options premiums required to establish these positions exceed 5% of the net as-
set value of the Portfolio. For more detailed information about these transac-
tions, see the Appendix to this Prospectus and Risk Management in the Statement
of Additional Information.
10
<PAGE>
MONEY MARKET INSTRUMENTS. The Portfolio is permitted to invest in money market
instruments although it intends to stay invested in equity securities to the
extent practical in light of its objective. The Portfolio may invest in money
market instruments of foreign or domestic issuers denominated in U.S. dollars
and other currencies. Under normal circumstances the Portfolio will purchase
these securities to invest temporary cash balances or to maintain liquidity to
meet redemptions. However, the Portfolio may also invest in money market in-
struments without limitation as a temporary defensive measure taken in the Ad-
visor's judgment during, or in anticipation of, adverse market conditions. For
more detailed information about these money market investments, see Investment
Objectives and Policies in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio are
subject to the following fundamental limitations: (a) the Portfolio may not in-
vest more than 5% of its total assets in the securities of any one issuer, ex-
cept U.S. government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer.
The investment objective of the Fund and the Portfolio, together with the in-
vestment restrictions described below and in the Statement of Additional Infor-
mation, except as noted, are deemed fundamental policies, i.e., they may be
changed only with the approval of the holders of a majority of the outstanding
voting securities of the Fund and the Portfolio. The Fund has the same invest-
ment restrictions as the Portfolio, except that the Fund may invest all of its
investable assets in another open-end investment company with the same invest-
ment objective and restrictions (such as the Portfolio). References below to
the Portfolio's investment restrictions also include the Fund's investment re-
strictions.
The Portfolio may not purchase securities or other obligations of issuers con-
ducting their principal business activity in the same industry if its invest-
ments in such industry would exceed 25% of the value of the Portfolio's total
assets, except this limitation shall not apply to investments in U.S. Govern-
ment securities. In addition, the Portfolio may not borrow money except that
the Portfolio may (a) borrow money from banks for temporary or emergency pur-
poses (not for leveraging purposes) and (b) enter into reverse repurchase
agreements for any purpose, provided that (a) and (b) in total do not exceed
one-third of the Portfolio's total assets less liabilities (other than
borrowings); and the Portfolio may not issue senior securities except as per-
mitted by the 1940 Act or any rule, order or interpretation thereunder. See Ad-
ditional Investment Information and Risk Factors--Loans of Portfolio Securities
and Reverse Repurchase Agreements.
For a more detailed discussion of the above investment restrictions, as well as
a description of certain other investment restrictions, see Investment 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>
11
<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 those funds. See Trustees and Officers in
the Statement of Additional Information. The principal offices of Pierpont
Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017.
ADVISOR. The Fund has not retained the services of an investment adviser be-
cause the Fund seeks to achieve its investment objective by investing all of
its investable assets in the Portfolio. The Portfolio has retained the serv-
ices of Morgan as Investment Advisor. Morgan, with principal offices at 60
Wall Street, New York, New York 10260, is a New York trust company which con-
ducts a general banking and trust business. Morgan is a wholly owned subsidi-
ary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"), a bank holding company
organized under the laws of Delaware. Through offices in New York City and
abroad, J.P. Morgan, through the Advisor and other subsidiaries, offers a wide
range of services to governmental, institutional, corporate and individual
customers and acts as investment adviser to individual and institutional cli-
ents with combined assets under management of over $208 billion. Morgan pro-
vides investment advice and portfolio management services to the Portfolio.
Subject to the supervision of the Portfolio's Trustees, Morgan makes the Port-
folio's day-to-day investment decisions, arranges for the execution of portfo-
lio transactions and generally manages the Portfolio's investments. See In-
vestment Advisor in the Statement of Additional Information.
Morgan uses a sophisticated, disciplined, collaborative process for managing
all asset classes. For equity portfolios, this process utilizes fundamental
research, systematic stock selection, disciplined portfolio construction and,
in the case of foreign equities, country exposure and currency management.
Morgan has managed portfolios of equity securities of companies in emerging
markets, including Asian growth markets, since 1990. The portfolio managers
making investments in Asian growth markets work in conjunction with Morgan's
equity analysts focused on Asian growth markets, as well as capital market,
credit and economic research analysts, traders and administrative officers.
The Asian equity analysts, located in Singapore, each cover a different indus-
try, monitoring a universe of approximately 250 companies in the region.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio (the inception date
of each person's responsibility for the Portfolio and his business experience
for the past five years is indicated parenthetically): Steven T. Ho, Vice
President (since March, 1995, employed by Morgan since prior to 1992 as a
portfolio manager of Asian investments and as an investment research analyst)
and Joseph S. Bohrer, Vice President (since January, 1997, employed by Morgan
since prior to 1992 as a portfolio manager of U.S. and global equity invest-
ments).
As compensation for the services rendered and related expenses borne by Morgan
under the Investment Advisory Agreement with the Portfolio, the Portfolio has
agreed to pay Morgan a fee, which is computed daily and may be paid monthly,
at the annual rate of 0.80% of the Portfolio's average daily net assets.
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.
12
<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, 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 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, the Portfolio and certain other registered investment
companies managed 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
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 April 30,
1998 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
1.25% 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.
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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.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value per share next determined after
receipt of an order. Prospective investors may purchase shares with the assis-
tance of an Eligible Institution that may establish its own terms, conditions
and charges.
To purchase shares in the Fund, investors should request their Morgan represen-
tative (or a representative of their Eligible Institution) to assist them in
placing a purchase order with the Fund's Distributor and to transfer immedi-
ately available funds to the Fund's Distributor on the next business day. Any
shareholder may also call J.P. Morgan Funds Services at (800) 766-7722 for as-
sistance in placing an order for Fund shares. If the Fund or its agent receives
a purchase order prior to 4:00 P.M. New York time on any business day, the pur-
chase 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 re-
ceives a purchase order after 4:00 P.M. New York time, the
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<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
subaccounting, answering client inquiries regarding the Trust, assisting cli-
ents in changing dividend options, account designations and addresses, provid-
ing periodic statements showing the client's account balance and integrating
these statements with those of other transactions and balances in the client's
other accounts serviced by the Eligible Institution, transmitting proxy state-
ments, periodic reports, updated prospectuses and other communications to
shareholders and, with respect to meetings of shareholders, collecting, tabu-
lating and forwarding executed proxies and obtaining such other information
and performing such other services as Morgan or the Eligible Institution's
clients may reasonably request and agree upon with the Eligible Institution.
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 Eligible Institution, as appropriate, to submit a redemption re-
quest to the Fund or may telephone J.P. Morgan Funds Services directly at
(800) 766-7722 and give the Shareholder Service Representative a preassigned
shareholder Personal Identification Number and the amount of the redemption.
The Fund executes effective redemption requests at the next determined net as-
set value per share. See Net Asset Value. See Additional Information below for
an explanation of the telephone redemption policy of The JPM Institutional
Funds.
A redemption request received by the Fund 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 applicable minimum investment amount of $500,000 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 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 in-
come tax on dividends, distributions and redemption proceeds when non-corp-
orate 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.
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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 number of its outstanding shares, rounded to the nearest cent.
Expenses, including the fees payable to Morgan, are accrued daily. See Net As-
set Value in the Statement of Additional Information for information on valua-
tion of portfolio securities for the Portfolio.
The Fund computes its net asset value once daily at 4:15 P.M. New York time on
Monday through Friday, except that the net asset value is not computed for the
Fund on the holidays listed under Net Asset Value in the Statement of Addi-
tional Information 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
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<PAGE>
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 nonassessable by the Fund. The Trust does not intend to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for ac-
tion by shareholder vote as may be required by either the 1940 Act or the Dec-
laration of Trust. The Trustees will call a meeting of shareholders to vote on
removal of a Trustee upon the written request of the record holders of ten
percent of Trust shares and will assist shareholders in communicating with
each other as prescribed in Section 16(c) of the 1940 Act. For further organi-
zation information, including certain shareholder rights, see Description of
Shares in the Statement of Additional Information.
The Portfolio is a series (subtrust) of The Series Portfolio, a trust orga-
nized under the laws of the State of New York. The Series Portfolio's Declara-
tion of Trust provides that the Fund and other entities investing in the Port-
folio (e.g., other investment companies, insurance company separate accounts
and common and commingled trust funds) will each be liable for all obligations
of the Portfolio. However, the risk of the Fund incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in
the Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are sub-
ject to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to 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% of its total assets, no more than 5% of its
total assets are invested in the securities of a single issuer, except U.S.
Government securities. As a regulated investment company, the Fund should not
be subject to federal income taxes or federal excise taxes if all of its net
investment income and capital gains less any available capital loss
carryforwards are distributed to shareholders within allowable time limits.
The Portfolio intends to qualify as an association treated as a partnership
for federal income tax purposes. As such, the Portfolio should not be subject
to tax. The Fund's status as a regulated investment company is dependent on,
among other things, the Portfolio's continued qualification as a partnership
for federal income tax purposes.
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<PAGE>
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to non-corporate shareholders.
Distributions of net investment income and realized net short-term capital
gains in excess of net long-term capital losses are taxable as ordinary income
to shareholders of the Fund whether such distributions are taken in cash or re-
invested in additional shares. Distributions of this type to corporate share-
holders of the Fund will not qualify for the dividends- received deduction be-
cause the income of the Fund will not consist of dividends paid by U.S. corpo-
rations.
Distributions of net long-term capital gains in excess of net short-term capi-
tal losses are taxable to shareholders of the Fund as long-term capital gains
regardless of how long a shareholder has held shares in the Fund and regardless
of whether taken in cash or reinvested in additional shares. Long-term capital
gains distributions to corporate shareholders are not eligible for the divi-
dends-received deduction.
Any distribution of net investment income or capital gains will have the effect
of reducing the net asset value of Fund shares held by a shareholder by the
same amount as the distribution. If the net asset value of the shares is re-
duced below a shareholder's cost as a result of such a distribution, the dis-
tribution, although constituting a return of capital to the shareholder, will
be taxable as described above.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term cap-
ital gain or loss if the shares have been held for more than one year, and oth-
erwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect
to such shares. 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.
The Fund is subject to foreign withholding taxes with respect to income re-
ceived from sources within certain foreign countries. So long as more than 50%
of the value of the Fund's total assets at the close of any taxable year con-
sists of stock or securities of foreign corporations, the Fund may elect to
treat any such foreign income taxes paid by it as paid directly by its share-
holders. The Fund will make such an election only if it deems it to be in the
best interests of its shareholders and will notify shareholders in writing each
year if it makes the election and of the amount of foreign income taxes and
gross income derived from sources within any foreign country or possession of
the United States, if any, to be treated as paid by the shareholders. If the
Fund makes the election, each shareholder will be required to include in income
his proportionate share of the amount of foreign income taxes paid by the Fund
and will be entitled to claim either a credit (which is subject to certain lim-
itations) or, if the shareholder itemizes deductions, a deduction for his share
of the foreign income taxes in computing his federal income tax liability. (No
deduction will be permitted to individuals in computing their alternative mini-
mum tax liability.)
Distributions of foreign exchange gains resulting from certain transactions,
including the sale of foreign currencies, are taxed as ordinary income.
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The finan-
cial statements appearing in annual reports are audited by independent accoun-
tants. Shareholders also will be sent confirmations of each purchase and re-
demption and monthly statements, reflecting all other account activity, includ-
ing dividends and any distributions reinvested in additional shares or credited
as cash.
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<PAGE>
All shareholders are given the privilege to initiate transactions automati-
cally by telephone upon opening an account. However, an investor should be
aware that a transaction authorized by telephone and reasonably believed to be
genuine by the Fund, Morgan, his Eligible Institution or the Distributor may
subject the investor to risk of loss if such instruction is subsequently found
not to be genuine. The Fund will employ reasonable procedures, including re-
quiring investors to give their Personal Identification Number and tape re-
cording of telephone instructions, to confirm that instructions communicated
from investors by telephone are genuine; if it does not, 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 Tokyo Stock Price Index, Standard & Poor's 500 Composite Stock
Price Index, the Dow Jones Industrial Average, the Frank Russell Indexes, the
Morgan Stanley Europe, Australia and Far East Index, the IFC Investible indi-
ces, the Financial Times World Stock Index and other industry publications.
The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of op-
erations, if less) assuming that all distributions and dividends by the Fund
were reinvested on the reinvestment dates during the period and less all re-
curring fees. This method of calculating total return is required by regula-
tions of the Securities and Exchange Commission. Total return data similarly
calculated, unless otherwise indicated, over other specified periods of time
may also be used. See Performance Data in the Statement of Additional Informa-
tion. All performance figures are based on historical earnings and are not in-
tended to indicate future performance. Shareholders may obtain performance in-
formation by calling Morgan at (800) 766-7722.
