As filed with the Securities and Exchange Commission on August 1, 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. 36
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 37
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, c/o Funds Distributor, Inc.
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to: Stephen K. West, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[X] on August 4, 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.
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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; Prime Money Market Fund (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, 1997)
on May 21, 1997; U.S. Equity, Disciplined Equity and U.S. Small Company Funds
(for their fiscal years ended May 31, 1997) on July 22, 1997; 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; Service Tax Exempt Money
Market Fund (for its fiscal year ending August 31, 1997) on or before October
30, 1997; Treasury Money Market, Service Treasury Money Market and Service
Federal Money Market Funds (for their fiscal years ending October 31, 1997) on
or before December 30, 1997; and Service Prime Money Market Fund (for its fiscal
year ending November 30, 1997) on or before January 29, 1998.
The Prime 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 U.S. Equity Portfolio, The
U.S. Small Company Portfolio, The International 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.
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THE JPM PIERPONT FUNDS
(INTERNATIONAL OPPORTUNITIES FUND)
CROSS-REFERENCE SHEET
(As Required by Rule 495)
PART A ITEM NUMBER: Prospectus Headings.
1. COVER PAGE: Cover Page.
2. SYNOPSIS: Who May Be a Suitable Investor in the Fund.
3. CONDENSED FINANCIAL INFORMATION: Not Applicable.
4. GENERAL DESCRIPTION OF REGISTRANT: Information About the Master-Feeder
Structure; Who May Be a Suitable Investor in the Fund; Investment
Objective and Policies; Additional Investment Practices and Risks;
Organization.
5. MANAGEMENT OF THE FUND: Management of the Fund and Portfolio;
Organization; Shareholder Inquiries and Services; Additional
Information.
5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE: Not Applicable.
6. CAPITAL STOCK AND OTHER SECURITIES: Information About the Master-Feeder
Structure; Shareholder Inquiries and Services; Net Asset Value; Taxes;
Dividends and Distributions; Organization.
7. PURCHASE OF SECURITIES BEING OFFERED: Purchase of Shares; Exchange of
Shares; Who May Be a Suitable Investor in the Fund; Dividends and
Distributions; Net Asset Value.
8. REDEMPTION OR REPURCHASE: Redemption of Shares; Exchange of Shares; Net
Asset Value.
9. PENDING LEGAL PROCEEDINGS: Not Applicable.
PART B ITEM NUMBER: Statement of Additional Information Headings.
10. COVER PAGE: Cover Page.
11. TABLE OF CONTENTS: Table of Contents.
12. GENERAL INFORMATION AND HISTORY: General.
13. INVESTMENT OBJECTIVES AND POLICIES: Investment Objectives and Policies;
Additional Investments; Investment Restrictions; Quality and
Diversification Requirements; Appendices A, B and C.
14. MANAGEMENT OF THE FUND: Trustees and Officers.
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15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES: Description of
Shares.
16. INVESTMENT ADVISORY AND OTHER SERVICES:Investment Advisor; Distributor;
Co-Administrator; Services Agent; Custodian and Transfer Agent;
Shareholder Servicing; Independent Accountants; Expenses.
17. BROKERAGE ALLOCATION AND OTHER PRACTICES: Portfolio Transactions.
18. CAPITAL STOCK AND OTHER SECURITIES: Massachusetts Trust; Description of
Shares.
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.
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EXPLANATORY NOTE
This post-effective amendment No. 36 (the "Amendment") to the
Registrant's registration statement on Form N-1A (File No. 33-54642) (the
"Registration Statement")is being filed with respect to The JPM Institutional
International Opportunities Fund, a series of shares of the Registrant (the
"Fund"), pursuant to the Registrant's undertaking to file a post-effective
amendment to the Registration Statement, using financials which need not be
certified, within four to six months following the date of commencement of
public investment operations of the Fund. As a result, the Amendment does not
affect any of the Registrant's currently effective prospectuses for each other
series of shares of the Registrant.
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THE JPM INSTITUTIONAL FUNDS
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 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 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
AUGUST 4, 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 . . . . . . . . . . . 41
Trustees and Officers . . . . . . . . . . . . 63
Investment Advisor . . . . . . . . . . . . . . 71
Distributor . . . . . . . . . . . . . . . . . 76
Co-Administrator . . . . . . . . . . . . . . . 77
Services Agent . . . . . . . . . . . . . . . . 81
Custodian and Transfer Agent . . . . . . . . . 84
Shareholder Servicing . . . . . . . . . . . . 85
Independent Accountants . . . . . . . . . . . 87
Expenses . . . . . . . . . . . . . . . . . . . 87
Purchase of Shares . . . . . . . . . . . . . . 88
Redemption of Shares . . . . . . . . . . . . . 88
Exchange of Shares . . . . . . . . . . . . . . 89
Dividends and Distributions . . . . . . . . . 90
Net Asset Value . . . . . . . . . . . . . . . 90
Performance Data . . . . . . . . . . . . . . . 92
Portfolio Transactions . . . . . . . . . . . . 97
Massachusetts Trust . . . . . . . . . . . . . 100
Description of Shares . . . . . . . . . . . . 101
Taxes . . . . . . . . . . . . . . . . . . . . 105
Additional Information . . . . . . . . . . . 110
Financial Statements . . . . . . . . . . . . . 111
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
This Statement of Additional Information relates only to The JPM
Institutional Prime 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 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"). In addition to the Funds, the Trust consists of other series
representing separate investment funds (each a "JPM Institutional Fund"). The
other JPM Institutional Funds are covered by separate Statements of Additional
Information.
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 Prime Money Market Fund (the "Prime Money Market
Fund") is designed to be an economical and convenient means of making
substantial investments in money market instruments. The Prime 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 Prime Money Market Portfolio (the "Portfolio"),
a diversified open-end management investment company having the same investment
objective as the Prime 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
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affected by its high quality standards. See "Quality and Diversification
Requirements."
The JPM Institutional Tax Exempt Money Market Fund (the "Tax Exempt
Money Market Fund") is designed to be an economical and convenient means of
making substantial investments in instruments that are exempt from federal
income tax. The Tax Exempt Money Market Fund's investment objective is to
provide a high level of current income that is exempt from federal income tax
and maintain a high level of liquidity. See "Taxes." The Fund attempts to
achieve this objective by investing all of its investable assets in The Tax
Exempt Money Market Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the Tax
Exempt Money Market Fund.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing in U.S. dollar-denominated securities described in the
Prospectus and this Statement of Additional Information that meet certain rating
criteria, present minimal credit risks, have effective maturities of not more
than thirteen months and earn interest wholly exempt from federal income tax in
the opinion of bond counsel for the issuer, but it may invest up to 20% of its
total assets in taxable obligations. See "Quality and Diversification
Requirements." Interest on these securities may be subject to state and local
taxes. For more detailed information regarding tax matters, including the
applicability of the alternative minimum tax, see "Taxes."
The JPM Institutional Federal Money Market Fund (the "Federal Money
Market Fund") is designed to be an economical and convenient means of making
substantial investments primarily in short term direct obligations of the U.S.
Government. The Federal Money Market Fund's investment objective is to provide
current income, maintain a high level of liquidity and preserve capital. The
Fund attempts to accomplish this objective by investing all of its investable
assets in The Federal Money Market Portfolio (the "Portfolio"), a diversified
open-end management investment company having the same investment objective as
the Federal Money Market Fund.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing primarily in U.S. Treasury securities and by investing in
certain U.S. Treasury securities described in the Prospectus and in this
Statement of Additional Information that have effective maturities of not more
than thirteen months. See "Quality and Diversification Requirements."
The JPM Institutional Short Term Bond Fund (the "Short Term Bond Fund")
is designed for investors who place a strong emphasis on conservation of capital
but who also want a return greater than that of a money market fund or other
very low risk investment vehicles. The Fund is appropriate for investors who do
not require the stable net asset value typical of a money market fund but who
want less price fluctuation than is typical of a longer-term bond fund. The
Short Term Bond Fund's investment objective is to provide a high total return
while attempting to limit the likelihood of negative quarterly returns. The
Short Term Bond Fund seeks to achieve this high total return to the extent
consistent with modest risk of capital and the maintenance of liquidity. The
Short Term Bond
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Fund attempts to achieve its investment objective by investing all of its
investable assets in The Short Term Bond Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Short Term Bond Fund.
The Portfolio attempts to achieve its investment objective by investing
primarily in the corporate and government debt obligations and related
securities of domestic and foreign issuers described in the Prospectus and this
Statement of Additional Information.
The JPM Institutional Bond Fund (the "Bond Fund") is designed to be an
economical and convenient means of making substantial investments in a broad
range of corporate and government debt obligations and related investments of
domestic and foreign issuers, subject to certain quality and other restrictions.
See "Quality and Diversification Requirements." The Bond Fund's investment
objective is to provide a high total return consistent with moderate risk of
capital and maintenance of liquidity. Although the net asset value of the Bond
Fund will fluctuate, the Bond Fund attempts to conserve the value of its
investments to the extent consistent with its objective. The Bond Fund attempts
to achieve its objective by investing all of its investable assets in The U.S.
Fixed Income Portfolio (the "Portfolio"), a diversified open-end management
investment company having the same investment objective as the Bond Fund.
The Portfolio attempts to achieve its investment objective by investing
in high grade corporate and government debt obligations and related securities
of domestic and foreign issuers described in the Prospectus and this Statement
of Additional Information.
Investment Process for the U.S. Fixed Income Portfolio
Duration/yield curve management: Morgan's duration decision begins with
an analysis of real yields, which its research indicates are generally a
reliable indicator of longer term interest rate trends. Other factors Morgan
studies in regard to interest rates include economic growth and inflation,
capital flows and monetary policy. Based on this analysis, Morgan forms a view
of the most likely changes in the level and shape of the yield curve -- as well
as the timing of those changes -- and sets the Portfolio's duration and maturity
structure accordingly. Morgan typically limits the overall duration of the
Portfolio to a range between one year shorter and one year longer than that of
the Salomon Brothers Broad Investment Grade Bond Index, the benchmark index.
Sector allocations: Sector allocations are driven by Morgan's
fundamental and quantitative analysis of the relative valuation of a broad array
of fixed income sectors. Specifically, Morgan utilizes market and credit
analysis to assess whether the current risk-adjusted yield spreads of various
sectors are likely to widen or narrow. Morgan then overweights (underweights)
those sectors its analysis indicates offer the most (least) relative value,
basing the speed and magnitude of these shifts on valuation considerations.
Security selection: Securities are selected by the portfolio manager,
with substantial input from Morgan's fixed income analysts and traders. Using
quantitative analysis as well as traditional valuation methods, Morgan's
applied- research analysts aim to optimize security selection within the bounds
of the Portfolio's investment objective. In addition, credit analysts --
supported by Morgan's equity analysts -- assess the creditworthiness of issuers
and counterparties. A dedicated trading desk contributes to security selection
by tracking new issuance, monitoring dealer inventories, and identifying
attractively priced bonds. The traders also handle all transactions for the
Portfolio.
The JPM Institutional Tax Exempt Bond Fund (the "Tax Exempt Bond Fund")
is designed to be an economical and convenient means of making substantial
investments in debt obligations that are exempt from federal income tax. The Tax
Exempt Bond Fund's investment objective is to provide a high level of current
income exempt from federal income tax consistent with moderate risk of capital
and maintenance of liquidity. See "Taxes." The Fund attempts to achieve its
investment objective by investing all of its investable assets in The Tax Exempt
Bond Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Tax Exempt Bond Fund.
The Portfolio attempts to achieve its investment objective by investing
primarily in securities of states, territories and possessions of the United
States and their political subdivisions, agencies and instrumentalities, the
interest of which is exempt from federal income tax in the opinion of bond
counsel for the issuer, but it may invest up to 20% of its total assets in
taxable obligations. The Tax Exempt Bond Fund seeks to maintain a current yield
that is greater than that obtainable from a portfolio of short term tax exempt
obligations, subject to certain quality restrictions. See "Quality and
Diversification Requirements."
The JPM Institutional New York Total Return Bond Fund (the "New York
Total Return Bond Fund") is designed to be an economical and convenient means of
investing in a portfolio consisting primarily of debt obligations that are
exempt from federal and New York State income taxes. The New York Total Return
Bond Fund's investment objective is to provide a high after tax total return for
New 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.
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government securities, corporate securities and municipal securities issued on
a taxable basis.
The JPM Institutional International Bond Fund (the "International Bond
Fund") is designed to be an economical and convenient means of making
substantial investments in a broad range of international fixed income
securities. The International Bond Fund's investment objective is to provide a
high total return, consistent with moderate risk of capital, from a portfolio of
international fixed income securities. The International Bond Fund attempts to
achieve its objective by investing all of its investable assets in The Non-U.S.
Fixed Income Portfolio (the "Portfolio"), a non-diversified open-end management
investment company having the same investment objective as the International
Bond Fund.
The Portfolio attempts to achieve its investment objective by investing
primarily in high grade, non-dollar-denominated corporate and government debt
obligations of foreign issuers described in the Prospectus and this Statement of
Additional Information.
Investment Process for the Non-U.S. Fixed Income Portfolio
Duration management: The duration decision is central to Morgan's
investment process and begins with an analysis of economic conditions and real
yields in the countries that make up the Portfolio's universe. Based on this
analysis, fixed income portfolio managers forecast three potential paths
(optimistic, pessimistic, and most likely) that interest rates in each market
could follow over the next three and twelve months. These forecasts are
converted into return curves that enable Morgan to estimate the risk-return
profile of different portfolio durations. In each market, duration is set at its
"optimal" level-that is, at the level that Morgan believes will generate the
highest excess return per unit of excess risk, as measured against the Salomon
Brothers World Government Bond Index.
Country allocation: Morgan allocates the Portfolio's assets primarily
among the developed countries of the world outside the United States. Country
allocations are determined through an optimization procedure that ranks markets
according to the risks and returns inherent in their "optimal" durations.
Country weightings also reflect liquidity and credit quality considerations. To
help contain risk, Morgan typically limits the country-weighted duration of the
Portfolio to a range between one year shorter and one year longer than that of
the benchmark.
Sector/security selection: Holdings primarily consist of government and
government-guaranteed bonds, but also include publicly and privately traded
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.
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The JPM Institutional Global Strategic Income Fund (the "Global
Strategic Income Fund") is designed for the aggressive investor seeking to
diversify an investment portfolio by investing in fixed-income securities of
foreign and domestic issuers. The Global Strategic Income Fund's investment
objective is high total return from a portfolio of fixed-income securities of
foreign and domestic issuers. The Global Strategic Income Fund seeks to achieve
its objective by investing all of its investable assets in the Global Strategic
Income Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Global Strategic Income
Fund.
The Portfolio attempts to achieve its investment objective by investing
primarily in mortgage-backed securities and direct mortgage obligations; below
investment grade debt obligations of U.S. and non-U.S. issuers; investment grade
U.S. dollar-denominated debt obligations of U.S. and non-U.S. issuers;
investment grade non-dollar denominated debt obligations of non-U.S. issuers;
and obligations of emerging market issuers.
The JPM Institutional Diversified Fund (the "Diversified Fund") is
designed for investors who wish to invest for long term objectives such as
retirement and who seek to attain real appreciation in their investments over
the long term, but with somewhat less price fluctuation than a portfolio
consisting solely of equity securities. The Diversified Fund's investment
objective is to provide a high total return from a diversified portfolio of
equity and fixed income securities. The Fund attempts to achieve its investment
objective by investing all of its investable assets in The Diversified Portfolio
(the "Portfolio"), a diversified open-end management investment company having
the same investment objective as the Diversified Fund.
Investment Process for the Diversified Portfolio
The mix of equities and fixed income is based on the risk premium model
and the anticipation of changing economic trends. The risk premium is the
difference between Morgan's forecast of the long-term return on stocks
(determined using Morgan's proprietary dividend discount model) and the current
nominal yield on 30-year U.S. Treasury bonds. When the risk premium is high,
more assets are allocated to stocks. When the risk premium is low, more assets
are allocated to bonds. Within U.S. equities, the allocation between large cap
and small cap stocks is based on the relative dividend discount rate spread
between large and small cap. Within fixed income, the allocation among sectors
is based on Morgan's analysis of their relative valuation. Morgan's asset
allocation decisions for the Portfolio are implemented using the investment
processes described herein for the Bond, Disciplined Equity, U.S. Small Company
and International Equity Funds.
With respect to the U.S. Small Company portion of The Diversified
Portfolio, the investment process described herein for the U.S. Small Company
Fund is applicable except that The Diversified Portfolio is managed to hold
sector weightings close to those of the Russell 2000 Index.
The JPM Institutional U.S. Equity Fund (the "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 U.S. Equity Fund's
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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 U.S. Equity Portfolio
(the "Portfolio"), a diversified open-end management investment company having
the same investment objective as the U.S. Equity Fund.
In normal circumstances, at least 65% of the Portfolio's net assets
will be invested in equity securities consisting of common stocks and other
securities with equity characteristics comprised of preferred stock, warrants,
rights, convertible securities, trust certifications, limited partnership
interests and equity participations (collectively, "Equity Securities"). The
Portfolio's primary equity investments are the common stock of large and medium
sized U.S. corporations and, to a limited extent, similar securities of foreign
corporations.
Investment Process for the 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.
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The JPM Institutional Disciplined Equity Fund (the "Disciplined Equity
Fund") is designed for investors seeking enhanced total return relative to that
of large and medium sized companies, typically represented by the S&P 500 Index.
The Disciplined Equity Fund's investment objective is to provide high total
return from a broadly diversified portfolio of equity securities. The Fund
attempts to achieve its investment objective by investing all of its investable
assets in The Disciplined Equity Portfolio (the "Portfolio"), a diversified
open-end management investment company having the same investment objective as
the Disciplined Equity Fund.
The Portfolio invests primarily in a diversified portfolio of common
stocks and other equity securities. Under normal circumstances, the Portfolio
expects to invest at least 65% of its total assets in such securities.
Investment Process for the Disciplined Equity Portfolio
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
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a portfolio of Equity Securities of small companies. The Fund attempts to
achieve its investment objective by investing all of its investable assets in
The U.S. Small Company Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the U.S.
Small Company Fund.
The Portfolio attempts to achieve its investment objective by investing
primarily in the common stock of small U.S. companies included in the Russell
2500 Index, which is composed of 2,500 common stocks of U.S. companies with
market capitalizations ranging between $100 million and $1.5 billion.
Investment Process for the U.S. Small Company Portfolio
Fundamental research: Morgan's 20 domestic equity analysts -- each an
industry specialist with an average of 13 years of experience -- continuously
monitor the small cap stocks in their respective sectors with the aim of
identifying companies that exhibit superior financial strength and operating
returns. Meetings with management and on-site visits play a key role in shaping
their assessments. Their research goal is to forecast normalized, long-term
earnings and dividends for the most attractive small cap companies among those
they monitor -- a universe that generally contains a total of 300-350 names.
Because Morgan's analysts follow both the larger and smaller companies in their
industries -- in essence, covering their industries from top to bottom -- they
are able to bring broad perspective to the research they do on both.