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APPENDIX
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio ob-
tains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays
the current market price for the option (known as the option premium). Options
have various types of underlying instruments, including specific securities,
indexes of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by al-
lowing it to expire or by exercising the option. The Portfolio may also close
out a put option position by entering into an offsetting transaction, if a liq-
uid market exists. If the option is allowed to expire, the Portfolio will lose
the entire premium it paid. If the Portfolio exercises a put option on a secu-
rity, it will sell the instrument underlying the option at the strike price. If
the Portfolio exercises an option on an index, settlement is in cash and does
not involve the actual sale of securities. If an option is American style, it
may be exercised on any day up to its expiration date. A European style option
may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the in-
strument underlying the option does not fall enough to offset the cost of pur-
chasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase,
rather than sell, the instrument underlying the option at the option's strike
price. A call buyer typically attempts to participate in potential price in-
creases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect
to suffer a loss if security prices do not rise sufficiently to offset the cost
of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put option,
it takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the instrument underlying the option if the other party to
the option chooses to exercise it. The Portfolio may seek to terminate its po-
sition in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a
put option the Portfolio has written, however, the Portfolio must continue to
be prepared to pay the strike price while the option is outstanding, regardless
of price changes, and must continue to post margin as discussed below.
If the price of the underlying instrument rises, a put writer would generally
expect to profit, although its gain would be limited to the amount of the pre-
mium it received. If security prices remain the same over time, it is likely
that the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would expect
to suffer a loss. This loss should be less than the loss from purchasing and
holding the underlying instrument directly, however, because the premium re-
ceived for writing the option should offset a portion of the decline.
Writing a call option obligates the Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the op-
tion. The characteristics of writing call options are similar to those of writ-
ing put options, 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. Options on securities indexes are similar to options on se-
curities, except that the exercise of securities index options is settled by
cash payment and does not involve the actual purchase or sale of securities. In
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addition, these options are designed to reflect price fluctuations in a group
of securities or segment of the securities market rather than price fluctua-
tions in a single security. The Portfolio, in purchasing or selling index op-
tions, 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 Portfolio's
investment restrictions. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.
The Portfolio will segregate liquid assets in connection with its use of op-
tions and futures contracts to the extent required by the staff of the Securi-
ties and Exchange Commission. Securities held in a segregated account cannot be
sold while the futures contract or option is outstanding, unless they are re-
placed with other suitable assets. As a result, there is a possibility that
segregation of a large percentage of the Portfolio's assets could impede port-
folio management or the Portfolio's ability to meet redemption requests or
other current obligations.
For further information about the Portfolio's use of futures and options and a
more detailed discussion of associated risks, see Investment Objectives and
Policies in the Statement of Additional Information.
A-2
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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.
PROS302-974
The JPM Institutional Asia
Growth Fund
PROSPECTUS
April 30, 1997
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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
APRIL 30, 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.
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Table of Contents
PAGE
General . . . . . . . . . . . . . . . . . . 1
Investment Objectives and Policies . . . . . . 1
Investment Restrictions . . . . . . . . . . . 35
Trustees and Officers . . . . . . . . . . . . 56
Investment Advisor . . . . . . . . . . . . . . 62
Distributor . . . . . . . . . . . . . . . . 66
Co-Administrator . . . . . . . . . . . . . . . 67
Services Agent . . . . . . . . . . . . . . . . 70
Custodian and Transfer Agent . . . . . . . . . 73
Shareholder Servicing . . . . . . . . . . . . 73
Independent Accountants . . . . . . . . . . . 75
Expenses . . . . . . . . . . . . . . . . . . 76
Purchase of Shares . . . . . . . . . . . . . . 76
Redemption of Shares . . . . . . . . . . . . . 76
Exchange of Shares . . . . . . . . . . . . . . 77
Dividends and Distributions . . . . . . . . . 77
Net Asset Value . . . . . . . . . . . . . . . 78
Performance Data . . . . . . . . . . . . . . . 80
Portfolio Transactions . . . . . . . . . . . . 83
Massachusetts Trust . . . . . . . . . . . . . 86
Description of Shares . . . . . . . . . . . . 87
Taxes . . . . . . . . . . . . . . . . . . . 90
Additional Information . . . . . . . . . . . 95
Financial Statements . . . . . . . . . . . . . 96
Appendix A - Description of Securities
Ratings . . . . . . . . . . . . . . . . . . A-1
Appendix B - Additional Information
Concerning New York Municipal Obligations. . . B-1
Appendix C - Investing in Japan
and Asian Growth Markets. . . . . . . . . . . C-1
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GENERAL
The JPM Institutional Family of Funds is a family of open-end
investment companies, currently consisting of 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."
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THE JPM INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND (the "Tax Exempt
Money Market Fund") is designed to be an economical and convenient means of
making substantial investments in instruments that are exempt from federal
income tax. The Tax Exempt Money Market Fund's investment objective is to
provide a high level of current income that is exempt from federal income tax
and maintain a high level of liquidity. See "Taxes." The Fund attempts to
achieve this objective by investing all of its investable assets in The Tax
Exempt Money Market Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the Tax
Exempt Money Market Fund.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing in U.S. dollar-denominated securities described in the
Prospectus and this Statement of Additional Information that meet certain rating
criteria, present minimal credit risks, have effective maturities of not more
than thirteen months and earn interest wholly exempt from federal income tax in
the opinion of bond counsel for the issuer. 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. Government 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.
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The Portfolio attempts to achieve its investment objective by investing
primarily in the corporate and government debt obligations and related
securities 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.
The Portfolio attempts to achieve its investment objective by investing
in primarily high grade and investment 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
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attractively priced bonds. The traders also handle all transactions for the
Portfolio.
THE JPM INSTITUTIONAL TAX EXEMPT BOND FUND (the "Tax Exempt Bond Fund")
is designed to be an economical and convenient means of making substantial
investments in debt obligations that are exempt from federal income tax. The Tax
Exempt Bond Fund's investment objective is to provide a high level of current
income exempt from federal income tax consistent with moderate risk of capital
and maintenance of liquidity. See "Taxes." The Fund attempts to achieve its
investment objective by investing all of its investable assets in The Tax Exempt
Bond Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Tax Exempt Bond Fund.
The Portfolio attempts to achieve its investment objective by investing
primarily in securities of states, territories and possessions of the United
States and their political subdivisions, agencies and instrumentalities, the
interest of which is exempt from federal income tax in the opinion of bond
counsel for the issuer, but it may invest up to 20% of its total assets in
taxable obligations. The Tax Exempt Bond Fund seeks to maintain a current yield
that is greater than that obtainable from a portfolio of short term tax exempt
obligations, subject to certain quality restrictions. See "Quality and
Diversification Requirements."
THE JPM INSTITUTIONAL NEW YORK TOTAL RETURN BOND FUND (the "New York
Total Return Bond Fund") is designed to be an economical and convenient means of
investing in a portfolio consisting primarily of debt obligations that are
exempt from federal and New York State income taxes. The New York Total Return
Bond Fund's investment objective is to provide a high after tax total return for
New York residents consistent with moderate risk of capital. Total return will
consist of income plus capital gains and losses. The Fund attempts to achieve
its objective by investing all of its investable assets in The New York Total
Return Bond Portfolio (the "Portfolio"), a non-diversified open-end management
investment company having the same investment objective as the Fund.
The Portfolio attempts to achieve its investment objective by investing
primarily in municipal securities issued by New York State and its political
subdivisions and by agencies, authorities 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.
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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
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
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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-
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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
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.
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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.
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
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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.
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,
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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
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
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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 constructed using disciplined buy and sell rules. The portfolio
manager's objective is to concentrate the Portfolio's purchases in the stocks
deemed most
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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.
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In an effort to contain risk, Morgan places limits on the total size of the
Portfolio's country over- and under-weightings.
Stock selection: Morgan's 15 European equity analysts, each an industry
and country specialist, forecast normalized earnings and dividend payouts for
roughly 600 companies, taking a long-term perspective rather than the short time
frame common to consensus estimates. The analysts' forecasts are converted into
comparable expected returns by a dividend discount model, and then companies are
ranked from most to least attractive by industry and country. A diversified
portfolio is constructed using disciplined buy and sell rules. The portfolio
manager's objective is to concentrate purchases in the top third of the
rankings, and to keep sector weightings close to those of the benchmark. Once a
stock falls into the bottom third of the rankings -- because its price has risen
or its fundamentals have deteriorated -- it generally becomes a 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
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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.
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
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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
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
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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 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 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
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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.
In addition, if bankruptcy proceedings are commenced with respect to the seller
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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.
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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
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
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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 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
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corporations. For example, states, territories, possessions and municipalities
may issue municipal bonds to raise funds for various public purposes such as
airports, housing, hospitals, mass transportation, schools, water and sewer
works. They may also issue municipal bonds to refund outstanding obligations and
to meet general operating expenses. Public authorities issue municipal bonds to
obtain funding for privately operated facilities, such as housing and pollution
control facilities, for industrial facilities or for water supply, gas,
electricity or waste disposal facilities.
Municipal bonds may be general obligation or revenue bonds. General
obligation bonds are secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
payable from revenues derived from particular facilities, from the proceeds of a
special excise tax or from other specific revenue sources. They are not
generally payable from the general taxing power of a municipality.
MUNICIPAL NOTES. Municipal notes are subdivided into three categories of
short-term obligations: municipal notes, municipal commercial paper and
municipal demand obligations.
Municipal notes are short-term obligations with a maturity at the time
of issuance ranging from six months to five years. The principal types of
municipal notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes, grant anticipation notes and project notes. Notes sold in
anticipation of collection of taxes, a bond sale, or receipt of other revenues
are usually general obligations of the issuing municipality or agency.
Municipal commercial paper typically consists of very short-term
unsecured negotiable promissory notes that are sold to meet seasonal working
capital or interim construction financing needs of a municipality or agency.
While these obligations are intended to be paid from general revenues or
refinanced with long-term debt, they frequently are backed by letters of credit,
lending agreements, note repurchase agreements or other credit facility
agreements offered by banks or institutions.
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
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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 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
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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
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unable to predict whether all or any portion of any loss sustained could
subsequently be recovered from such dealer.
The Trust has been advised by counsel that the Funds will be considered
the owner of the securities subject to the puts so that the interest on the
securities is tax exempt income to the Funds. Such advice of counsel is based on
certain assumptions concerning the terms of the puts and the attendant
circumstances.
EQUITY INVESTMENTS
As discussed in the Prospectus, the Portfolios for the Selected U.S.
Equity, 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
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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
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"), European
Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs") or other
similar securities of foreign issuers. ADRs are securities, typically issued by
a U.S. financial institution (a "depositary"), that evidence ownership interests
in a security or a pool of securities issued by a foreign issuer and deposited
with the depositary. ADRs include American Depositary Shares and New York
Shares. EDRs are receipts issued by a European financial institution. GDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, EDRs, GDRs and CDRs may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depositary receipt generally bear all costs
of the unsponsored facility. The depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through to the
holders of the receipts voting rights with respect to the deposited securities.
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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.
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
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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, Non-U.S. Equity and International Opportunities
Portfolios invest in securities denominated in yen, changes in exchange rates
between the U.S. dollar and the yen affect the U.S. dollar value of their
respective assets. Although the Japanese economy has grown substantially over
the past four decades, recently the rate of growth had slowed substantially.
See "Foreign Currency Exchange Transactions."
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 income securities no interest accrues to a Portfolio until settlement
takes
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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
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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 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
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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) 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
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(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 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
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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 and insurance, and these arrangements are considered when investment
quality is
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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
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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.
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 "investment grade" tax exempt securities. On the date
of investment (i) municipal bonds must be rated 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, (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 10% of its total assets in securities which are "below
investment grade."
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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 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
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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.
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.
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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.)
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
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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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<PAGE>
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%.
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<PAGE>
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%.
THE EUROPEAN EQUITY PORTFOLIO (European Equity Fund) -- For the period March 28,
1995 (commencement of operations) through December 31, 1995: 36%. For the fiscal
year ended December 31, 1996: 57%.
THE JAPAN EQUITY PORTFOLIO (Japan Equity Fund) -- For the period March 28, 1995
(commencement of operations) through December 31, 1995: 60%. For the fiscal year
ended December 31, 1996: 86%.
THE ASIA GROWTH PORTFOLIO (Asia Growth Fund) -- For the period April 5, 1995
(commencement of operations) through December 31, 1995: 70%. For the fiscal year
ended December 31, 1996: 93%.
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;
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<PAGE>
2. Enter into reverse repurchase agreements exceeding in the aggregate one-third
of the market value of the Fund's total assets, less liabilities other than
obligations created by reverse repurchase agreements;
3. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts not to exceed 10% of the value of the Fund's total assets,
taken at cost, at the time of such borrowing. Mortgage, pledge, or hypothecate
any assets except in connection with any such borrowing and in amounts not to
exceed 10% of the value of the Fund's net assets at the time of such borrowing.
The Fund will not purchase securities while borrowings exceed 5% of the Fund's
total assets; provided, however, that the Fund may increase its interest in an
open-end management investment company with the same investment objective and
restrictions as the Fund while such borrowings are outstanding. This borrowing
provision is included to facilitate the orderly sale of portfolio securities,
for example, in the event of abnormally heavy redemption requests, and is not
for investment purposes and shall not apply to reverse repurchase agreements;
4. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund. This limitation shall not
apply to issues of the U.S. Government, its agencies or instrumentalities and to
permitted investments of up to 25% of the Fund's total assets;
5. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investment in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities, negotiable certificates of
deposit, time deposits, and bankers' acceptances of U.S. branches of U.S. banks;
6. Make loans, except through purchasing or holding debt obligations, or
entering into repurchase agreements, or loans of portfolio securities in
accordance with the Fund's investment objective and policies (see "Investment
Objectives and Policies");
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;
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<PAGE>
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;
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
- --------
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.