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 International Equity Portfolio (the "Portfolio"), a diversified
open-end management investment company having the same investment objective as
the International Equity Fund.
The Portfolio seeks to achieve its investment objective by investing
primarily in the Equity Securities of foreign corporations. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing at the same time in a significant number of developed
foreign countries render investments in such countries inadvisable.
Investment Process for the International 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
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tactical model which forecasts currency movements based on an analysis of four
fundamental factors -- trade balance trends, purchasing power parity, real
short-term interest differentials and real bond yields -- plus a technical
factor designed to improve the timing of transactions. Combining the output of
this model with a subjective assessment of economic, political and market
factors, Morgan's currency group recommends currency strategies that are
implemented in conjunction with the Portfolio's investment strategy.
The JPM Institutional Emerging Markets Equity Fund (the "Emerging
Markets Equity Fund") is designed for investors with a long term investment
horizon who want exposure to the rapidly growing emerging markets. The Emerging
Markets Equity Fund's investment objective is to provide a high total return
from a portfolio of Equity Securities of companies in emerging markets. The Fund
attempts to achieve its investment objective by investing all of its investable
assets in The Emerging Markets Equity Portfolio (the "Portfolio"), a diversified
open-end management investment company having the same investment objective as
the Emerging Markets Equity Fund.
The Portfolio seeks to achieve its investment objective by investing
primarily in Equity Securities of emerging markets issuers. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing at the same time in a significant number of emerging
markets countries render investments in such countries inadvisable.
Investment Process for the Emerging Markets Equity Portfolio
Country allocation: Morgan's country allocation decision begins with a
forecast of the expected return of each market in the Portfolio's universe.
These expected returns are calculated using a proprietary valuation method that
is forward looking in nature rather than based on historical data. Morgan then
evaluates these expected returns from two different perspectives: first, it
identifies those countries that have high real expected returns relative to
their own history and other nations in their universe. Second, it identifies
those countries that it expects will provide high returns relative to their
currency risk. Countries that rank highly on one or both of these scores are
overweighted relative to the Fund's benchmark, the MSCI Emerging Markets Free
Index, while those that rank poorly are underweighted. To help contain risk,
Morgan places limits on the total size of the Portfolio's country over- and
under-weightings.
Stock selection: Morgan's 12 emerging market equity analysts -- each an
industry specialist -- monitor a universe of approximately 900 companies in
these countries, developing forecasts of earnings and cash flows for the most
attractive among them. Companies are ranked from most to least attractive based
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.
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The JPM Institutional International Opportunities Fund (the
"International Opportunities Fund") is designed for long-term investors who want
to invest in an actively managed portfolio of common stocks and other equity
securities of non-U.S. companies, including companies located in emerging
markets. The International Opportunities Fund's investment objective is to
provide a high total return from a portfolio of equity securities of foreign
corporations in developed and to a lesser extent developing markets. The Fund
attempts to achieve its investment objective by investing all of its investable
assets in The International Opportunities Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the International Opportunities Fund.
The Portfolio invests primarily in common stocks and other equity
securities of non-U.S. issuers in developed and developing countries. Under
normal circumstances, the Portfolio expects to invest at least 65% of its total
assets in such securities. The Portfolio does not intend to invest in U.S.
securities (other than money market instruments), except temporarily, when
extraordinary circumstances prevailing at the same time in a significant number
of foreign countries render investments in such countries inadvisable.
Investment Process for the International Opportunities Portfolio
Country allocation (developed countries): Morgan's country allocation
decision for securities issued in developed countries begins with a forecast of
equity risk premiums, which provide a valuation signal by measuring the relative
attractiveness of stocks versus bonds. Using a proprietary approach, Morgan
calculates this risk premium for each of the developed countries in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of those
deviations. Countries with high (low) rankings are emphasized (deemphasized) to
reflect the above-average (below-average) attractiveness of their stock markets.
In determining these weightings, Morgan analyzes a variety of qualitative
factors as well -- including the liquidity, earnings momentum and interest rate
climate of the market at hand. These qualitative assessments can change the
magnitude but not the direction of the country allocations called for by the
risk premium forecast.
Country allocation (emerging countries): Morgan's country allocation
decision for emerging markets securities begins with a forecast of the expected
return of each emerging market in the Portfolio's universe. These expected
returns are calculated using a proprietary valuation method that is forward
looking in nature rather than based on historical data. Morgan then evaluates
these expected returns from two different perspectives: first, it identifies
those countries that have high real expected returns relative to their own
history and other nations in their universe. Second, it identifies those
countries that it expects will provide high returns relative to their currency
risk. Countries that rank highly on one or both of these scores are
overweighted, while those that rank poorly are underweighted.
Stock selection: Morgan's 44 international equity analysts and 12
emerging market equity analysts, each an industry and country specialist,
forecast normalized earnings, dividend payouts and cash flows for roughly 1,000
non-U.S.
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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
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 model 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
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the above-average (below-average) attractiveness of their stock markets. In
determining weightings, Morgan analyzes a variety of qualitative factors as well
- -- including the liquidity, earnings momentum and interest rate climate of the
market at hand. These qualitative assessments can change the magnitude but not
the direction of the country allocations called for by the risk-premium
forecast. In an effort to contain risk, Morgan places limits on the total size
of the Portfolio's country over- and under-weightings.
Stock selection: Morgan's 15 European equity analysts, each an industry
and country specialist, forecast normalized earnings and dividend payouts for
roughly 600 companies, taking a long-term perspective rather than the short time
frame common to consensus estimates. The analysts' forecasts are converted into
comparable expected returns by a dividend discount model, and then companies are
ranked from most to least attractive by industry and country. A diversified
portfolio is constructed using disciplined buy and sell rules. The portfolio
manager's objective is to concentrate purchases in the top third of the
rankings, and to keep sector weightings close to those of the benchmark. Once a
stock falls into the bottom third of the rankings -- because its price has risen
or its fundamentals have deteriorated -- it generally becomes a 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.
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Warrant/convertible strategy: Once a company has been identified as a
buy candidate, the portfolio manager analyzes the yields on the company's
available equity vehicles -- stocks, warrants and convertibles -- to determine
which appears the most attractive means of purchase. In an effort to enhance
potential returns, the Portfolio also trades among these vehicles -- a strategy
that seeks to capitalize on the inefficiencies that pervade the Japanese equity
market. If the Portfolio invests in a warrant, it will set aside cash in an
amount approximately equal to the difference in the price of the warrant and the
market value of the underlying common stock. The cash is invested in money
market instruments.
Disciplined portfolio construction: The Portfolio is constructed using
disciplined buy and sell rules. The portfolio manager's objective is to
concentrate purchases in the top 20% of the rankings; the specific companies
selected reflect the portfolio manager's judgment concerning the liquidity of an
issue, the soundness of the underlying forecasts, and the magnitude of the risks
versus the rewards. Once a stock falls into the third quintile -- because its
price has risen or its fundamentals have deteriorated -- it generally becomes a
candidate for sale. The portfolio manager strives to hold sector weightings
close to those of the benchmark in an effort to contain risk.
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
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markets. In determining weightings, Morgan analyzes a variety of qualitative
factors as well -- including the liquidity, earnings momentum and interest rate
climate of the market at hand. These qualitative assessments can change the
magnitude but not the direction of the country allocations called for by the
risk-premium forecast. In an effort to contain risk, Morgan places limits on the
total size of the Portfolio's country over- and under-weightings.
Stock selection: Morgan's six Asian equity analysts focused on Asian
markets -- each an industry and country specialist -- forecast normalized,
long-term earnings and dividend payouts for approximately 250 companies in this
region. These forecasts are converted into comparable expected returns by a
dividend discount model, and then companies are ranked from most to least
attractive by industry and country, and are grouped into quintiles. A
diversified portfolio is constructed using disciplined buy and sell rules. The
portfolio manager's objective is to concentrate purchases in the top 20% of the
rankings, and to keep sector weightings close to those of the benchmark. Once a
stock falls into the third quintile -- because its price has risen or its
fundamentals have deteriorated -- it generally becomes a candidate for sale.
Where available, warrants and convertibles are purchased when they appear to
have the potential to add value over common stock.
The following discussion supplements the information regarding the
investment objective of each of the Funds and the policies to be employed to
achieve this objective by their corresponding Portfolios as set forth above and
in the Prospectus. The investment objective of each Fund and its corresponding
Portfolio is identical. Accordingly, references below to a Fund also include the
Fund's corresponding Portfolio; similarly, references to a Portfolio also
include the corresponding Fund that invests in the Portfolio unless the context
requires otherwise.
Money Market Instruments
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. These obligations may or may not be backed by the "full faith
and credit" of the United States. 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. 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
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a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in which each Fund may
invest that are not backed by the full faith and credit of the United States
include, but are not limited to: (i) obligations of the Tennessee Valley
Authority, the Federal Home Loan Mortgage Corporation, the Federal Home Loan
Banks and the U.S. Postal Service, each of which has the right to borrow from
the U.S. Treasury to meet its obligations; (ii) securities issued by the Federal
National Mortgage Association, which are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and (iii)
obligations of the Federal Farm Credit System and the Student Loan Marketing
Association, each of whose obligations may be satisfied only by the individual
credits of the issuing agency.