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<PAGE>
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.
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
- --------
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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<PAGE>
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 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
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<PAGE>
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
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<PAGE>
pursuant to Investment Restriction No. 4 and except that the Fund may enter into
reverse repurchase agreements, provided that the aggregate of senior securities,
including reverse repurchase agreements, shall not exceed one-third of the
market value of the Fund's total assets, less liabilities other than obligations
created by reverse repurchase agreements. The Fund's arrangements in connection
with its hedging activities as described in "Investment Objectives and Policies"
shall not be considered senior securities for purposes hereof;
6. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities) or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies;
7. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, or commodity contracts, except for the Fund's
interests in hedging activities as described under "Investment Objectives and
Policies"; or interests in oil, gas, or mineral exploration or development
programs. However, the Fund may purchase securities or commercial paper issued
by companies which invest in real estate or interests therein, including real
estate investment trusts, and purchase instruments secured by real estate or
interests therein;
8. Purchase securities on margin, make short sales of securities, or maintain a
short position in securities, except to obtain such short-term credit as
necessary for the clearance of purchases and sales of securities; provided that
this restriction shall not be deemed to be applicable to the purchase or sale of
when-issued securities or delayed delivery securities;
9. Acquire securities of other investment companies, except as permitted by the
1940 Act or in connection with a merger, consolidation, reorganization,
acquisition of assets or an offer of exchange; provided, however, that nothing
in this investment restriction shall prevent the Trust from investing all or
part of the Fund's assets in an open-end management investment company with the
same investment objective and restrictions as the Fund; or
10. Act as an underwriter of securities.
The BOND FUND and its corresponding PORTFOLIO may not:
1. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts up to 30% of the value of the Fund's total assets, taken at
cost at the time of such borrowing and except in connection with reverse
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
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<PAGE>
of abnormally heavy redemption requests. This provision is not for investment
purposes. Collateral arrangements for premium and margin payments in connection
with the Fund's hedging activities are not deemed to be a pledge of assets;
2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. This limitation shall not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of the Fund's total
assets;
3. Purchase the securities of an issuer if, immediately after such purchase, the
Fund owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that the Fund may invest all or part of its investable assets
in an open-end management investment company with the same investment objective
and restrictions as the Fund's. This limitation shall not apply to permitted
investments of up to 25% of the Fund's total assets;
4. Purchase securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase the value of its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;
5. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities) or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies;
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, commodity contracts, except for the Fund's interest in
hedging activities as described under "Investment Objectives and Policies"; or
interests in oil, gas, or mineral exploration or development programs. However,
the Fund may purchase debt obligations secured by interests in real estate or
issued by companies which invest in real estate or interests therein including
real estate investment trusts;
7. Purchase securities on margin, make short sales of securities, or maintain a
short position in securities, except in the course of the Fund's hedging
activities, unless at all times when a short position is open the Fund owns an
equal amount of such securities, provided that this restriction shall not be
deemed to be applicable to the purchase or sale of when-issued securities or
delayed delivery securities;
8. Issue any senior security, except as appropriate to evidence indebtedness
which constitutes a senior security and which the Fund is permitted to incur
pursuant to Investment Restriction No. 1 and except that the Fund may enter into
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48
<PAGE>
reverse repurchase agreements, provided that the aggregate of senior securities,
including reverse repurchase agreements, shall not exceed one-third of the
market value of the Fund's total assets, less liabilities other than obligations
created by reverse repurchase agreements. The Fund's arrangements in connection
with its hedging activities as described in "Investment Objectives and Policies"
shall not be considered senior securities for purposes hereof;
9. Acquire securities of other investment companies, except as permitted by the
1940 Act; or
10. Act as an underwriter of securities.
The TAX EXEMPT BOND FUND and its corresponding PORTFOLIO may not:
1. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts up to 10% of the value of the Fund's total assets, taken at
cost at the time of such borrowing; or mortgage, pledge, or hypothecate any
assets except in connection with any such borrowing in amounts up to 10% of the
value of the Fund's net assets at the time of such borrowing. The Fund will not
purchase securities while borrowings exceed 5% of the Fund's total assets;
provided, however, that the Fund may increase its interest in an open-end
management investment company with the same investment objective and
restrictions as the Fund's while such borrowings are outstanding. This borrowing
provision facilitates the orderly sale of portfolio securities, for example, in
the event of abnormally heavy redemption requests. This provision is not for
investment purposes. Collateral arrangements for premium and margin payments in
connection with the Fund's hedging activities are not deemed to be a pledge of
assets;
2. Purchase securities or other obligations of any one issuer if, immediately
after such purchase, more than 5% of the value of the Fund's total assets would
be invested in securities or other obligations of any one such issuer; provided,
however, that the Fund may invest all or part of its investable assets in an
open-end management investment company with the same investment objective and
restrictions as the Fund's. Each state and each political subdivision, agency or
instrumentality of such state 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
- --------
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.
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49
<PAGE>
pollution control obligations whether or not the users of facilities financed by
such obligations are in that same industry;4
4. Purchase industrial revenue bonds if, as a result of such purchase, more than
5% of total Fund assets would be invested in industrial revenue bonds where
payment of principal and interest are the responsibility of companies with fewer
than three years of operating history (including predecessors);
5. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities) or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies (see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof
except to the extent that securities subject to a demand obligation, stand-by
commitments and puts may be purchased (see "Investment Objectives and
Policies"); real estate; commodities; commodity contracts, except for the Fund's
interests in hedging activities as described under "Investment Objectives and
Policies"; or interests in oil, gas, or mineral exploration or development
programs. However, the Fund may purchase municipal bonds, notes or commercial
paper secured by interests in real estate;
7. Purchase securities on margin, make short sales of securities, or maintain a
short position, except in the course of the Fund's hedging activities, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or owns securities which, without payment of any further
consideration, are convertible into or exchangeable for securities of the same
issue as, and equal in amount to, the securities sold short; provided that this
restriction shall not be deemed to be applicable to the purchase or sale of
when-issued or delayed delivery securities;
8. Issue any senior security, except as appropriate to evidence indebtedness
which the Fund is permitted to incur pursuant to Investment Restriction No. 1.
The Fund's arrangements in connection with its hedging activities as described
in "Investment Objectives and Policies" shall not be considered senior
securities for purposes hereof;
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:
- --------
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.
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<PAGE>
1. Purchase any security if, as a result, more than 25% of the value of the
Fund's total assets would be invested in securities of issuers having their
principal business activities in the same industry. This limitation shall not
apply to obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities;
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.
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;
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<PAGE>
2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. This limitation shall not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of the Fund's total
assets;
3. Purchase the securities of an issuer if, immediately after such purchase, the
Fund owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that the Fund may invest all or part of its investable assets
in an open-end management investment company with the same investment objective
and restrictions as the Fund's. This limitation shall not apply to permitted
investments of up to 25% of the Fund's total assets;
4. Borrow money (not including reverse repurchase agreements), except from banks
for temporary or extraordinary or emergency purposes and then only in amounts up
to 30% of the value of the Fund's or the Portfolio's total assets, taken at cost
at the time of such borrowing (and provided that such borrowings and reverse
repurchase agreements do not exceed in the aggregate one-third of the market
value of the Fund's and the Portfolio's total assets less liabilities other than
the obligations represented by the bank borrowings and reverse repurchase
agreements). The Fund will not mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts not to exceed 30% of
the value of the Fund's or the Portfolio's net assets at the time of such
borrowing. The Fund or the Portfolio will not purchase securities while
borrowings exceed 5% of the Fund's total assets; provided, however, that the
Fund may increase its interest in an open-end management investment company with
the same investment objective and restrictions as the Fund's while such
borrowings are outstanding. This borrowing provision is included to facilitate
the orderly sale of portfolio securities, for example, in the event of
abnormally heavy redemption requests, and is not for investment purposes.
Collateral arrangements for premium and margin payments in connection with the
Fund's use of futures contracts and options are not deemed to be a pledge of
assets;
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");
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<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
i:\dsfndlgl\institut\0497.pea\sai
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<PAGE>
connection with the Fund's hedging activities are not deemed to be a pledge of
assets;
3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. This limitation shall not
apply to issues of the U.S. Government, its agencies or instrumentalities and to
permitted investments of up to 25% of the Fund's total assets;
4. Purchase the securities of an issuer if, immediately after such purchase, the
Fund owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that the Fund may invest all or part of its investable assets
in an open-end management investment company with the same investment objective
and restrictions as the Fund's;
5. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities), or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies (see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, or commodity contracts, except for the Fund's
interests in hedging activities as described under "Investment Objectives and
Policies"; or interests in oil, gas, or mineral exploration or development
programs. However, the Fund may purchase securities or commercial paper issued
by companies which invest in real estate or interests therein, including real
estate investment trusts;
7. Purchase securities on margin, make short sales of securities, or maintain a
short position, except in the course of the Fund's hedging activities, provided
that this restriction shall not be deemed to be applicable to the purchase or
sale of when-issued securities or delayed delivery securities;
8. Acquire securities of other investment companies, except as permitted by the
1940 Act;
9. Act as an underwriter of securities;
10. Issue any senior security, except as appropriate to evidence indebtedness
which the Fund is permitted to incur pursuant to Investment Restriction No. 2.
The Fund's arrangements in connection with its hedging activities as described
in "Investment Objectives and Policies" shall not be considered senior
securities for purposes hereof; or
11. Purchase any equity security if, as a result, the Fund would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three years.
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<PAGE>
The INTERNATIONAL EQUITY FUND and its corresponding PORTFOLIO may not:
1. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts up to 30% of the value of the Fund's net assets at the time
of borrowing, and except in connection with reverse repurchase agreements and
then only in amounts up to 33 1/3% of the value of the Fund's net assets; or
purchase securities while borrowings, including reverse repurchase agreements,
exceed 5% of the Fund's total assets; provided, however, that the Fund may
increase its interest in an open-end management investment company with the same
investment objective and restrictions as the Fund's while such borrowings are
outstanding. The Fund will not mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts not to exceed 30% of
the value of the Fund's net assets at the time of such borrowing;
2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. This limitation shall not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of the Fund's total
assets;
3. Purchase the securities of an issuer if, immediately after such purchase, the
Fund owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that the Fund may invest all or part of its investable assets
in an open-end management investment 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
i:\dsfndlgl\institut\0497.pea\sai
55
<PAGE>
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;
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);
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<PAGE>
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, 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;
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<PAGE>
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.
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<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) purchase and sell mortgage-related
securities and (v) hold and sell real estate acquired by the Fund as a result of
the ownership of securities.
6. Purchase 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.
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<PAGE>
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. 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
- --------
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.
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<PAGE>
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.
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
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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
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.
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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
securities together beneficially own more than 5% of such securities, all taken
at market; or
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(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;
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(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, 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.
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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
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 Master Portfolios (as defined below), 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.
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<TABLE>
TOTAL TRUSTEE
COMPENSATION ACCRUED
AGGREGATE TRUSTEE BY THE MASTER 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(**), $12,593 $65,000
Chairman and Chief Executive
Officer
Michael P. Mallardi, Trustee $12,593 $65,000
</TABLE>
(*) Indicated the Portfolios and The Emerging Markets Debt Portfolio (the
"Master Portfoios").
(**) 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 Master 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
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 (including
any Fund's predecessor) and its corresponding Portfolio during the indicated
fiscal years are set forth below:
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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.
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<PAGE>
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.
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 fiscal year ended
December 31, 1996: $25,144.
EUROPEAN EQUITY FUND -- For the period February 29, 1996 (commencement of
operations) through December 31, 1996: $153.
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JAPAN EQUITY PORTFOLIO -- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $21,727. For the fiscal year ended
December 31, 1996: $21,646.
JAPAN EQUITY FUND -- For the period February 29, 1996 (commencement of
operations) through December 31, 1996: $103.
ASIA GROWTH PORTFOLIO -- For the period April 5, 1995 (commencement of
operations) through December 31, 1995: $4,788. For the fiscal year ended
December 31, 1996: $4,975.
ASIA GROWTH FUND -- For the period February 29, 1996 (commencement of o
perations) through December 31, 1996: $72.
OFFICERS
The Trust's and Portfolios' executive officers (listed below), other
than the Chief Executive Officer, are provided and compensated by Funds
Distributor, Inc. ("FDI"), a wholly owned indirect subsidiary of Boston
Institutional Group, Inc. The officers conduct and supervise the business
operations of the Trust and the Portfolios. The Trust and the Portfolios have no
employees.
The officers of the Trust and the Portfolios, 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,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an
officer of certain investment companies advised or administered by the Dreyfus
Corporation ("Dreyfus") or its 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. Assistant Vice
President and Manager of Treasury Services and Administration of FDI and an
officer of certain investment companies advised or administered by Dreyfus or
its affiliates. Prior to April 1997, Mr. Conroy was Supervisor of Treasury
Services and Administration of FDI. 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 (excluding
the Federal Money Market, Tax Exempt Money Market, Tax Exempt Bond, New York
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Total Return Bond and Global Strategic Income Portfolios). 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. Executive 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. Prior to April 1997, Mr.
Ingram was Senior Vice President and Director of Client Service and Treasury
Administration of FDI. 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 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. Prior to August 1996, Ms. Keeley was
Assistant Vice President and Counsel of FDI and Premier Mutual. 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: 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 (excluding
the Federal Money Market, Tax Exempt Money Market, Tax Exempt Bond, New York
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Total Return Bond and Global Strategic Income Portfolios). 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 and Premier Mutual, 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,
General Counsel, Secretary and Clerk 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.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for FDI since December
1996. From December 1989 through November 1996, Mr. Petrucelli was employed with
GE Investments where he held various financial, business development and
compliance positions. He also served as Treasurer of the GE Funds and as
Director of GE Investment Services. Address: 200 Park Avenue, New York, New
York, 10166. His date of birth is May 18, 1961.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Executive Vice
President, Treasurer and Chief Financial Officer, Chief Administrative Officer
and Director Of FDI. Senior Vice President, Treasurer and Chief Financial
Officer Chief Administrative Officer and Director of Premier Mutual and an
officer of Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus or its Affiliates. Prior
to April 1997, Mr. Tower was Senior Vice President, Treasurer and Chief
Financial Officer, Chief Administrative Officer and Director of FDI. 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
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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 funds and other institutional investors with combined assets under
management of $208 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
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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 1-16
Year Municipal Bond Index; The New York Total Return Bond Portfolio--Lehman
Brothers 1-16 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--MSCI All Country
World ex-U.S. Index; The Diversified Portfolio--diversified benchmark (52% S&P
500, 35% Salomon Brothers Broad Investment Grade Bond, 3% Russell 2000 and 10%
EAFE indexes); The European Equity Portfolio--the MSCI Europe Index; The Japan
Equity Portfolio--the TOPIX; and The Asia Growth Portfolio--the MSCI All Country
Asia Free ex-Japan Index.
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%
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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%
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.
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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:
$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 fiscal year ended December 31, 1996: $3,735,998.
JAPAN EQUITY PORTFOLIO (Japan Equity Fund) -- For the period March 28, 1995
(commencement of operations) through December 31, 1995: $1,777,126. For the
fiscal year ended December 31, 1996: $3,053,033.
ASIA GROWTH PORTFOLIO (Asia Growth Fund) -- For the period April 5, 1995
(commencement of operations) through December 31, 1995: $528,956. For the fiscal
year ended December 31, 1996: $899,241.
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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 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.
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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 Master
Portfolios, JPM Series Trust and JPM Series Trust II.
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.
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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.
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.
EUROPEAN EQUITY PORTFOLIO -- For the period August 1, 1996 through December 31,
1996: $7,060. EUROPEAN EQUITY FUND -- For the period August 1, 1996 through
December 31, 1996:
$90.
JAPAN EQUITY PORTFOLIO -- For the period August 1, 1996 through December 31,
1996: $4,885. JAPAN EQUITY FUND -- For the period August 1, 1996 through
December 31, 1996:
$63.
ASIA GROWTH PORTFOLIO -- For the period August 1, 1996 through December 31,
1996: $1,351. ASIA GROWTH FUND -- For the period August 1, 1996 through December
31, 1996: $42.
The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to Signature Broker-Dealer Services, Inc.
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(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.
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
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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.
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
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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 period January 1, 1996
through July 31, 1996: $38,675.
EUROPEAN EQUITY FUND -- For the period February 29, 1996 (commencement of
operations) through July 31, 1996: $191.
JAPAN EQUITY PORTFOLIO -- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $17,418. For the period January 1, 1996
through July 31, 1996: $35,898.
JAPAN EQUITY FUND -- For the period February 29, 1996 (commencement of
operations) through July 31, 1996: $132.
ASIA GROWTH PORTFOLIO -- For the period April 5, 1995 (commencement of
operations) through December 31, 1995: $4,037. For the period January 1,1996
through July 31, 1996: $7,712.
ASIA GROWTH FUND -- For the period February 29, 1996 (commencement of
operations) through July 31, 1996: $96.
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 Master 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 Master Portfolios in accordance with the following schedule: 0.06%
of the first $7 billion of the Master Portfolios' aggregate average daily net
assets, and 0.03% of the Master Portfolios' average daily net assets in excess
of $7 billion. 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.
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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.
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.
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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 fiscal year ended
December 31, 1996: $161,993.
EUROPEAN EQUITY FUND -- For the period February 29, 1996 (commencement of
operations) through December 31, 1996: $(72,718)*.
JAPAN EQUITY PORTFOLIO -- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $147,974. For the fiscal year ended
December 31, 1996: $130,108.
JAPAN EQUITY FUND -- For the period February 29, 1996 (commencement of
operations) through December 31, 1996: $(68,261)*.
ASIA GROWTH PORTFOLIO -- For the period April 5, 1995 (commencement of
operations) through December 31, 1995: $21,823. For the fiscal year ended
December 31, 1996: $31,613.
ASIA GROWTH FUND -- For the period February 29, 1996 (commencement of
operations) through December 31, 1996: $(68,091)*.
- ------------------------------------
(*) 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 trans
actions and holding portfolio securities and cash. In addition, the Custodian
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has entered into subcustodian agreements on behalf of the Portfolios for the Tax
Exempt Money Market, Tax Exempt Bond and New York Total Return Bond Funds with
Bankers Trust Company for the purpose of holding TENR Notes and with Bank of New
York and Chemical Bank, N.A. for the purpose of holding certain variable rate
demand notes. In the case of foreign assets held outside the United States, the
Custodian employs various subcustodians who were approved by the Trustees of the
Portfolios in accordance with the regulations of the SEC. The Custodian
maintains portfolio transaction records. As Transfer Agent and Dividend
Disbursing Agent, State Street is responsible for maintaining account records
detailing the ownership of Fund shares and for crediting income, capital gains
and other changes in share ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of each of the Funds has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of an Eligible Institution. Under this agreement, Morgan is responsible for
performing shareholder account administrative and servicing functions, which
includes but is not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to a Fund; assisting customers in
designating and changing dividend options, account designations and addresses;
providing necessary personnel and facilities to coordinate the establishment and
maintenance of shareholder accounts and records with the Funds' transfer agent;
transmitting purchase and redemption orders to the Funds' transfer agent and
arranging for the wiring or other transfer of funds to and from customer
accounts in connection with orders to purchase or redeem Fund shares; verifying
purchase and redemption orders, transfers among and changes in accounts;
informing the Distributor of the gross amount of purchase orders for Fund
shares; and providing other related services.
Under the Shareholder Servicing Agreement, each Fund has agreed to pay
Morgan for these services a fee at the following annual rates (expressed as a
percentage of the average daily net asset values of Fund shares owned by or for
shareholders for whom Morgan is acting as shareholder servicing agent): Money
Market, 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.
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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.
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.
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EUROPEAN EQUITY FUND -- For the period February 29, 1996 (commencement of
operations) through December 31, 1996: $4,000.
JAPAN EQUITY FUND -- For the period February 29, 1996 (commencement of
operations) through December 31, 1996: $2,786.
ASIA GROWTH FUND -- For the period February 29, 1996 (commencement of
operations) through December 31, 1996: $1,915.
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 filing fees under state
securities laws. For the Portfolios, such expenses also include applicable
registration
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fees under foreign securities laws, custodian fees and brokerage expenses. Under
fee arrangements prior to September 1, 1995, Morgan as Services Agent was
responsible for reimbursements to the Trust and 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.
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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. 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 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.
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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 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,
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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.
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
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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
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
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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
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initial payment of $1,000. It is then assumed that all of the dividends and
distributions by the Fund over the period are reinvested. It is then assumed
that at the end of the period, the entire amount is redeemed. The annualized
total return is then calculated by determining the annual rate required for the
initial payment to grow to the amount which would have been received upon
redemption.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
Historical performance information for any period or portion thereof
prior to the establishment of a Fund will be that of its corresponding
predecessor 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
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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%.
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
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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.
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.
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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 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.
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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): 1996: $1,189,817; 1995: $143,417.
JAPAN EQUITY FUND (December): 1996: $1,245,419; 1995: $0.
ASIA GROWTH FUND (December): 1996: $881,897; 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.
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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.
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.
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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
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
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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
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 March 31, 1997, the following owned of record or, to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of:
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Federal Money Market Fund--Morgan as Agent for Cantor Fitzgerald, Inc.
(25.38%), L. A. Lauder, Estee Lauder Inc. (21.68%), Bank of New York as Series
1993-3 Coll a/c P.M.F. Russo (12.62%), Gwel Ventures, c/o L. Lauder (9.59%),
Bank of New York as Series 1993-1 Coll a/c P.M.F. Russo (8.41%), L.B. Daniels
(6.17%);
Money Market Fund--Citibank-Private Bank (26.52%), Kilroy Realty LP
(9.36%), Morgan as Agent for Great Western Employee Savings Incentive Plan
(6.79), J.W. Henry Trust U/A/D 7/27/90 (6.41%);
Tax Exempt Money Market Fund--Morgan as Agent for S.R. Wexner (28.26%),
E.H. Skove (19.34%), Morgan as Agent for T.F. and J.D. Pyle (7.87%), M.
Carey-Rye Songs (6.03%), E.K. Zilkha, Zilkha & Sons, Inc. (5.41%);
Bond Fund--Morgan as Agent for Ameritech Union welfare Benefit TR-Global
Balanced U.S. Fixed Income (7.28%);
Short Term Bond Fund--Morgan as Agent for Warner Lambert Benefits Trust
(39.39%), Morgan as Agent for Florida Atlantic Univ. Foundation (15.27%), Morgan
as Agent for G.C. Bible Trust (7.48%), Morgan as Agent for H.G. Storr Trust
(6.62%), Morgan as Agent for R.W. Murray Trust (6.57%), Morgan as Agent for
Honor Emergency Fund of FDNY (5.00%);
Tax Exempt Bond Fund--Morgan as Agent for E. Hanovia, Inc. (7.62%), Morgan
as Agent for General Re Employee Benefit Trust (5.96%);
New York Total Return Bond Fund--Morgan as Agent for Shubert Organization
(13.26%), Morgan as Agent for Trust U/W of L.H.P. Klotz fbo R. Klotz (12.92%);
Morgan As Agent for S.R. Wexner (5.41%), E.S. Gordon, S.L. Wallach and A.M.
Saytanides, Escrow Agents for E.S. Gordon Company, Inc. (5.28%), Morgan as Agent
for J. Corry (5.00%);
International Bond Fund--Morgan as Agent for Albany Medical Center
Insurance Trust-Fleet Trust as Custodian (41.01%), Morgan as Agent for J.
Urrutia (36.02%), Morgan as Agent for General Motors Savings Plan (15.17%),
Morgan as Agent for M. Soussou (6.03%);
Selected U.S. Equity Fund--Morgan as Trustee for Major League Baseball
Master Pension Trust (8.72%), Wachovia Bank of North Carolina, Trustee for
Newmont Gold Co. Master Pension Trust (7.41%), Boston & Co. Mutual Funds
Operations (6.46%), Morgan as Agent for Diversified Growth Fund Attn M.C.
Halaburda (6.28%), Morgan as Trustee for Degussa Defined Benefit Trust (6.25%),
Lin Television Corp. Retirement Plan (5.85%);
Diversified Fund--Celtic Insurance Company Ltd. (12.81%), Boston Foundation
Inc. (11.39%), Morgan as Agent for Unifi Inc. Profit Sharing Plan Trust
(10.66%), Westinghouse Personal Investment Plan (7.43%), BG Sulzle Inc. Employee
Pension (5.93%), Retirement Plan for Employees of Association American
Arbitration Pension Committee (5.69%), T.J. Martell Foundation c/o Christopher
McDonnell (5.34%);
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Emerging Markets Equity--Batrus & Co. (9.67%), Morgan as Agent for A.P.
Sloan Foundation (6.71%);
International Equity Fund--Blue Cross Blue Shield of North Carolina Steven
Cherrier, Vice President (5.49%);
European Equity Fund--Morgan as Agent for M.D. Palm (35.22%), Morgan as
Agent for P. Ponzek Irrevocable Trust (23.45%), Morgan as Agent for C. Chan
Family Trust (19.66), Morgan as Agent for J.A. Johnson/M. Isaacs (7.25%), Morgan
as Agent for J. M. Watkins (7.04%), Morgan as Agent for B. Price (6.73);
Japan Equity Fund---Morgan as Agent for M.D. Palm (43.91%), Morgan as Agent
for Hep Living Trust DTD (28.74%), Charles Schwab & Co Inc (16.94%), Morgan as
Agent for J.A. Johnson/M. Isaacs (5.11%);
Asia Growth Fund--Morgan as Agent for P. Ponzek Irrevocable Trust (28.00%),
Morgan as Agent for J.M. Watkins (20.22%), Morgan as Agent for M.D. Palm
(10.94%), Morgan as Agent for W.B. Bond Trust (9.86%), Morgan as Agent for M.L.