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,
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
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capacity as investment advisor to the Portfolios and as fiduciary for other
clients for whom it exercises investment discretion. The monies loaned to the
borrower come from accounts managed by the Advisor or its affiliates, pursuant
to arrangements with such accounts. Interest and principal payments are credited
to such accounts. The Advisor, acting as a fiduciary on behalf of its clients,
has the right to increase or decrease the amount provided to the borrower under
an obligation. The borrower has the right to pay without penalty all or any part
of the principal amount then outstanding on an obligation together with interest
to the date of payment. Since these obligations typically provide that the
interest rate is tied to the Federal Reserve commercial paper composite rate,
the rate on master demand obligations is subject to change. Repayment of a
master demand obligation to participating accounts depends on the ability of the
borrower to pay the accrued interest and principal of the obligation on demand
which is continuously monitored by the Advisor. Since master demand obligations
typically are not rated by credit rating agencies, the Funds may invest in such
unrated obligations only if at the time of an investment the obligation is
determined by the Advisor to have a credit quality which satisfies the Fund's
quality restrictions. See "Quality and Diversification Requirements." Although
there is no secondary market for master demand obligations, such obligations are
considered by the Funds to be liquid because they are payable upon demand. The
Funds do not have any specific percentage limitation on investments in master
demand obligations. It is possible that the issuer of a master demand obligation
could be a client of Morgan to whom Morgan, in its capacity as a commercial
bank, has made a loan.
Repurchase Agreements. Each of the Funds, except the Federal Money
Market Fund, unless otherwise noted in the Prospectus or below, 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 Prime Money Market, Tax
Exempt Money Market and Federal Money Market Funds will be fully collateralized
within the meaning of paragraph (a)(4) of Rule 2a-7 under the Investment Company
Act of 1940, as amended (the "1940 Act"). If the seller defaults, a Fund might
incur a loss if the value of the collateral securing the repurchase agreement
declines and might incur disposition costs in connection with liquidating the
collateral.
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In addition, if bankruptcy proceedings are commenced with respect to the seller
of the security, realization upon disposal of the collateral by a Fund may be
delayed or limited.
Each of the Funds (other than the Federal Money Market Fund) may make
investments in other debt securities with remaining effective maturities of not
more than thirteen months, including without limitation corporate and foreign
bonds, asset-backed securities and other obligations described in the Prospectus
or this Statement of Additional Information. The Tax Exempt Money Market and Tax
Exempt Bond Funds may not invest in foreign bonds or asset-backed securities.
Corporate Bonds and Other Debt Securities
As discussed in the Prospectus, the Bond, Short Term Bond, New York
Total Return Bond, International Bond, Global Strategic Income, Diversified and
European Equity Funds may invest in bonds and other debt securities of domestic
and (except for the New York Total Return Bond Fund) foreign issuers to the
extent consistent with their investment objectives and policies. A description
of these investments appears in the Prospectus and below. See "Quality and
Diversification Requirements." For information on short-term investments in
these securities, see "Money Market Instruments."
Mortgage-Backed Securities. The Short Term Bond Fund, the Bond Fund,
the Diversified 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 of each Fund's limitation on investments in
illiquid securities in accordance
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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 corporations. For example, states, territories, possessions and
municipalities may issue municipal bonds to raise funds for various public
purposes such as
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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
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
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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
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
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and in selecting which puts to exercise, the Advisor considers the amount of
cash available to each Fund, the expiration dates of the available puts, any
future commitments for securities purchases, alternative investment
opportunities, the desirability of retaining the underlying securities in each
Fund's portfolio and the yield, quality and maturity dates of the underlying
securities.
The Tax Exempt Money Market Fund values any municipal bonds and notes
which are subject to puts at amortized cost. No value is assigned to the put.
The cost of any such put is carried as an unrealized loss from the time of
purchase until it is exercised or expires. The Tax Exempt Bond and New York
Total Return Bond Funds value any municipal bonds and notes subject to puts with
remaining maturities of less than 60 days by the amortized cost method. If the
Tax Exempt Bond and New York Total Return Bond Funds were to invest in municipal
bonds and notes with maturities of 60 days or more that are subject to puts
separate from the underlying securities, the puts and the underlying securities
would be valued at fair value as determined in accordance with procedures
established by the Board of Trustees. The Board of Trustees would, in connection
with the determination of the value of a put, consider, among other factors, the
creditworthiness of the writer of the put, the duration of the put, the dates on
which or the periods during which the put may be exercised and the applicable
rules and regulations of the SEC. Prior to investing in such securities, the Tax
Exempt Bond and New York Total Return Bond Funds, if deemed necessary based upon
the advice of counsel, will apply to the SEC for an exemptive order, which may
not be granted, relating to the valuation of such securities.
Since the value of the put is partly dependent on the ability of the
put writer to meet its obligation to repurchase, each Fund's policy is to enter
into put transactions only with municipal securities dealers who are approved by
the Advisor. Each dealer will be approved on its own merits, and it is each
Fund's general policy to enter into put transactions only with those dealers
which are determined to present minimal credit risks. In connection with such
determination, the Trustees will review regularly the Advisor's list of approved
dealers, taking into consideration, among other things, the ratings, if
available, of their equity and debt securities, their reputation in the
municipal securities markets, their net worth, their efficiency in consummating
transactions and any collateral arrangements, such as letters of credit,
securing the puts written by them. Commercial bank dealers normally will be
members of the Federal Reserve System, and other dealers will be members of the
National Association of Securities Dealers, Inc. or members of a national
securities exchange. In the case of the Tax Exempt Bond and New York Total
Return Bond Funds, other put writers will have outstanding debt rated Aa or
better by Moody's Investors Service, Inc. ("Moody's") or AA or better by
Standard & Poor's Ratings Group ("Standard & Poor's"), or will be of comparable
quality in the Advisor's opinion or such put writers' obligations will be
collateralized and of comparable quality in the Advisor's opinion. The Trustees
have directed the Advisor not to enter into put transactions with any dealer
which in the judgment of the Advisor becomes more than a minimal credit risk. In
the event that a dealer should default on its obligation to repurchase an
underlying security, the Funds are unable to predict whether all or any portion
of any loss sustained could subsequently be recovered from such dealer.
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The Trust has been advised by counsel that the Funds will be considered
the owner of the securities subject to the puts so that the interest on the
securities is tax exempt income to the Funds. Such advice of counsel is based on
certain assumptions concerning the terms of the puts and the attendant
circumstances.
Equity Investments
As discussed in the Prospectus, the Portfolios for the 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 U.S. Equity, Disciplined Equity, U.S. Small
Company, International Equity, Emerging Markets Equity, International
Opportunities, Diversified, European Equity, Japan Equity and Asia Growth Funds
may invest in common stock warrants that entitle the holder to buy common stock
from the issuer of the warrant at a specific price (the strike price) for a
specific period of time. The market price of warrants may be substantially lower
than the current market price of the underlying common stock, yet warrants are
subject to similar price fluctuations. As a result, warrants may be more
volatile investments than the underlying common stock.
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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 Prime Money Market, Bond, Short Term Bond, 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 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,
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 Prime Money Market Fund must be U.S. dollar-denominated. In
the case of the Prime 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.
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,
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Global Strategic Income, 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 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
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the recent market decline. Differences in accounting methods make it difficult
to compare the earnings of Japanese companies with those of companies in other
countries, especially the United States.
Since the Japan Equity, International Equity and International
Opportunities Portfolios invest in yen, changes in exchange rates between the
U.S. dollar and the yen affect the U.S. dollar value of their respective assets.
Although the Japanese economy has grown substantially over the past four
decades, recently the rate of growth had slowed substantially. See "Foreign
Currency Exchange Transactions."
Japan's success in exporting its products has generated a sizeable
trade surplus. Such trade surplus has caused tensions at times between Japan and
some of its trading partners. In particular, Japan's trade relations with the
United States have recently been the subject of discussion and negotiation
between the two nations. The United States has imposed certain measures designed
to address trade issues in specific industries. These measures and similar
measures in the future may adversely affect the performance of the Japan Equity,
International Equity and International Opportunities Portfolios.
Japan's economy has typically exhibited low inflation and low interest
rates. There can be no assurance that low inflation and low interest rates will
continue, and it is likely that a reversal of such factors would adversely
affect the Japanese economy. Moreover, the Japanese economy may differ,
favorably or unfavorably, from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position.
Japan has a parliamentary form of government. In 1993 a coalition
government was formed which, for the first time since 1955, did not include the
Liberal Democratic Party. Since mid-1993, there have been several changes in
leadership in Japan. What, if any, effect the current political situation will
have on prospective regulatory reforms of the economy in Japan cannot be
predicted. Recent and future developments in Japan and neighboring Asian
countries may lead to changes in policy that might adversely affect these
Portfolios.
Additional Investments
When-Issued and Delayed Delivery Securities. Each of the Portfolios may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income securities no interest accrues to a Portfolio until settlement
takes place. At the time a Portfolio makes the commitment to purchase securities
on a when-issued or delayed delivery basis, it will record the transaction,
reflect the value each day of such securities in determining its net asset value
and, if applicable, calculate the maturity for the purposes of average maturity
from that date. At the time of settlement a when-issued security may be valued
at less
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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, except the
Federal Money Market Portfolio, unless otherwise noted in the Prospectus or
below, may enter into reverse repurchase agreements. In a reverse repurchase
agreement, a Portfolio sells a security and agrees to repurchase the same
security at a mutually agreed upon date and price. The Portfolio for the Federal
Money Market Fund will only enter into reverse repurchase agreements involving
Treasury securities. For purposes of the 1940 Act a reverse repurchase agreement
is also considered as the borrowing of money by the Portfolio and, therefore, a
form of leverage. The Portfolios will invest the proceeds of borrowings under
reverse repurchase agreements. In addition, a Portfolio will enter into a
reverse repurchase agreement only when the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. A Portfolio will not invest the proceeds of a reverse repurchase
agreement for a period which exceeds the duration of the reverse repurchase
agreement. Each Portfolio will establish and maintain with the Custodian a
separate account with a segregated portfolio of securities in an amount at least
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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 Prime
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 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
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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 Prime 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 and/or
notes evidencing interests in the trust. These securities are generally sold in
private placements in reliance on Rule 144A.