Clark (6.62%), Morgan as Agent for J.A. Johnson and M. Isaacs (6.60%);
Disciplined Equity Fund-- The Queen's Health Systems P. Osborne CFO
(57.28%), Morgan as Agent for 500 Property Management Corp. Attn: M.C. Halaburda
(7.90%), Morgan as Agent for G. Herring (5.65%), Morgan as Agent for Spring
Industries Inc. Attn: A. Johnson (5.07%);
Global Strategic Income Fund--Morgan as Agent for R. Lauder (63.59%),
Morgan as Agent for the C. H. Dyson Charitable Remain Unitrust (23.32%), Morgan
as Agent for the Green Family Holdings (10.62%; and
International Opportunities Fund--Morgan as Agent for Diversified Growth
Fund Attn: M.C. Halaburda (24.61%), Morgan as Agent for Mr. A. Elia or Mrs. T.
Elia (5.05%).
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
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contracts (other than options, futures or forward contracts on foreign
currencies) held less than three months, or foreign currencies (or options,
futures or forward contracts on foreign currencies), but only if such currencies
(or options, futures or forward contracts on foreign currencies) are not
directly related to a Fund's principal business of investing in stocks or
securities (or options and futures with respect to stocks or securities); and
(c) diversify its holdings so that, at the end of each 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
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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 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
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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
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 corresponding Fund 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 Funds 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
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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
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
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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
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
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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.
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FINANCIAL STATEMENTS
The following financial statements of each Fund (except for the
International Opportunities, Disciplined Equity and Global Strategic Income
Funds) 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.
<TABLE>
<CAPTION>
Date of Semi-Annual Date of Annual
Report; Date Semi- Report; Date Annual
Annual Report Filed; Report Filed; and
Name of Fund/Portfolio and Accession Number Accession Number
- ------------------------------------------------ --------------------------------- --------------------------------
<S> <C> <C>
The JPM Institutional Money N/A 11/30/96
Market Fund 01/30/97
0000912057-97-002304
The JPM Institutional Tax N/A 08/31/96
Exempt Money Market Fund 11/06/96
0000912057-96-024854
The JPM Institutional Federal N/A 10/31/96
Money Market Fund 12/30/96
0000912057-96-030430
The JPM Institutional Short N/A 10/31/96
Term Bond Fund 01/08/97
0000912057-97-000396
The JPM Institutional Bond N/A 10/31/96
Fund 01/08/97
0000912057-97-000419
The JPM Institutional Tax N/A 08/31/96
Exempt Bond Fund 11/06/96
0000912057-96-024847
The JPM Institutional Selected 11/30/96 05/31/96
U.S. Equity Fund 02/04/97 08/07/96
0000912057-97-003000 0000912057-96-016487
The JPM Institutional U.S. 11/30/96 05/31/96
Small Company Fund 02/04/97 08/07/96
0000912057-97-002995 0000912057-96-016490
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The JPM Institutional N/A 10/31/96
International Equity Fund 01/07/97
0000912057-97-000342
The JPM Institutional N/A 06/30/96
Diversified Fund 09/06/96
0000912057-96-019775
The JPM Institutional Emerging N/A 10/31/96
Markets Equity Fund 01/08/97
0000912057-97-000391
The JPM Institutional New York 09/30/96 03/31/96
Total Return Bond Fund 12/03/96 06/05/96
0000912057-96-028127 0000912057-96-011621
The JPM Institutional Japan 06/30/96 12/31/96
Equity Fund 09/06/97 03/10/97
0000912057-96-019721 0000912057-97-008379
The JPM Institutional European 06/30/96 12/31/96
Equity Fund 09/06/96 03/10/97
0000912057-96-019720 0000912057-97-008375
The JPM Institutional Asia 06/30/96 12/31/96
Growth Fund 09/06/96 03/10/97
0000912057-96-019737 0000912057-97-008376
The JPM Institutional N/A 09/30/96
International Bond Fund 12/06/96
0000912057-96-028534
- ------------------------------------------------ --------------------------------- --------------------------------
</TABLE>
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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.
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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.
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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
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<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.
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<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.
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<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
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APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
CORPORATE AND MUNICIPAL BONDS
AAA - Debt rated AAA has the highest ratings assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB - Debt rated BB is regarded as having less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
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.
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<PAGE>
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
SHORT-TERM TAX-EXEMPT NOTES
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest rating
assigned by Standard & Poor's and has a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory capacity
to pay principal and interest.
MOODY'S
CORPORATE AND MUNICIPAL BONDS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
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
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<PAGE>
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
Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection. - Broad margins in earnings coverage of fixed financial
charges and high internal cash generation. - Well established access to a range
of financial markets and assured sources of alternate liquidity.
SHORT-TERM TAX EXEMPT NOTES
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest rating
assigned by Moody's for notes judged to be the best quality. Notes with this
rating enjoy strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of protection not
as large as MIG-1.
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<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.
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<PAGE>
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
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
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<PAGE>
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.
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
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<PAGE>
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
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,
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<PAGE>
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 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.
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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
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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
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
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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
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
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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.
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
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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.
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,
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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.
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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 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.
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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.
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
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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 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
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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 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
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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,
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 its
weight in the import price index (the indicator of the price level of imports in
Japan) is significant. While Japan strives to reduce its dependence on imported
materials by raising the efficiency of its economy, its lack of natural
resources poses an 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. 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
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operation of the Portfolio. For example, Taiwan imposes a waiting period on the
repatriation of investment capital for certain foreign investors. Although these
restrictions may in the future make it undesirable to invest in the countries to
which they apply, the Advisor does not believe that any current repatriation
restrictions would preclude the Portfolio from effectively managing its assets.
If, because of restrictions on repatriation or conversion, the
Portfolio were unable to distribute substantially all of its net investment
income and long-term capital gains within applicable time periods, the Portfolio
could be subject to U.S. federal income and excise taxes which would not
otherwise be incurred and may cease to qualify for the favorable tax treatment
afforded to regulated investment companies under the Code, in which case it
would become subject to U.S. federal income tax on all of its income and gains.
Generally, there are restrictions on foreign investment in certain
Asian growth markets, although these restrictions vary in form and content. In
India, Indonesia, Korea, Malaysia, the Philippines, Singapore, Thailand, Taiwan
and China, 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.
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In Singapore, Malaysia, India, Korea, the Philippines, Taiwan and
Thailand, there are restrictions on the percentage of permitted foreign
investment in shares of certain companies, mainly those in highly regulated
industries, although in Taiwan there are limitations on foreign ownership of
shares of any listed company. In addition, Korea also prohibits foreign
investment in specified telecommunications companies and the Philippines
prohibits foreign investment in mass media companies and companies providing
certain professional services.
MARKET CHARACTERISTICS
DIFFERENCES BETWEEN THE U.S. AND ASIAN SECURITIES MARKETS. The
securities markets of Asian growth markets have substantially less volume than
the New York Stock Exchange, and equity and debt securities of most companies in
Asian growth markets are less liquid and more volatile than equity and debt
securities of U.S. companies of comparable size. Some of the stock exchanges in
Asian growth markets, such as those in the PRC, are in the earliest stages of
their development. Many companies traded on securities markets in Asian growth
markets are smaller, newer and less seasoned than companies whose securities are
traded on securities markets in the United States. Investments in smaller
companies involve greater risk than is customarily associated with investing in
larger 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
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failure in times of market, political, or economic stress. In addition, existing
laws and regulations are often inconsistently applied. As legal systems in some
of the Asian growth markets develop, foreign investors may be adversely affected
by new laws and regulations, changes to existing laws and regulations and
preemption of local laws and regulations by national laws. In circumstances
where adequate laws exist, it may not be possible to obtain swift and equitable
enforcement of the law. Currently a mixture of legal and structural restrictions
affect the securities markets of certain Asian growth markets.
Korea, in an attempt to avoid market manipulation, requires
institutional investors to deposit in their broker's account a percentage of the
amount to be invested prior to execution of a purchase order. That deposit
requirement will expose the Fund to the broker's credit risk. These examples
demonstrate that legal and structural developments can be expected to affect the
Portfolio, potentially affecting liquidity of positions held by the Portfolio,
in unexpected and significant ways from time to time.
FINANCIAL INFORMATION AND STANDARDS. Issuers in Asian growth markets
generally are subject to accounting, auditing and financial standards and
requirements that differ, in some cases significantly, from those applicable to
U.S. issuers. In particular, the assets and profits appearing on the financial
statements of an Asian growth market issuer may not reflect its financial
position or results of operations in accordance with U.S. generally accepted
accounting principles. In addition, for an issuer that keeps accounting records
in local currency, inflation accounting rules may require, for both tax and
accounting purposes, that certain assets and liabilities be restated on the
issuer's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits. Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the real condition of
those issuers and securities markets. Moreover, substantially less information
may be publicly 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
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security forces. During the course of the last 25 years, governments in the
region have been installed or removed as a result of military coups, while
others have periodically demonstrated repressive police state characteristics.
Disparities of wealth, among other factors, have also led to social unrest in
some Asian growth markets, accompanied, in certain cases, by violence and labor
unrest. Ethnic, religious and racial disaffection, as evidenced in India,
Pakistan and Sri Lanka, have created social, economic and political problems.
Several Asian growth markets have or in the past have had hostile
relationships with neighboring nations or have experienced internal insurgency.
Thailand has experienced border conflicts with Laos and Cambodia, and India is
engaged in border disputes with several of its neighbors, including the PRC and
Pakistan. Tension between the Tamil and Sinhalese communities in Sri Lanka has
resulted in periodic outbreaks of violence. An uneasy truce exists between North
Korea and South Korea, and the recurrence of hostilities remains possible.
Reunification of North Korea and South Korea could have a detrimental effect on
the economy of South Korea. Also, the PRC continues to claim sovereignty over
Taiwan. The PRC is acknowledged to possess nuclear weapons capability; North
Korea is alleged to possess or be in the process of developing such a
capability.
The economies of most Asian growth markets are heavily dependent upon
international trade and are accordingly affected by protective barriers and the
economic conditions of their trading partners, principally, the United States,
Japan, the PRC and the European Community. The enactment by the United States or
other principal trading partners of protectionist trade legislation, reduction
of foreign investment in the local economies and general declines in the
international securities markets could have a significant adverse effect upon
the securities markets of the Asian growth markets. In addition, the economies
of some Asian growth markets, Indonesia and Malaysia, for example, are
vulnerable to weakness in world prices for their commodity exports, including
crude oil.
Governments in certain Asian growth markets participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could have a significant
adverse effect on market prices of securities and payment of dividends.
The PRC has only recently permitted private economic activities and the
PRC government has exercised and continues to exercise substantial control over
virtually every sector of the PRC economy through regulation and state
ownership. Continued economic growth and development in the PRC, as well as
opportunities for foreign investment, and prospects of private sector
enterprises, in the PRC, 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
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confidence in Hong Kong, therefore, can be significantly affected by such
developments and statements, which in turn can affect markets and business
performance.
With respect to investments in Taiwan, it should be noted that Taiwan
lacks formal diplomatic relations with many nations, although it conducts trade
and financial relations with most major economic powers. Both the government of
the PRC and the government of the Republic of China in Taiwan claim sovereignty
over all of China. Although relations between Taiwan and the PRC are currently
peaceful, renewed frictions or hostility could interrupt operations of Taiwanese
companies in which the Portfolio invests and create uncertainty that could
adversely affect the value and marketability of its Taiwan investments.
With regard to India, agriculture occupies a more prominent position in
the Indian economy than in the United States, and the Indian economy therefore
is more susceptible to adverse changes in weather. The government of India has
exercised and continues to exercise significant influence over many aspects of
the economy, and the number of public sector enterprises in India is
substantial. Accordingly government actions in the future could have a
significant effect on the Indian economy which could affect private sector
companies, market conditions and prices and yields of securities held by the
Portfolio. Religious and ethnic unrest persists in India. The long standing
grievances between the Hindu and Muslim populations resulted in communal
violence during 1993 in the aftermath of the destruction of a mosque in Ayodhya
by radical elements of the Hindu population. The Indian government is also
confronted by separatist movements in several states and the long standing
border dispute with Pakistan over the State of Jammu and Kashmir, a majority of
whose population is Muslim, remains unsolved. In addition, Indian stock
exchanges have in the past been subject to repeated closure including for ten
days in December 1993 due to a broker's strike, and there can be no assurance
that this will not recur.
THINLY TRADED MARKETS
Compared to securities traded in the United States, all securities of
Asian growth market issuers may generally be considered to be thinly traded.
Even relatively widely held securities in such countries may not be able to
absorb trades of a size customarily transacted by institutional investors,
without price disruptions. Accordingly, the Portfolio's ability to reposition
itself will be more constrained than would be the case for a typical equity
mutual fund.
SETTLEMENT PROCEDURES AND DELAYS
Settlement procedures in Asian growth markets are less developed and
reliable than those in the United States and in other developed markets, and the
Portfolio may experience settlement delays or other material difficulties. This
problem is particularly severe in India where settlement is through physical
delivery and, where currently, a severe shortage of vault capacity exists among
custodial banks, although efforts are being undertaken to alleviate the
shortage. In addition, significant delays are common in registering transfers of
securities, and the Portfolio may be unable to sell such securities until the
registration process is completed and may experience delays in receipt of
dividends and other entitlement. The recent and anticipated inflow of funds into
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the Indian securities market has placed added strains on the settlement system
and transfer process. In addition, the Portfolio may be subject to significant
limitations in the future on the volume of trading during any particular period,
imposed by its sub-custodian in India or otherwise as a result of such physical
or other operational constraints.
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PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
The following financial statements are included in Part A:
Financial Highlights: The JPM Institutional Money Market Fund, The JPM
Institutional Tax Exempt Money Market Fund, The JPM Institutional 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)
C-2
<PAGE>
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
Statement of Assets and Liabilities at December 31, 1996 (unaudited)
Statement of Operations for the six months ended December 31, 1996
unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements December 31, 1996 (unaudited)
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
Schedule of Investments at December 31, 1996 (unaudited)
Statement of Assets and Liabilities at December 31, 1996 (unaudited)
Statement of Operations for the six months ended December 31, 1996
(unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements December 31, 1996 (unaudited)
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
C-4
<PAGE>
(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 December 31, 1996
Statement of Operations for the period February 29, 1996 (commencement of
operations) through December 31, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements December 31, 1996
The Japan Equity Portfolio
Schedule of Investments at December 31, 1996
Statement of Assets and Liabilities at December 31, 1996
Statement of Operations for the fiscal year ended December 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements December 31, 1996
The JPM Institutional European Equity Fund
Statement of Assets and Liabilities at December 31, 1996
Statement of Operations for the period February 29, 1996 (commencement of
operations) through December 31, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements December 31, 1996
The European Equity Portfolio
Schedule of Investments at December 31, 1996
Statement of Assets and Liabilities at December 31, 1996
Statement of Operations for the fiscal year ended December 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements December 31, 1996
The JPM Institutional Asia Growth Fund
Statement of Assets and Liabilities at December 31, 1996
Statement of Operations for the period February 29, 1996 (commencement of
operations) through December 31, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements December 31, 1996
The Asia Growth Portfolio
Schedule of Investments at December 31, 1996
Statement of Assets and Liabilities at December 31, 1996
Statement of Operations for the fiscal year ended December 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements December 31, 1996
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 as Exhibit No. 1(b) to Post-Effective Amendment No. 31 to the
Registration Statement on February 28, 1997 (Accession Number
0001016964-97-000041).
1(c). Amendment No. 7 to Declaration of Trust; Seventh Amended and Restated
Establishment and Designation of Series of Shares of Beneficial Interest
filed as Exhibit No. 1 to Post-Effective Amendment No. 1 to the
Registration Statement on April 15, 1997 (Accession Number 0001016964-
97-000053).
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"). (filed
herewith)
C-6
<PAGE>
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.*
9(f). Service Plan with respect to Registrant's Service Money Market Funds.
(filed herewith)
10. Opinion and consent of Sullivan & Cromwell.*
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 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 March 31, 1997.
The JPM Institutional Money Market Fund: 276
The JPM Institutional Federal Money Market Fund: 63
The JPM Institutional Bond Fund: 195
The JPM Institutional Diversified Fund: 75
The JPM Institutional U.S. Small Company Fund: 539
The JPM Institutional International Equity Fund: 618
The JPM Institutional Emerging Markets Equity Fund: 730
The JPM Institutional International Bond Fund: 50
The JPM Institutional Short Term Bond Fund: 50
The JPM Institutional Selected U.S. Equity Fund: 163
The JPM Institutional Tax Exempt Money Market Fund: 117
The JPM Institutional Tax Exempt Bond Fund: 196
The JPM Institutional New York Total Return Bond Fund: 96
The JPM Institutional European Equity Fund: 32
The JPM Institutional Japan Equity Fund: 30
The JPM Institutional Asia Growth Fund: 40
The JPM Institutional Disciplined Equity Fund: 47
The JPM Institutional International Opportunities Fund: 81
The JPM Institutional Global Strategic Income Fund: 31
The JPM Institutional Treasury Money Market Fund: 0
The JPM Institutional Service Money Market Fund: 0
The JPM Institutional Service Prime Money Market Fund: 0
The JPM Institutional Service Federal Money Market Fund: 0
C-7
<PAGE>
The JPM Institutional Service Tax Exempt Money Market 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
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
C-8
<PAGE>
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.
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).
C-9
<PAGE>
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 and 40 King Street West, Toronto, Ontario, Canada M5H 3Y8
(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 Treasury Money Market Fund, The JPM
Institutional Service Treasury Money Market Fund, The JPM Institutional
Service Federal Money Market Fund, The JPM Institutional Service Prime
Money Market Fund and The JPM Institutional Service Tax Exempt Money
Market 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-10
<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 28th
day of April, 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 April 28, 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-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 Boston, and Commonwealth of Massachusetts on the 28th
day of April, 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 SERIES
PORTFOLIO II
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 April 28, 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-12
<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 28th day of April,
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 April 28, 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-13
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ------------- ----------------------
EX-99.B9(b) Restated Shareholder Servicing Agreement between Registrant
and Morgan Guaranty
EX-99.B9(f) Service Plan with respect to Registrant's Service Money
Market Funds
EX-99.B11 Consents of independent accountants
EX-27.1
to EX-27.17 Financial Data Schedules
C-14
THE JPM INSTITUTIONAL FUNDS
RESTATED SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT originally made as of the 23rd day of December 1992
restated as of July 7, 1994 between THE JPM INSTITUTIONAL FUNDS, an
unincorporated business trust organized under the laws of the Commonwealth of
Massachusetts (the "Trust"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a
New York trust company ("Morgan").
W I T N E S S E T H:
WHEREAS, the Trust is a diversified open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, transactions in shares of the Trust ("Shares") may be made by
investors who are using the services of a financial institution which is acting
as shareholder servicing agent pursuant to an agreement with the Trust; and
WHEREAS, Morgan wishes to act as the shareholder servicing agent for
its customers and for other investors in the Trust who are customers of an
Eligible Institution as contemplated by the currently effective prospectus of
the respective Series of the Trust (the "Customers") in performing certain
administrative functions in connection with purchases and redemptions of Shares
from time to time upon the order and for the account of Customers and to provide
related services to Customers in connection with their investments in the Trust;
and
WHEREAS, it is in the interest of the Trust to make the shareholder
services of Morgan available to Customers who are or may become shareholders of
the Trust; and
NOW, THEREFORE, the Trust and Morgan hereby agree as follows:
1. APPOINTMENT. Morgan hereby agrees to perform certain shareholder
services as agent for Customers with respect to each Fund (as defined in the
next sentence) as hereinafter set forth. As used herein, a "Fund" means the
assets and liabilities of the Trust attributable to any series of Shares as may
be created from time to time by the Trustees of the Trust and to which the Trust
and Morgan agree this Agreement shall apply.
2. SERVICES TO BE PERFORMED.
2.1. SHAREHOLDER SERVICES. Morgan shall be responsible for performing
shareholder account administrative and servicing functions, which shall include
without limitation:
1
<PAGE>
(a) answering Customer inquiries regarding account status and history,
the manner in which purchases and redemptions of the Shares may be effected, and
certain other matters pertaining to the Trust; (b) assisting Customers in
designating and changing dividend options, account designations and addresses;
(c) providing necessary personnel and facilities to coordinate the establishment
and maintenance of shareholder accounts and records with the Trust's transfer
agent; (d) receiving Customers' purchase and redemption orders on behalf of, and
transmitting such orders to the Trust's transfer agent; (e) arranging for the
wiring or other transfer of funds to and from Customer accounts in connection
with Customer orders to purchase or redeem Shares; (f) verifying purchase and
redemption orders, transfers among and changes in Customer-designated accounts;
(g) informing the distributor of the Trust of the gross amount of purchase and
redemption orders for Shares; (h) monitoring the activities of the Trust's
transfer agent related to Customers' accounts, and to statements, confirmations
or other reports furnished to Customers by the Trust's transfer agent; and (i)
providing such other related services as the Trust or a Customer may reasonably
request, to the extent permitted by applicable law. Morgan shall provide all
personnel and facilities necessary in order for it to perform the functions
contemplated by this paragraph with respect to Customers.
2.2 STANDARD OF SERVICES. All services to be rendered by Morgan
hereunder shall be performed in a professional, competent and timely manner
subject to the supervision of the Trustees of the Trust. The details of the
operating standards and procedures to be followed by Morgan in the performance
of the services described above shall be determined from time to time by
agreement between Morgan and the Trust.
3. FEES. As full compensation for the services described in Section 2
hereof and expenses incurred by Morgan, the Trust shall pay Morgan a fee at an
annual rate of the daily net asset values of each Fund's shares owned by or for
Customers and attributable to the Trust as set forth on Schedule A attached
hereto. This fee will be computed daily and will be payable as agreed by the
Trust and Morgan, but no more frequently than monthly.
4. INFORMATION PERTAINING TO THE SHARES; ETC. Morgan and its officers,
employees and agents are not authorized to make any representations concerning
the Trust or the Shares except to communicate to Customers accurately factual
information contained in the Fund's Prospectus and Statement of Additional
Information and objective historical performance information. Morgan shall act
as agent for Customers only in furnishing information regarding the Trust or the
Shares and shall have no authority to act as agent for the Trust in its capacity
as shareholder servicing agent hereunder.
During the term of this Agreement, the Trust agrees to furnish Morgan
all prospectuses, statements of additional information, proxy statements,
reports to shareholders, sales literature, or other material the Trust will
distribute to shareholders of each Fund or the public, which refer in any way to
Morgan, and Morgan agrees to furnish the Trust all material prepared for
Customers, in each case prior to use thereof,
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<PAGE>
and not to use such material if the other party reasonably objects in writing
within five business days (or such other time as may be mutually agreed in
writing) after receipt thereof. In the event of termination of this Agreement,
the Trust will continue to furnish to Morgan copies of any of the
above-mentioned materials which refer in any way to Morgan. The Trust shall
furnish or otherwise make available to Morgan such other information relating to
the business affairs of the Trust as Morgan at any time, or from time to time,
reasonably requests in order to discharge its obligations hereunder.
Nothing in this Section 4 shall be construed to make the Trust liable
for the use of any information about the Trust which is disseminated by Morgan.
5. USE OF MORGAN'S NAME. The Trust shall not use the name of Morgan in
any prospectus, sales literature or other material relating to the Trust in a
manner not approved by Morgan prior thereto in writing; PROVIDED, HOWEVER, that
the approval of Morgan shall not be required for any use of its name which
merely refers in accurate and factual terms to its appointment hereunder or as
investment advisor to the Trust or which is required by the Securities and
Exchange Commission or any state securities authority or any other appropriate
regulatory, governmental or judicial authority; PROVIDED, FURTHER, that in no
event shall such approval be unreasonably withheld or delayed.
6. USE OF THE FUND'S NAME. Morgan shall not use the name of the Trust
on any checks, bank drafts, bank statements or forms for other than internal use
in a manner not approved by the Trust prior thereto in writing; PROVIDED,
HOWEVER, that the approval of the Trust shall not be required for the use of the
Trust's name in connection with communications permitted by Sections 2 and 4
hereof or for any use of the Trust's name which merely refers in accurate and
factual terms to Morgan's role hereunder or as investment advisor to the Trust
or which is required by the Securities and Exchange Commission or any state
securities authority or any other appropriate regulatory, governmental or
judicial authority; PROVIDED, FURTHER, that in no event shall such approval be
unreasonably withheld or delayed.
7. SECURITY. Morgan represents and warrants that the various procedures
and systems which it has implemented with regard to safeguarding from loss or
damage attributable to fire, theft or any other cause any Trust records and
other data and Morgan's records, data, equipment, facilities and other property
used in the performance of its obligations hereunder are adequate and that it
will make such changes therein from time to time as in its judgment are required
for the secure performance of its obligations hereunder. The parties shall
review such systems and procedures on a periodic basis, and the Trust shall from
time to time specify the types of records and other data of the Trust to be
safeguarded in accordance with this Section 7.
8. COMPLIANCE WITH LAWS; ETC. Morgan assumes no responsibilities under this
Agreement other than to render the services called for hereunder, on the terms
and conditions provided herein. Morgan shall comply with all applicable federal
and state
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<PAGE>
laws and regulations. Morgan represents and warrants to the Trust that the
performance of all its obligations hereunder will comply with all applicable
laws and regulations, the provisions of its charter documents and by-laws and
all material contractual obligations binding upon Morgan. Morgan furthermore
undertakes that it will promptly inform the Trust of any change in applicable
laws or regulations (or interpretations thereof) which would prevent or impair
full performance of any of its obligations hereunder.
9. FORCE MAJEURE. Morgan shall not be liable or responsible for delays
or errors by reason of circumstances beyond its control, including, but not
limited to, acts of civil or military authority, national emergencies, labor
difficulties, fire, mechanical breakdown, flood or catastrophe, Acts of God,
insurrection, war, riots or failure of communication or power supply.