Interest Rate Swaps (Global Strategic Income Portfolio). In connection
with such transactions, the Portfolio will segregate cash or liquid securities
to cover any amounts it could owe under swaps that exceed the amounts it is
entitled to receive, and it will adjust that amount daily, as needed. During the
term of a swap, changes in the value of the swap are recognized as unrealized
gains or losses by marking to market to reflect the market value of the swap.
When the swap is terminated, the Portfolio will record a realized gain or loss
equal to the difference, if any, between the proceeds from (or cost of) the
closing transaction and the Portfolio's basis in the contract. The Portfolio is
exposed to credit loss in the event of nonperformance by the other party to the
swap.
Quality and Diversification Requirements
Each of the Funds, except the New York Total Return Bond, International
Bond and Japan Equity Funds, intends to meet the diversification requirements of
the 1940 Act. To meet these requirements, 75% of the assets of these Funds is
subject to the following fundamental limitations: (1) the Fund may not invest
more than 5% of its total assets in the securities of any one issuer, except
obligations of the U.S. Government, its agencies and instrumentalities, and (2)
the Fund may not own more than 10% of the outstanding voting securities of any
one issuer. As for the other 25% of the Fund's assets not subject to the
limitation described above, there is no limitation on investment of these assets
under the 1940 Act, so that all of such assets may be invested in securities of
any one issuer, subject to the limitation of any applicable state securities
laws, or with respect to the Prime Money Market, Tax Exempt Money Market and
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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."
Prime Money Market Fund. In order to attain the Prime Money Market
Fund's objective of maintaining a stable net asset value, the Portfolio for the
Prime Money Market Fund will (i) limit its investment in the securities (other
than U.S. Government securities) of any one issuer to no more than 5% of its
assets, measured at the time of purchase, except for investments held for not
more than three business days (subject, however, to the investment restriction
No. 4 set forth under "Investment Restrictions" below); and (ii) limit
investments to securities that present minimal credit risks and securities
(other than U.S. Government securities) that are rated within the highest
short-term rating category by at least two nationally recognized statistical
rating organizations ("NRSROs") or by the only NRSRO that has rated the
security. Securities which originally had a maturity of over one year are
subject to more complicated, but generally similar rating requirements. A
description of illustrative credit ratings is set forth in "Appendix A." The
Portfolio may also purchase unrated securities that are of comparable quality to
the rated securities described above. Additionally, if the issuer of a
particular security has issued other
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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 unrated; (ii)
require the Portfolio to maintain a dollar-weighted average portfolio maturity
of not more than 90 days and to invest only in securities with a remaining
maturity of not more than thirteen months; and (iii) require the Portfolio, in
the event of certain downgradings of or defaults on portfolio holdings, to
dispose of the holding, subject in certain circumstances to a finding by the
Trustees that disposing of the holding would not be in the Portfolio's best
interest.
Tax Exempt Money Market Fund. In order to attain the Tax Exempt Money
Market Fund's objective of maintaining a stable net asset value, the Portfolio
for the Tax Exempt Money Market Fund will limit its investments to securities
that present minimal credit risks and securities (other than New York State
municipal notes) that are rated within the highest rating assigned to short-term
debt securities (or, in the case of New York State municipal notes, within one
of the two highest ratings assigned to short-term debt securities) by at least
two NRSROs or by the only NRSRO that has rated the security. Securities which
originally had a maturity of over one year are subject to more complicated, but
generally similar rating requirements. The Portfolio may also purchase unrated
securities that are of comparable quality to the rated securities described
above. Additionally, if the issuer of a particular security has issued other
securities of comparable priority and security and which have been rated in
accordance with the criteria described above that security will be deemed to
have the same rating as such other rated securities.
In addition, the Board of Trustees has adopted procedures which (i)
require the Portfolio to maintain a dollar-weighted average portfolio maturity
of not more than 90 days and to invest only in securities with a remaining
maturity of not more than thirteen months and (ii) require the Portfolio, in the
event of certain downgrading of or defaults on portfolio holdings, to dispose of
the holding, subject in certain circumstances to a finding by the Trustees that
disposing of the holding would not be in the Portfolio's best interest.
The credit quality of variable rate demand notes and other municipal
obligations is frequently enhanced by various credit support arrangements with
domestic or foreign financial institutions, such as letters of credit,
guarantees and insurance, and these arrangements are considered when investment
quality is evaluated. The rating of credit-enhanced municipal obligations by a
NRSRO may be based primarily or exclusively on the credit support arrangement.
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.
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Short Term Bond, Bond, International Bond and Diversified Funds. The
Short Term Bond, Bond and International Bond Funds and the fixed income portion
of the Diversified Fund invest in a diversified portfolio of securities with the
quality ratings described in the Prospectus. These securities are considered
"high grade," "investment grade" and "below investment grade" as described in
Appendix A. In addition, at the time, in the case of the Bond Fund and the fixed
income portion of the Diversified Fund, the Funds invest in any commercial
paper, bank obligation or repurchase agreement, the issuer must have outstanding
debt rated A or higher by Moody's or Standard & Poor's, the issuer's parent
corporation, if any, must have outstanding commercial paper rated Prime-1 by
Moody's or A-1 by Standard & Poor's, or if no such ratings are available, the
investment must be of comparable quality in the Advisor's opinion.
The Global Strategic Income Fund. The higher total return sought by the
Global Strategic Income Fund is generally obtainable from high yield high risk
securities in the lower rating categories of the established rating services.
These securities are rated below Baa by Moody's or below BBB by Standard &
Poor's. The Global Strategic Income Fund may invest in securities rated as low
as B by Moody's or Standard & Poor's, which may indicate that the obligations
are speculative to a high degree and in default. Lower rated securities are
generally referred to as junk bonds. See the Appendix attached to this Statement
of Additional Information for a description of the characteristics of the
various ratings categories. The Global Strategic Income Fund is not obligated to
dispose of securities whose issuers subsequently are in default or which are
downgraded below the minimum ratings noted above. The credit ratings of Moody's
and Standard & Poor's (the "Rating Agencies"), such as those ratings described
in this Statement of Additional Information, may not be changed by the Rating
Agencies in a timely fashion to reflect subsequent economic events. The credit
ratings of securities do not evaluate market risk. The Global Strategic Income
Fund may also invest in unrated securities which, in the opinion of the Advisor,
offer comparable yields and risks to the rated securities in which the Fund may
invest.
Debt securities that are rated in the lower rating categories, or which
are unrated, involve greater volatility of price and risk of loss of principal
and income. In addition, lower ratings reflect a greater possibility of an
adverse change in financial condition affecting the ability of the issuer to
make payments of interest and principal. The market price and liquidity of lower
rated fixed income securities generally respond to short-term corporate and
market developments to a greater extent than the price and liquidity of higher
rated securities, because these developments are perceived to have a more direct
relationship to the ability of an issuer of lower rated securities to meet its
ongoing debt obligations. Although the Advisor seeks to minimize these risks
through diversification, investment analysis and attention to current
developments in interest rates and economic conditions, there can be no
assurance that the Advisor will be successful in limiting the Global Strategic
Income Fund's exposure to the risks associated with lower rated securities.
Because the Global Strategic Income Fund invests in securities in the lower
rated categories, the achievement of the Fund's investment objective is more
dependent on the Advisor's ability than would be the case if the Fund were
investing in securities in the higher rated categories.
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Reduced volume and liquidity in the high yield bond market or the
reduced availability of market quotations may make it more difficult to dispose
of the Global Strategic Income Fund's investments in high yield securities and
to value accurately these assets. The reduced availability of reliable,
objective data may increase the Global Strategic Income Fund's reliance on
management's judgment in valuing high yield bonds. In addition, the Global
Strategic Income Fund's investments in high yield securities may be susceptible
to adverse publicity and investor perceptions whether or not justified by
fundamental factors.
Tax Exempt Bond Fund. The Tax Exempt Bond Fund invests principally in a
diversified portfolio of "investment grade" tax exempt securities. On the date
of investment with respect to at least 90% of its total assets, (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 and, with respect to the
remaining 10% of its assets, must be rated B or better by Moody's or Standard &
Poor's, or of comparable quality. 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." Such securities must be rated, on the date of investment, B
or better by Moody's or Standard & Poor's, or of comparable quality. 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
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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.
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 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
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
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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.
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
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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 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.
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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.
The State of New York's general obligation debt is currently rated A2
and A- by Moody's and Standard & Poor's, respectively. Standard & Poor's also
maintains a positive outlook for the credit rating. New York City's general
obligation bonds are rated Baa1 and BBB+, respectively. While the City's economy
has been performing well, three of the largest employment sectors - government,
health care and banking remain weak. The City's economic growth continues to lag
national indicators. While fiscal 1997 is expected to enjoy record surpluses,
large budget gaps in subsequent years are still expected.
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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 fiscal year ended March 31, 1996: 41%. For the fiscal year ended March 31,
1997: 35%.
The Global Strategic Income Portfolio (Global Strategic Income Fund)-- For the
period March 17, 1997 (commencement of operations) through April 30, 1997
(unaudited): 104%.
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 U.S. Equity Portfolio (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 International Equity Portfolio (International Equity Fund) -- For the fiscal
year ended October 31, 1995: 59%. For the fiscal year ended October 31, 1996:
57%.