10. INDEMNIFICATION.
10.1. INDEMNIFICATION OF MORGAN. The Trust will indemnify and hold
Morgan harmless, from all losses, claims, damages, liabilities or expenses
(including reasonable fees and disbursements of counsel) from any claim, demand,
action or suit (collectively, "Claims") (a) arising in connection with
misstatements or omissions in each Fund's Prospectus, actions or inactions by
the Trust or any of its agents or contractors or the performance of Morgan's
obligations hereunder and (b) not resulting from the willful misfeasance, bad
faith, or gross negligence of Morgan, its officers, employees or agents, in the
performance of Morgan's duties or from reckless disregard by Morgan, its
officers, employees or agents of Morgan's obligations and duties under this
Agreement.
Notwithstanding anything herein to the contrary, the Trust will indemnify and
hold Morgan harmless from any and all losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting from any
Claim as a result of Morgan's acting in accordance with any written instructions
reasonably believed by Morgan to have been executed by any person duly
authorized by the Trust, or as a result of acting in reliance upon any
instrument or stock certificate reasonably believed by Morgan to have been
genuine and signed, countersigned or executed by a person duly authorized by the
Trust, excepting only the gross negligence or bad faith of Morgan.
In any case in which the Trust may be asked to indemnify or hold Morgan
harmless, the Trust shall be advised of all pertinent facts concerning the
situation in question and Morgan shall use reasonable care to identify and
notify the Trust promptly concerning any situation which presents or appears
likely to present a claim for indemnification against the Trust. The Trust shall
have the option to defend Morgan against any Claim which may be the subject of
indemnification under this Section 10.1. In the event that the Trust elects to
defend against such Claim, the defense shall be conducted by counsel chosen by
the Trust and reasonably satisfactory to Morgan. Morgan may retain additional
counsel at its expense. Except with the prior written consent of the Trust,
Morgan shall not confess any Claim or make any compromise in any case in which
the Trust will be asked to indemnify Morgan.
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<PAGE>
10.2. INDEMNIFICATION OF THE TRUST. Without limiting the rights of the
Trust under applicable law, Morgan will indemnify and hold the Trust harmless
from all losses, claims, damages, liabilities or expenses (including reasonable
fees and disbursements of counsel) from any Claim (a) resulting from the willful
misfeasance, bad faith or gross negligence of Morgan, its officers, employees,
or agents, in the performance of Morgan's duties or from reckless disregard by
Morgan, its officers, employees or agents of Morgan's obligations and duties
under this Agreement, and (b) not resulting from Morgan's actions in accordance
with written instructions reasonably believed by Morgan to have been executed by
any person duly authorized by the Trust, or in reliance upon any instrument or
stock certificate reasonably believed by Morgan to have been genuine and signed,
countersigned or executed by a person authorized by the Trust.
In any case in which Morgan may be asked to indemnify or hold the Trust
harmless, Morgan shall be advised of all pertinent facts concerning the
situation in question and the Trust shall use reasonable care to identify and
notify Morgan promptly concerning any situation which presents or appears likely
to present a claim for indemnification against Morgan. Morgan shall have the
option to defend the Trust against any Claim which may be the subject of
indemnification under this Section 10.2. In the event that Morgan elects to
defend against such Claim, the defense shall be conducted by counsel chosen by
Morgan and reasonably satisfactory to the Trust. The Trust may retain additional
counsel at its expense. Except with the prior written consent of Morgan, the
Trust shall not confess any Claim or make any compromise in any case in which
Morgan will be asked to indemnify the Trust.
10.3. SURVIVAL OF INDEMNITIES. The indemnities granted by the parties
in this Section 10 shall survive the termination of this Agreement.
11. INSURANCE. Morgan shall maintain reasonable insurance coverage against
any and all liabilities which may arise in connection with the performance
of its duties hereunder.
12. FURTHER ASSURANCES. Each party agrees to perform such further acts
and execute further documents as are necessary to effectuate the purposes
hereof.
13. TERMINATION. This Agreement shall continue in effect for a period
of one year and may thereafter be renewed by the Trustees of the Trust;
PROVIDED, however, that this Agreement may be terminated by the Trust at any
time without the payment of any penalty, by the Trustees of the Trust or by vote
of a majority of the outstanding voting securities (as defined in the 1940 Act)
of the Trust, upon not less than six (6) months' written notice to Morgan or by
Morgan at any time, without the payment of any penalty, on not less than ninety
(90) days' written notice to the Trust. This Agreement shall terminate
automatically in the event of its assignment (as defined in the 1940 Act).
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<PAGE>
14. SUBCONTRACTING BY MORGAN. Morgan may subcontract for the
performance of its obligations hereunder with any one or more persons, including
but not limited to any one or more persons which is an affiliate of Morgan;
PROVIDED HOWEVER, unless the Trust otherwise expressly agrees in writing, Morgan
shall be as fully responsible to the Trust for the acts and omissions of any
subcontractor as it would be for its own acts or omissions.
15. Nothing in this Agreement shall limit or restrict the right of
Morgan to engage in any other business or to render services of any kind to any
other corporation, firm, individual or association.
16. CHANGES; AMENDMENTS. This Agreement may be amended only by mutual
written consent.
17. NOTICES. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to Morgan at Morgan Guaranty Trust Company
of New York, 9 West 57th Street, 10019, Attention: Managing Director, Funds
Management Division, or (2) to the Trust at The JPM Institutional Funds c/o
Signature Broker-Dealer Services, Inc., 6 St. James Avenue, Boston,
Massachusetts 02116, Attention: Treasurer, or at such other address as either
party may designate by notice to the other party.
18. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
written.
THE JPM INSTITUTIONAL FUNDS
By /s/ James B. Craver
James B. Craver
Secretary and Treasurer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Kathleen H. Tripp
Kathleen H. Tripp
Vice President
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<PAGE>
Schedule A
Shareholder Servicing Fees
The JPM Institutional Prime Money Market Fund
The JPM Institutional Tax Exempt Money Market Fund
The JPM Institutional Federal Money Market Fund
The JPM Institutional Treasury Money Market Fund
The JPM Institutional Service Prime Money Market Fund
The JPM Institutional Service Tax Exempt Money Market Fund
The JPM Institutional Service Federal Money Market Fund
The JPM Institutional Service Treasury Money Market Fund
- --------------------------------------------------------
0.05% of the average daily net asset value of Fund shares owned by or for
Customers
The JPM Institutional Short Term Bond Fund
The JPM Institutional Bond Fund
The JPM Institutional Tax Exempt Bond Fund
The JPM Institutional New York Total Return Bond Fund
- -----------------------------------------------------
0.075% of the average daily net asset value of Fund shares owned by or for
Customers
The JPM Institutional International Bond Fund
The JPM Institutional U.S. Equity Fund
The JPM Institutional U.S. Small Company Fund
The JPM Institutional International Equity Fund
The JPM Institutional Emerging Markets Equity Fund
The JPM Institutional Diversified Fund
The JPM Institutional Asia Growth Fund
The JPM Institutional Japan Equity Fund
The JPM Institutional European Equity Fund
The JPM Institutional Disciplined Equity Fund
The JPM Institutional Global Strategic Income Fund
The JPM Institutional International Opportunities Fund
The JPM Institutional Latin American Equity Fund
The JPM Institutional Emerging Markets Debt Fund
The JPM Institutional U.S. Small Company Opportunities Fund
- -----------------------------------------------------------
0.10% of the average daily net asset value of Fund shares owned by or for
Customers
Approved April 10, 1997
Effective May 30, 1997
(supersedes 1/9/97 schedule approved 1/9/97)
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THE JPM INSTITUTIONAL SERVICE FUNDS
SERVICE PLAN
APRIL __, 1997
WHEREAS, The JPM Institutional Funds (the "Trust") engages in business
as an open-end management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Trust has several particular "Service" series or funds, as
set forth on Schedule A (each, a "Fund"), as it may be amended from time to
time;
WHEREAS, the Trust, on behalf of each Fund, desires to adopt a Service
Plan and the Board of Trustees of the Trust has determined that there is a
reasonable likelihood that adoption of this Service Plan (the "Plan") will
benefit the Trust and its shareholders; and
WHEREAS, the Trust, on behalf of each Fund, employs institutions (the
"Service Organizations") to act as nominees and record holders of shares of each
Fund for their respective customers who are or may become beneficial owners of
such shares (the "Customers") and to perform certain account administration and
other services with respect to the Customers pursuant to Service Agreements
between the Trust, on behalf of each Fund, and such Service Organizations (the
"Agreements").
NOW, THEREFORE, the Trust, on behalf of each Fund, hereby adopts this
Service Plan (the "Plan") on the following terms and conditions:
1. (a) The Trust, on behalf of each Fund, is authorized to pay each
Service Organization the monthly or quarterly administration fee specified in
the Agreement with such Service Organization, which shall be equal on an annual
basis to not more than .25 of 1% of the average daily net asset value of the
shares of such Fund which are owned beneficially by the Customers of such
Service Organization during such period.
(b) The types of services and expenses for which a Service
Organization may be compensated by a Fund under this Plan include, without
limitation: (i) acting directly or through an agent as record holder and nominee
of all shares of a Fund beneficially owned by Customers; (ii) assisting in
establishing and maintaining individual accounts and records with respect to
shares of a Fund owned by each Customer; (iii) assisting in receiving and
transmitting funds representing the purchase price or redemption proceeds of
such shares; and (iv) providing such statistical and other information as may be
reasonably requested by the Trust or necessary for the Trust to comply with
applicable federal or state law. No Fund may compensate a Service Organization
for services provided with respect to another Fund.
2. This Plan shall not take effect with respect to a Fund until it has
been approved by a vote of at least a majority of the outstanding voting
securities of such Fund.
3. This Plan shall not take effect as to a Fund until the Plan,
together with any related agreements, has been approved for such Fund by votes
of a majority of both (a) the Board of Trustees of the Trust and (b) those
Trustees of the Trust who are not "interested persons" of the Trust and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "non-interested Trustees") cast in person at a
meeting (or meetings) called for the purpose of voting on the Plan and such
related agreements.
<PAGE>
4. This Plan shall remain in effect until ________, 1998 and shall
continue in effect thereafter so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
paragraph 3.
5. The President, Vice President, Treasurer or any Assistant Treasurer
of the Trust shall provide the Board of Trustees of the Trust and the Board
shall review, at least quarterly, a written report of services performed by and
fees paid to each Service Organization under the Agreements and this Plan.
6. This Plan may be terminated as to a Fund at any time by vote of a
majority of the non-interested Trustees or by vote of a majority of the
outstanding voting securities of such Fund.
7. This Plan may not be amended to increase materially the amount of
compensation payable pursuant to paragraph 1 hereof unless such amendment is
approved in the manner provided for initial approval in paragraph 2 hereof. No
material amendment to the Plan shall be made unless approved in the manner
provided in paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of the
non-interested Trustees of the Trust shall be committed to the discretion of the
non-interested Trustees.
9. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 5 hereof for a period of
not less than six years from the date of the Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
IN WITNESS WHEREOF, the Trust, on behalf of each Fund, has executed
this Service Plan as of the day and year first written above.
The JPM Institutional Funds
By_______________________________
<PAGE>
SCHEDULE A
The JPM Institutional Service Prime Money Market Fund
The JPM Institutional Service Federal Money Market Fund
The JPM Institutional Service Tax Exempt Money Market Fund
The JPM Institutional Service Treasury Money Market Fund
<PAGE>
FORM OF SERVICE AGREEMENT
[Date of Agreement]
[Name of Service Organization]
[Address]
[City, State, Zip]
RE: The JPM Institutional Service Prime Money Market Fund
The JPM Institutional Service Federal Money Market Fund
The JPM Institutional Service Tax Exempt Money Market Fund
The JPM Institutional Service Treasury Money Market Fund (the "Funds")
Gentlemen:
Each Fund is a series of The JPM Institutional Funds (the "Trust"), an open-end
management investment company.
You are an institution (the "Service Organization") acting, either directly or
through an agent, as nominee and record holder of shares of the Funds for your
customers, who are or may become the beneficial owners of such shares (the
"Customers"). You are willing to perform, and the Trust wishes to compensate you
for, performing certain account administration and other services with respect
to the Customers (the "Services"). Accordingly, the Service Organization and the
Trust agree as follows.
1. The Trust hereby engages the Service Organization, and the Service
Organization hereby agrees, to perform the following Services: (a) act directly
or through an agent as record holder and fee should be characterized as
"administration" nominee of all shares of the Funds beneficially owned by the
Customers; (b) establish or assist in establishing and maintaining individual
accounts and records with respect to shares of the Funds owned by each Customer;
(c) assist in receiving and transmitting funds representing the purchase price
or redemption proceeds of such shares; and (d) provide such statistical and
other information as may be reasonably requested by the Trust or necessary for
the Trust to comply with applicable federal or state law.
2. The Service Organization shall furnish such office space, equipment,
facilities and personnel as is necessary to perform its duties hereunder. The
Service Organization shall bear all costs incurred by it in performing such
duties.
3. For the services provided and the expenses incurred by the Service
Organization hereunder, the Trust on behalf of each Fund will pay to the Service
Organization a monthly administration fee equal on an annual basis to .25 of 1%
of the average daily net asset value of the shares of the Fund which are owned
beneficially by Customers of the Service Organization during such period.