The Diversified Portfolio (Diversified Fund) -- For the fiscal year ended
June 30, 1995: 136%. For the fiscal year ended June 30, 1996: 144%.
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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 Disciplined Equity Portfolio (Disciplined Equity Fund) -- For the period
December 30, 1996 (commencement of operations) through March 31, 1997
(unaudited): 8%.
The International Opportunities Portfolio (International Opportunities Fund) --
For the period February 26, 1997 (commencement of operations) through May 31,
1997 (unaudited): 13%.
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 Prime 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
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calendar days, if as a result thereof, more than 10% of the market value of the
Fund's total assets would be in investments which are illiquid;
2. Enter into reverse repurchase agreements exceeding in the aggregate one-third
of the market value of the Fund's total assets, less liabilities other than
obligations created by reverse repurchase agreements;
3. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts not to exceed 10% of the value of the Fund's total assets,
taken at cost, at the time of such borrowing. Mortgage, pledge, or hypothecate
any assets except in connection with any such borrowing and in amounts not to
exceed 10% of the value of the Fund's net assets at the time of such borrowing.
The Fund will not purchase securities while borrowings exceed 5% of the Fund's
total assets; provided, however, that the Fund may increase its interest in an
open-end management investment company with the same investment objective and
restrictions as the Fund while such borrowings are outstanding. This borrowing
provision is included to facilitate the orderly sale of portfolio securities,
for example, in the event of abnormally heavy redemption requests, and is not
for investment purposes and shall not apply to reverse repurchase agreements;
4. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund. This limitation shall not
apply to issues of the U.S. Government, its agencies or instrumentalities and to
permitted investments of up to 25% of the Fund's total assets;
5. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investment in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities, negotiable certificates of
deposit, time deposits, and bankers' acceptances of U.S. branches of U.S. banks;
6. Make loans, except through purchasing or holding debt obligations, or
entering into repurchase agreements, or loans of portfolio securities in
accordance with the Fund's investment objective and policies (see "Investment
Objectives and Policies");
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
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applicable to the purchase or sale of when-issued securities or of securities
for delivery at a future date;
9. Acquire securities of other investment companies, except as permitted by the
1940 Act;
10. Act as an underwriter of securities; or
11. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule, order or
interpretation thereunder.
The Tax Exempt Money Market Fund and its corresponding Portfolio may not:
1. Borrow money, except from banks for temporary, extraordinary or emergency
purposes and then only in amounts up to 10% of the value of the Fund's total
assets, taken at cost at the time of such borrowing; or mortgage, pledge or
hypothecate any assets except in connection with any such borrowing in amounts
up to 10% of the value of the Fund's net assets at the time of such borrowing.
The Fund will not purchase securities while borrowings exceed 5% of the Fund's
total assets, provided, however, that the Fund may increase its interest in an
open-end management investment company with the same investment objective and
restrictions as the Fund's while such borrowings are outstanding. This borrowing
provision, for example, facilitates the orderly sale of portfolio securities in
the event of abnormally heavy redemption requests or in the event of redemption
requests during periods of tight market supply. This provision is not for
leveraging purposes;
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
- --------
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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is a member will be a separate issuer if the security is backed only by the
assets and revenues of that issuer. If the security is guaranteed by another
entity, the guarantor will be deemed to be the issuer. This limitation shall not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of the Fund's total
assets;2
5. Make loans, except through the purchase or holding of debt obligations,
repurchase agreements, or loans of portfolio securities in accordance with the
Fund's investment objective and policies (see "Investment Objectives and
Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof
except to the extent that securities subject to a demand obligation, stand-by
commitments and puts may be purchased (see "Investment Objectives and
Policies"); real estate; commodities; commodity contracts; or interests in oil,
gas, or mineral exploration or development programs. However, the Fund may
purchase municipal bonds, notes or commercial paper secured by interests in real
estate;
7. Purchase securities on margin, make short sales of securities, or maintain a
short position, provided that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued securities or of securities
for delayed delivery;
8. Acquire securities of other investment companies, except as permitted by the
1940 Act;
9. Act as an underwriter of securities; or
10. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule, order or
interpretation thereunder.
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
- --------
2 For purposes of interpretation of Investment Restriction No. 4
"guaranteed by another entity" includes credit substitutions, such as letters of
credit or insurance, unless the Advisor determines that the security meets the
Fund's credit standards without regard to the credit substitution.
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the obligations represented by the bank borrowings and reverse repurchase
agreements). Mortgage, pledge, or hypothecate any assets except in connection
with any such borrowing and in amounts up to 10% of the value of the Fund's or
the Portfolio's net assets at the time of such borrowing. The Fund or the
Portfolio will not purchase securities while borrowings exceed 5% of the Fund's
or the Portfolio's total assets, respectively; provided, however, that the Fund
may increase its interest in an open-end management investment company with the
same investment objective and restrictions as the Fund while such borrowings are
outstanding. This borrowing provision is included to facilitate the orderly sale
of portfolio securities, for example, in the event of abnormally heavy
redemption requests, and is not for investment purposes;
3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's or the
Portfolio's total assets would be invested in securities or other obligations of
any one such issuer; provided, however, that the Fund may invest all or part of
its investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund. This limitation also shall
not apply to issues of the U.S. Government and repurchase agreements related
thereto;
4. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investment in such industry would exceed 25% of the
value of the Fund's or the Portfolio's total assets; provided, however, that the
Fund may invest all or part of its assets in an open-end management investment
company with the same investment objective and restrictions as the Fund. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities and repurchase agreements
related thereto;
5. Make loans, except through purchasing or holding debt obligations, repurchase
agreements, or loans of portfolio securities in accordance with the Fund's or
the Portfolio's investment objective and policies (see "Investment Objectives
and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, or commodity contracts or interests in oil, gas, or
mineral exploration or development programs;
7. Purchase securities on margin, make short sales of securities, or maintain a
short position, provided that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued securities or of securities
for delivery at a future date;
8. Acquire securities of other investment companies, except as permitted by the
1940 Act or in connection with a merger, consolidation, reorganization,
acquisition of assets or an offer of exchange; provided, however, that nothing
in this investment restriction shall prevent the Trust from investing all or
part 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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10. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule, order or
interpretation thereunder.
The Short Term Bond Fund and its corresponding Portfolio may not:
1. Purchase securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase the value of its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;
2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. This limitation shall not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of the Fund's total
assets;
3. Purchase the securities of an issuer if, immediately after such purchase, the
Fund owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that the Fund may invest all or part of its investable assets
in an open-end management investment company with the same investment objective
and restrictions as the Fund's. This limitation shall not apply to permitted
investments of up to 25% of the Fund's total assets;
4. Borrow money (not including reverse repurchase agreements), except from banks
for temporary or extraordinary or emergency purposes and then only in amounts up
to 30% of the value of the Fund's or the Portfolio's total assets, taken at cost
at the time of such borrowing (and provided that such borrowings and reverse
repurchase agreements do not exceed in the aggregate one-third of the market
value of the Fund's and the Portfolio's total assets less liabilities other than
the obligations represented by the bank borrowings and reverse repurchase
agreements). The Fund will not mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts not to exceed 30% of
the value of the Fund's or the Portfolio's net assets at the time of such
borrowing. The Fund or the Portfolio will not purchase securities while
borrowings exceed 5% of the Fund's total assets; provided, however, that the
Fund may increase its interest in an open-end management investment company with
the same investment objective and restrictions as the Fund's while such
borrowings are outstanding. Collateral arrangements for premium and margin
payments in connection with the Fund's hedging activities are not deemed to be a
pledge of assets;
5. Issue any senior security, except as appropriate to evidence indebtedness
which constitutes a senior security and which the Fund is permitted to incur
pursuant to Investment Restriction No. 4 and except that the Fund may enter into
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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
of abnormally heavy redemption requests. This provision is not for investment
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purposes. Collateral arrangements for premium and margin payments in connection
with the Fund's hedging activities are not deemed to be a pledge of assets;
2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. This limitation shall not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of the Fund's total
assets;
3. Purchase the securities of an issuer if, immediately after such purchase, the
Fund owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that the Fund may invest all or part of its investable assets
in an open-end management investment company with the same investment objective
and restrictions as the Fund's. This limitation shall not apply to permitted
investments of up to 25% of the Fund's total assets;
4. Purchase securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase the value of its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;
5. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities) or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies;
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, commodity contracts, except for the Fund's interest in
hedging activities as described under "Investment Objectives and Policies"; or
interests in oil, gas, or mineral exploration or development programs. However,
the Fund may purchase debt obligations secured by interests in real estate or
issued by companies which invest in real estate or interests therein including
real estate investment trusts;
7. Purchase securities on margin, make short sales of securities, or maintain a
short position in securities, except in the course of the Fund's hedging
activities, unless at all times when a short position is open the Fund owns an
equal amount of such securities, provided that this restriction shall not be
deemed to be applicable to the purchase or sale of when-issued securities or
delayed delivery securities;
8. Issue any senior security, except as appropriate to evidence indebtedness
which constitutes a senior security and which the Fund is permitted to incur
pursuant to Investment Restriction No. 1 and except that the Fund may enter into
reverse repurchase agreements, provided that the aggregate of senior securities,
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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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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;
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
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<PAGE>
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");
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
i:\dsfndlgl\institut\0897.pea\combsai.wpf
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<PAGE>
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 U.S. Equity Fund and the U.S. Small Company Fund and their
corresponding Portfolios may not:
1. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase the value of its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;
2. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts not to exceed 10% of the value of the Fund's total assets,
taken at cost, at the time of such borrowing. Mortgage, pledge, or hypothecate
any assets except in connection with any such borrowing and in amounts not to
exceed 10% of the value of the Fund's net assets at the time of such borrowing.
The Fund will not purchase securities while borrowings exceed 5% of the Fund's
total assets; provided, however, that the Fund may increase its interest in an
open-end management investment company with the same investment objective and
restrictions as the Fund's while such borrowings are outstanding. This borrowing
provision is included to facilitate the orderly sale of portfolio securities,
for example, in the event of abnormally heavy redemption requests, and is not
for investment purposes. Collateral arrangements for premium and margin payments
in connection with the Fund's hedging activities are not deemed to be a pledge
of assets;
3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
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<PAGE>
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. This limitation shall not
apply to issues of the U.S. Government, its agencies or instrumentalities and to
permitted investments of up to 25% of the Fund's total assets;
4. Purchase the securities of an issuer if, immediately after such purchase, the
Fund owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that the Fund may invest all or part of its investable assets
in an open-end management investment company with the same investment objective
and restrictions as the Fund's;
5. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities), or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies (see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, or commodity contracts, except for the Fund's
interests in hedging activities as described under "Investment Objectives and
Policies"; or interests in oil, gas, or mineral exploration or development
programs. However, the Fund may purchase securities or commercial paper issued
by companies which invest in real estate or interests therein, including real
estate investment trusts;
7. Purchase securities on margin, make short sales of securities, or maintain a
short position, except in the course of the Fund's hedging activities, provided
that this restriction shall not be deemed to be applicable to the purchase or
sale of when-issued securities or delayed delivery securities;
8. Acquire securities of other investment companies, except as permitted by the
1940 Act;
9. Act as an underwriter of securities;
10. Issue any senior security, except as appropriate to evidence indebtedness
which the Fund is permitted to incur pursuant to Investment Restriction No. 2.
The Fund's arrangements in connection with its hedging activities as described
in "Investment Objectives and Policies" shall not be considered senior
securities for purposes hereof; or
11. Purchase any equity security if, as a result, the Fund would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three years.
The International Equity Fund and its corresponding Portfolio may not:
1. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts up to 30% of the value of the Fund's net assets at the time
of borrowing, and except in connection with reverse repurchase agreements and
then only in amounts up to 33 1/3% of the value of the Fund's net assets; or
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<PAGE>
purchase securities while borrowings, including reverse repurchase agreements,
exceed 5% of the Fund's total assets; provided, however, that the Fund may
increase its interest in an open-end management investment company with the same
investment objective and restrictions as the Fund's while such borrowings are
outstanding. The Fund will not mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts not to exceed 30% of
the value of the Fund's net assets at the time of such borrowing;
2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. This limitation shall not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of the Fund's total
assets;
3. Purchase the securities of an issuer if, immediately after such purchase, the
Fund owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that the Fund may invest all or part of its investable assets
in an open-end management investment company with the same investment objective
and restrictions as the Fund's. This limitation shall not apply to permitted
investments of up to 25% of the Fund's total assets;
4. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;
5. Make loans, except through the purchase or holding of debt obligations
(including restricted securities), or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies, see "Additional Investment Information" in
the Prospectus and "Investment Objectives and Policies" in this Statement of
Additional Information;
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real property, including limited partnership interests, commodities, or
commodity contracts, except for the Fund's interests in hedging and foreign
exchange activities as described under "Additional Investment Information" in
the Prospectus; or interests in oil, gas, mineral or other exploration or
development programs or leases. However, the Fund may purchase securities or
commercial paper issued by companies that invest in real estate or interests
therein including real estate investment trusts;
7. Purchase securities on margin, make short sales of securities, or maintain a
short position in securities, except to obtain such short-term credit as
necessary for the clearance of purchases and sales of securities, provided that
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<PAGE>
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);
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;
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<PAGE>
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;
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;
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<PAGE>
6. Underwrite securities of other issuers, except to the extent the Fund, in
disposing of portfolio securities, may be deemed an underwriter within the
meaning of the 1933 Act;
7. Issue senior securities, except as permitted under the 1940 Act or any rule,
order or interpretation thereunder; and
8. Notwithstanding any other investment restriction of the Fund, the Fund may
invest all of its investable assets in an open-end management investment company
having substantially the same investment objective and restrictions as the Fund.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC staff
interpretations thereof are amended or modified, each of the Disciplined Equity
and International Opportunities Funds and its corresponding Portfolio may not:
1. Purchase any security if, as a result, more than 25% its total assets would
be invested in securities of issuers in any single industry. This limitation
shall not apply to securities issued or guaranteed as to principal or interest
by the U.S. Government, its agencies or instrumentalities.
2. Issue senior securities. For purposes of this restriction, borrowing money in
accordance with paragraph 3 below, making loans in accordance with paragraph 7
below, the issuance of shares of beneficial interest in multiple classes or
series, the purchase or sale of options, futures contracts, forward commitments,
swaps and transactions in repurchase agreements are not deemed to be senior
securities.
3. Borrow money, except in amounts not to exceed one third of the Fund's total
assets (including the amount borrowed) (i) from banks for temporary or
short-term purposes or for the clearance of transactions, (ii) in connection
with the redemption of Fund shares or to finance failed settlements of portfolio
trades without immediately liquidating portfolio securities or other assets,
(iii) in order to fulfill commitments or plans to purchase additional securities
pending the anticipated sale of other portfolio securities or assets and (iv)
pursuant to reverse repurchase agreements entered into by the Fund.
4. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Fund may be deemed
to be an underwriter under the 1933 Act.
5. Purchase or sell real estate except that the Fund may (i) acquire or lease
office space for its own use, (ii) invest in securities of issuers that invest
in real estate or interests therein, (iii) invest in securities that are secured
by real estate or interests therein, (iv) purchase and sell mortgage-related
securities and (v) hold and sell real estate acquired by the Fund as a result of
the ownership of securities.
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.
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<PAGE>
7. Make loans, except that the Fund (1) may lend portfolio securities with a
value not exceeding one-third of the Fund's net assets, (2) enter into
repurchase agreements, and (3) purchase all or a portion of an issue of debt
securities (including privately issued debt securities), bank loan participation
interests, bank certificates of deposit, bankers' acceptances, debentures or
other securities, whether or not the purchase is made upon the original issuance
of the securities.
8. With respect to 75% of its total assets, purchase securities of an issuer
(other than the U.S. Government, its agencies, instrumentalities or authorities
or repurchase agreements collateralized by U.S. Government securities), if:
a. such purchase would cause more than 5% of the Fund's total assets to
be invested in the securities of such issuer; or
b. such purchase would cause the Fund to hold more than 10% of the
outstanding voting securities of such issuer.
(Although permitted to do so by restriction No. 3 above, the Funds have
no current intention to engage in borrowing for financial leverage.)
Unless Section 8(b)(1), and 13(a) of the 1940 Act or any SEC or SEC
staff interpretations thereof, are amended or modified, the Global Strategic
Income Fund and its corresponding Portfolio may not:
1. Purchase any security if, as a result, more than 25% of the value of the
Fund's total assets would be invested in securities of issuers having their
principal business activities in the same industry. This limitation shall not
apply to obligations issued or guaranteed by the U. S. Government, its agencies
or instrumentalities.
2. Issue senior securities. For purposes of this restriction, borrowing money in
accordance with paragraph 3 below, making loans in accordance with non-
fundamental restriction no. (v), the issuance of shares of beneficial interest
in multiple classes or series, the purchase or sale of options, futures
contracts, forward commitments, swaps and transactions in repurchase agreements
are not deemed to be senior securities.
3. Borrow money, except in amounts not to exceed one third of the Fund's total
assets (including the amount borrowed) less liabilities (other than
borrowings)(i) from banks for temporary or short-term purposes or for the
clearance of transactions, (ii) in connection with the redemption of Fund shares
or to finance failed settlements of portfolio trades without immediately
liquidating portfolio securities or other assets, (iii) in order to fulfill
commitments or plans to purchase additional securities pending the anticipated
sale of other portfolio securities or assets and (iv) pursuant to reverse
repurchase agreement entered into by the Fund.5
- --------
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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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 - Prime Money Market Fund. The
investment restriction described below is not a fundamental policy of the Prime
Money Market Fund or its corresponding Portfolio and may be changed by their
respective Trustees. This non-fundamental investment policy requires that the
Prime Money Market Fund and its corresponding Portfolio may not:
(i) enter into reverse repurchase agreements or borrow money, except from banks
for extraordinary or emergency purposes, if such obligations exceed in the
aggregate one-third of the market value of the Fund's total assets, less
liabilities other than obligations created by reverse repurchase agreements and
borrowings.
Non-Fundamental Investment Restrictions - Tax Exempt Money Market Fund
and Federal Money Market Fund. The investment restriction described below is not
a fundamental policy of these Funds or their corresponding Portfolios and may be
changed by their respective Trustees. This non-fundamental investment policy
requires that each such Fund may not:
(i) acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over seven
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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, 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 net assets would be in investments that are illiquid.
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 net 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 - 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;
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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 net 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 - 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 net 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
Securities and Exchange Commission 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 - Disciplined Equity,
International Opportunities and Global Strategic Income Funds. The investment
restrictions described below are not fundamental policies of the Funds and their
corresponding Portfolios and may be changed by their respective Trustees. These
non- fundamental investment policies require that each Fund may not:
(i) Acquire securities of other investment companies, except as permitted by the
1940 Act or any rule, order or interpretation thereunder, or in connection with
a merger, consolidation, reorganization, acquisition of assets or an offer of
exchange;
(ii) Acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over seven
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calendar days, if as a result thereof, more than 15% of the market value of the
Fund's net 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
and subparticipation 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, each Portfolio and
the investment advisor 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 $75,000 (adjusted as of
April 1, 1997) for serving as Trustee of the Trust, each of the Master
Portfolios (as defined below), The JPM Pierpont Funds and 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.