However, if the total fees to be accrued by the Fund with respect to all Service
Organizations under the Trust's Service Plan on any day with respect to shares
of the Fund exceed the net income, exclusive of such fees, to be accrued by the
Fund on such shares, the fee payable by the Fund to the Service Organization on
such day will be reduced by an amount equal to the Service Organization's
proportionate share of such excess, in order to avoid adversely affecting the
net asset value per share.
4.1 The Service Organization represents that, in processing Customer
orders to purchase, redeem and exchange Shares, (i) it shall act solely as agent
for the account of its Customer; (ii) each purchase or redemption of Shares
shall be initiated solely upon the instruction and order of the Customer;
<PAGE>
(iii) the Customer will have full beneficial ownership of any Shares purchased
upon its authorization and order; and (iv) all transactions shall be for the
account of the Customer and under no circumstances for the account of the
Service Organization and shall be without recourse to the Service Organization.
Under no circumstances will the Service Organization make any oral or
written representations to the contrary.
4.2 In performing its duties hereunder, the Service Organization will
act in conformity with the then effective prospectus and statement of additional
information of each Fund, the Investment Company Act of 1940 (the "1940 Act")
and all other applicable federal and state laws, regulations and rulings and the
constitution, by-laws and rules of any applicable self-regulatory organization.
The Service Organization will assume sole responsibility for its compliance with
applicable federal and state laws and regulations and shall rely exclusively
upon its own determination, or that of its legal advisers, that the performance
of its duties hereunder complies with such laws and regulations. Under no
circumstances shall the Trust, Morgan Guaranty Trust Company of New York or any
of their affiliates be held responsible or liable in any respect for any
statements or representations made by them or their legal advisers to the
Service Organization or any customer of the Service Organization concerning the
applicability of any federal or state laws or regulations to the activities
described herein. The Service Organization will perform its duties hereunder in
a manner consistent with the customs and practices of other institutions that
provide similar services.
4.3 Representations and Warranties. The Service Organization represents,
warrants and covenants to the Trust that
(a) its entering into and performing its obligations under this Agreement does
not and will not violate (i) its charter documents or by-laws; (ii) any laws,
rules or regulations (including Rule 206(4)-2 and rules of regulations or any
self-regulatory organization); or (iii) any agreement to which it is a party;
and
(b) it (i) is organized, chartered or holding an authorization certificate under
and is in good standing under the laws of a state or of the United States, which
authorizes the Service Organization to receive deposits, including a savings,
share, certificate or deposit account, and which is regulated, supervised and
examined for the protection of depositors by an official or agency of a state or
the United States and is insured by the Federal Deposit Insurance Corporation,
the Federal Savings and Loan Insurance Corporation or the National Credit Union
Share Insurance Fund, or (ii) is a trust company or other institution that is
authorized by federal or state law to exercise fiduciary powers of a type a
national bank is permitted to exercise under the authority of the United States
Comptroller of the Currency and is regulated, supervised and examined by an
official or agency of a state or the United States; or
(c) it is registered with the Securities and Exchange Commission and with any
applicable state authority and in good standing, and will during the term of
this Agreement remain in good standing, as a broker dealer or transfer agent;
and
(d) it will keep confidential any information acquired as a result of this
Agreement regarding the business and affairs of the Trust and Morgan Guaranty
Trust Company of New York, which requirement shall survive the term of this
Agreement.
4.4 In addition to the foregoing, with respect to the purchase,
redemption or exchange of Fund shares for Customer accounts with respect to
which the Service Organization is a fiduciary under state or federal trust or
comparable fiduciary requirements, or, in the case of any such accounts which
are subject to the Employee Retirement Income Security Act of 1974, as amended,
the Service Organization is a fiduciary or party in interest, the Service
Organization represents that the purchase, redemption or exchange of such
shares, and the Service Organization's receipt of the relevant fee described in
paragraph 3 hereof, is permissible under all such applicable requirements and
complies with any restrictions, limitations or procedures under such
requirements.
<PAGE>
4.5 The Service Organization agrees that the Trust shall have no
responsibility or liability to review any purchase or redemption request which
is presented by the Service Organization to determine whether such request is
genuine or authorized by the Customer of the Service Organization. The Trust
shall be entitled to rely conclusively on any purchase or redemption request
communicated to it by the Service Organization and shall have no liability
whatsoever for any losses, claims or damages to or against the Service
Organization or any Customer resulting from a failure of the Service
Organization to transmit any such request, or from any errors contained in any
request.
4.6 The Service Organization agrees that the Trust and its agents shall
have no responsibility or liability to review any purchase or redemption request
which is presented by the Service Organization (i) to determine whether such
request is genuine or authorized by the Customer of the Service Organization or
(ii) to determine the suitability of the selected Fund for such Customer. The
Trust and its agents shall be entitled to rely conclusively on any purchase or
redemption request communicated to it by the Service Organization and shall have
no liability whatsoever for any losses, claims or damages to or against the
Service Organization or any Customer resulting from a failure of the Service
Organization to transmit any such request, or from any errors contained in any
request.
5. The Service Organization hereby represents that the payment of the
fee hereunder will (a) be fully disclosed by the Service Organization to its
Customers, (b) be duly authorized by its Customers and (c) not cause the
aggregate fees paid by its customers to the Service Organization to be
excessive.
6.1 This Agreement shall continue in effect until ______ __, and shall
continue in effect from year to year thereafter only if it is approved annually
by a vote of a majority of the Trustees of the Trust, including a majority of
those Trustees who are not interested persons of the Trust and who have no
direct or indirect financial interest in the operation of the related Service
Plan, this Agreement or any related agreements (the "Independent Trustees") cast
in person at a meeting called for the purpose of voting on this Agreement. This
Agreement may be terminated at any time, on not less than 60 days' notice to the
Service Organization and without the payment of any penalty, by vote of a
majority of the Independent Trustees or, with respect to a Fund, by vote of a
majority of the outstanding voting securities of the Fund. This Agreement may
also be terminated by the Service Organization at any time on 60 days' notice to
the Trust and will terminate automatically in the event of its assignment. All
material amendments to this Agreement must be in writing and must be approved by
the Independent Trustees in the manner described above for continuing this
Agreement. The terms "majority of the outstanding voting securities" and
"assignment" shall have the meanings given to them in the 1940 Act. Any notice
furnished hereunder shall be in writing and shall be mailed or delivered to the
other party at its address set forth above.
6.2 The Trust and the Service Organization each agree to hold each
other, and each of the respective persons who control (within the meaning of the
word "control" as defined in Section 2(a)(9) of the 1940 Act), the Trust or the
Service Organization harmless from and against all claims, demands, proceedings,
suits, and actions and all liabilities, losses, expenses, and costs (including
any legal fees and expenses) relating to either party's defense or any failure,
for any reason, fraudulent or otherwise, by either party or their employees or
customers, as the case may be, to comply with any obligations under this
Agreement or any other agreement executed and delivered to either party in
connection with the performance of the Services hereunder, except for any act or
failure to act which is the result of gross negligence on the part of any such
employee or customer of either party.
7. The Service Organization should be deemed an independent contractor
and not an agent of the Trust for all purposes hereunder and shall have no
authority to act for or represent the Trust. In addition, no officer or employee
of the Service Organization should be deemed to be an employee or agent of the
Trust or J.P. Morgan & Co. Incorporated or any affiliate thereof ("Morgan") and
will not be subject,
<PAGE>
in any respect, to the supervision of Morgan. The Service Organization will not
act as an "underwriter" or "distributor" of shares as those terms variously
are used in the 1940 Act, the Securities Act of 1933, and rules and regulations
promulgated thereunder.
8. The obligations of the Trust under this Agreement are not binding
upon any of the Trustees, officers or shareholders of the Trust individually but
are binding only upon the Trust and its assets. No Fund of the Trust shall be
liable for the obligations of any other Fund hereunder.
9. If any provision of this Agreement shall be held or made invalid by
a decision in a judicial or administrative proceeding, statute, rule or
otherwise, the enforceability of the remainder of this Agreement will not be
impaired thereby. This Agreement shall be governed by the laws of New York
(except with respect to paragraph 8, which will be governed by the laws of
Massachusetts) and shall be binding upon and insure to the benefit of the
parties hereto and their respective successors.
Very truly yours,
THE JPM INSTITUTIONAL FUNDS on behalf of its series
THE JPM INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
THE JPM INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
THE JPM INSTITUTIONAL SERVICE TAX EXEMPT MONEY MARKET FUND
THE JPM INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
By: ____________________________________
[Authorized Officer]
ACCEPTED AND AGREED TO AS OF THE DATE FIRST ABOVE WRITTEN.
[NAME OF SERVICE ORGANIZATION]
By: ____________________________________
[Authorized Officer]
<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. 33 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 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 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 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.
<PAGE>
Consents of Independent Accountants
Page 2
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 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 21, 1997, relating to the financial
statements and financial highlights of The JPM Institutional Asia Growth fund,
The JPM Institutional Japan Equity Fund and The JPM Institutional European
Equity Fund, and the financial statements and supplementary data of The Asia
Growth Portfolio, The Japan Equity Portfolio and The European Equity Portfolio
appearing in the December 31, 1996 Annual Report, which are 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
April 28, 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 DECEMBER 31, 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 224319
<INVESTMENTS-AT-VALUE> 224319
<RECEIVABLES> 225
<ASSETS-OTHER> 24
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 224568
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 26497
<TOTAL-LIABILITIES> 26497
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 168704
<SHARES-COMMON-STOCK> 16533
<SHARES-COMMON-PRIOR> 16081
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (231)
<ACCUMULATED-NET-GAINS> 2991
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 26607
<NET-ASSETS> 198071
<DIVIDEND-INCOME> 1422
<INTEREST-INCOME> 3362
<OTHER-INCOME> 0
<EXPENSES-NET> 787
<NET-INVESTMENT-INCOME> 3997
<REALIZED-GAINS-CURRENT> 8283
<APPREC-INCREASE-CURRENT> 8095
<NET-CHANGE-FROM-OPS> 20375
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7166
<DISTRIBUTIONS-OF-GAINS> 12353
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7554
<NUMBER-OF-SHARES-REDEEMED> 8531
<SHARES-REINVESTED> 1429
<NET-CHANGE-IN-ASSETS> 4853
<ACCUMULATED-NII-PRIOR> 2938
<ACCUMULATED-GAINS-PRIOR> 7062
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1107
<AVERAGE-NET-ASSETS> 237825
<PER-SHARE-NAV-BEGIN> 12.02
<PER-SHARE-NII> .17
<PER-SHARE-GAIN-APPREC> .76
<PER-SHARE-DIVIDEND> .37
<PER-SHARE-DISTRIBUTIONS> .60
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.98
<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 DECEMBER 31, 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 6556
<RECEIVABLES> 15
<ASSETS-OTHER> 22
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6593
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 61
<TOTAL-LIABILITIES> 61
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5712
<SHARES-COMMON-STOCK> 565
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 4
<ACCUMULATED-NET-GAINS> 58
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 766
<NET-ASSETS> 6532
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 73
<EXPENSES-NET> 6
<NET-INVESTMENT-INCOME> 67
<REALIZED-GAINS-CURRENT> 69
<APPREC-INCREASE-CURRENT> 766
<NET-CHANGE-FROM-OPS> 902
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 55
<DISTRIBUTIONS-OF-GAINS> 28
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 615
<NUMBER-OF-SHARES-REDEEMED> 51
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 6532
<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> 80
<AVERAGE-NET-ASSETS> 4774
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .12
<PER-SHARE-GAIN-APPREC> 1.59
<PER-SHARE-DIVIDEND> .10
<PER-SHARE-DISTRIBUTIONS> .05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.56
<EXPENSE-RATIO> 1.00
<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 DECEMBER 31, 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 4151
<RECEIVABLES> 10
<ASSETS-OTHER> 15
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4176
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2674
<TOTAL-LIABILITIES> 2674
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2332
<SHARES-COMMON-STOCK> 173
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (9)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (192)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (629)
<NET-ASSETS> 1502
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> (6)
<EXPENSES-NET> 2
<NET-INVESTMENT-INCOME> (8)
<REALIZED-GAINS-CURRENT> (224)
<APPREC-INCREASE-CURRENT> (629)
<NET-CHANGE-FROM-OPS> (861)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 579
<NUMBER-OF-SHARES-REDEEMED> 406
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1502
<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> 71
<AVERAGE-NET-ASSETS> 3332
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.05)
<PER-SHARE-GAIN-APPREC> (1.28)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.67
<EXPENSE-RATIO> .89
<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 DECEMBER 31, 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 3389
<RECEIVABLES> 13
<ASSETS-OTHER> 14
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3416
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54
<TOTAL-LIABILITIES> 54
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3339
<SHARES-COMMON-STOCK> 332
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 7
<ACCUMULATED-NET-GAINS> (133)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 163
<NET-ASSETS> 3362
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 20
<EXPENSES-NET> 2
<NET-INVESTMENT-INCOME> 18
<REALIZED-GAINS-CURRENT> (140)
<APPREC-INCREASE-CURRENT> 163
<NET-CHANGE-FROM-OPS> 41
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 24
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 341
<NUMBER-OF-SHARES-REDEEMED> 10
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 3362
<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> 70
<AVERAGE-NET-ASSETS> 2289
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> .15
<PER-SHARE-DIVIDEND> .07
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.14
<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>