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Trustee compensation expenses accrued by the Trust for the calendar
year ended December 31, 1996 are set forth below.
TOTAL TRUSTEE COMPENSATION
ACCRUED BY THE MASTER
AGGREGATE TRUSTEE PORTFOLIOS(*), THE JPM
COMPENSATION PIERPONT FUNDS, JPM SERIES
ACCRUED BY THE TRUST AND THE TRUST DURING
NAME OF TRUSTEE TRUST DURING 1996 1996 (***)
- --------------- ----------------- ----------
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
(*) Includes the Portfolios, The Emerging Markets Debt Portfolio and The U.S.
Small Company Opportunities Portfolio (collectively the "Master Portfolios").
(**) 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 and its
corresponding Portfolio during the indicated fiscal years are set forth below:
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Prime 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 Prime 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. For the fiscal year ended March 31, 1997: $2,907.
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. For the fiscal year ended March 31, 1997: $5,302.
Global Strategic Income Fund -- For the period March 17, 1997 (commencement of
operations) through April 30, 1997 (unaudited): $83. The Global Strategic Income
Portfolio -- For the period March 17, 1997 (commencement of operations) through
April 30, 1997 (unaudited): $83.
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.
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The Non-U.S. Fixed Income Portfolio -- For the period October 11, 1994
(commencement of operations) through September 30, 1995: $20,446. For the fiscal
year ended September 30, 1996: $11,488.
Bond Fund -- For the fiscal year ended October 31, 1994: $12,989. For the fiscal
year ended October 31, 1995: $29,276. For the fiscal year ended October 31,
1996: $30,044.
The U.S. Fixed Income Portfolio -- For the fiscal year ended October 31, 1994:
$23,028. For the fiscal year ended October 31, 1995: $40,729. For the fiscal
year ended October 31, 1996: $36,922.
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 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 International 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 Fund -- For the period February 29, 1996 (commencement of
operations) through December 31, 1996: $153.
The 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.
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Japan Equity Fund -- For the period February 29, 1996 (commencement of
operations) through December 31, 1996: $103.
The 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.
Asia Growth Fund --For the period February 29, 1996 (commencement of operations)
through December 31, 1996: $72.
The 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.
Disciplined Equity Fund -- For the period January 3, 1997 (commencement of
operations) through March 31, 1997 (unaudited): $122. The Disciplined Equity
Portfolio -- For the period December 30, 1996 (commencement of operations)
through March 31, 1997 (unaudited): $303.
International Opportunities Fund -- For the period February 26, 1997
(commencement of operations) through May 31, 1997 (unaudited):$573. The
International Opportunities Portfolio -- For the period February 26, 1997
(commencement of operations) through May 31, 1997 (unaudited):$698.
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
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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 of the
Portfolios only (excluding the Federal Money Market, Tax Exempt Money Market,
Tax Exempt Bond, New York 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.
MARK A. KARPE; Vice President and Assistant Secretary. Counsel of FDI and
an officer of certain investment companies advised or administered by The
Dreyfus Corporation or its affiliates since September 1996. From August 1993 to
May 1996, Mr. Karpe was enrolled at Hofstra Law School and received his JD in
May 1996. From August 1992 to July 1993, Mr. Karpe was employed as an Associate
Examiner with the Enforcement Department of the NASD. Prior to September 1992,
Mr. Karpe was an Associate Analyst with the Enforcement Department of the
American Stock Exchange. His date of birth is November 22, 1968.
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
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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 of the
Portfolios only (excluding the Federal Money Market, Tax Exempt Money Market,
Tax Exempt Bond, New York 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.
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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
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 $234 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.
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The Advisor's fixed income investment process is based on analysis of real
rates, sector diversification and quantitative and credit analysis.
The investment advisory services the Advisor provides to the Portfolios
are not exclusive under the terms of the Advisory Agreements. The Advisor is
free to and does render similar investment advisory services to others. The
Advisor serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolios. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolios. See
"Portfolio Transactions."
Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmarks for the Portfolios in which the Funds
invest are currently: The Prime 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 U.S. Equity Portfolio and The Disciplined
Equity Portfolio--S&P 500 Index; The U.S. Small Company Portfolio--Russell 2500
Index; The International 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
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of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan Investment Management Inc. and certain other investment management
affiliates of J.P. Morgan.
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.
Prime Money Market: 0.20% of net assets up to $1 billion and 0.10% of net assets
in excess of $1 billion
Tax Exempt Money Market: 0.20% of net assets up to $1 billion and 0.10% of net
assets in excess of $1 billion
Federal Money Market: 0.20% of net assets up to $1 billion and 0.10% of net
assets in excess of $1 billion
Short Term Bond: 0.25%
U.S. Fixed Income: 0.30%
Tax Exempt Bond: 0.30%
New York Total Return Bond: 0.30%
Non-U.S. Fixed Income: 0.35%
Global Strategic Income: 0.45%
Disciplined Equity: 0.35%
U.S. Equity: 0.40%
U.S. Small Company: 0.60%
International 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%
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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 Prime Money Market Portfolio (Prime Money Market Fund) -- For the
fiscal year ended November 30, 1994: $3,423,576. For the fiscal year ended
November 30, 1995: $3,913,479. For the fiscal year ended November 30, 1996:
$4,503,793.
The Tax Exempt Money Market Portfolio (Tax Exempt Money Market Fund) -- For the
fiscal year ended August 31, 1994: $2,021,476. For the fiscal year ended August
31, 1995: $2,150,291. For the fiscal year ended August 31, 1996: $2,154,248.
The Federal Money Market Portfolio (Federal Money Market Fund) -- For the
fiscal year ended October 31, 1994: $339,521. For the fiscal year ended October
31, 1995: $492,941. For the fiscal year ended October 31, 1996: $653,326.
The Short Term Bond Portfolio (Short Term Bond Fund) -- For the fiscal year
ended October 31, 1994: $113,379. For the fiscal year ended October 31, 1995:
$146,335. For the fiscal year ended October 31, 1996: $50,319.
The U.S. Fixed Income Portfolio (Bond Fund) -- For the fiscal year ended
October 31, 1994: $699,081. For the fiscal year ended October 31, 1995:
$1,339,147. For the fiscal year ended October 31, 1996: $2,402,660.
The Tax Exempt Bond Portfolio (Tax Exempt Bond Fund) -- For the fiscal year
ended August 31, 1994: $1,383,986. For the fiscal year ended August 31, 1995:
$1,178,720. For the fiscal year ended August 31, 1996: $1,354,145.
The New York Total Return Bond Portfolio (New York Total Return Bond Fund)
- -- For the period April 11, 1994 (commencement of operations) through March 31,
1995: $120,281. For the fiscal year ended March 31, 1996: $246,966. For the
fiscal year ended March 31, 1997: $380,380.
The Global Strategic Income Portfolio (Global Strategic Income Fund) -- For the
period March 17, 1997 (commencement of operations) through April 30, 1997
(unaudited): $28,495.
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 U.S. Equity Portfolio (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.
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The International 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.
The 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.
The 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.
The 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.
The Disciplined Equity Portfolio (Disciplined Equity Fund) -- For the period
December 30, 1996 (commencement of operations) through March 31, 1997
(unaudited): $34,580.
The International Opportunities Portfolio (International Opportunities Fund) --
For the period February 26, 1997 (commencement of operations) through May 31,
1997 (unaudited): $173,166.
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
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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.
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.
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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, JPM Series Trust II and other investment companies
subject to similar agreements with FDI.
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 Prime Money Market Portfolio -- For the period August 1, 1996 through
November 30, 1996: $33,012. Prime Money Market Fund -- For the period August 1,
1996 through November 30, 1996: $15,195.
The Tax Exempt Money Market Portfolio -- For the period August 1, 1996 through
August 31, 1996: $2,284.
Tax Exempt Money Market Fund -- For the period August 1, 1996 through August 31,
1996: $525.
The Federal Money Market Portfolio -- For the period August 1, 1996 through
October 31, 1996: $1,663. Federal Money Market Fund -- For the period August 1,
1996 through October 31, 1996: $945.
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.
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The New York Total Return Bond Portfolio --For the period August 1, 1996 through
March 31, 1997: $1,914.
New York Total Return Bond Fund -- For the period August 1, 1996 through March
31, 1997: $1,867.
The Global Strategic Income Portfolio -- For the period March 17, 1997
(commencement of operations) through April 30, 1997 (unaudited): $156. Global
Strategic Income Fund -- For the period March 17, 1997 (commencement of
operations) through April 30, 1997 (unaudited): $202.
The Non-U.S. Fixed Income Portfolio -- For the period August 1, 1996 through
September 30, 1996: $738.
International Bond Fund -- For the period August 1, 1996 through September 30,
1996: $80.
The U.S. Fixed Income Portfolio -- For the period August 1, 1996 through October
31, 1996: $6,419.
Bond Fund -- For the period August 1, 1996 through October 31, 1996: $7,415.
The International Equity Portfolio -- For the period August 1, 1996 through
October 31, 1996: $6,212. International Equity Fund -- For the period August 1,
1996 through October 31, 1996: $6,625.
The Emerging Markets Equity Portfolio -- For the period August 1, 1996 through
October 31, 1996: $5,719. Emerging Markets Equity Fund -- For the period August
1, 1996 through October 31, 1996: $2,593.
The 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.
The 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.
The 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 Disciplined Equity Portfolio -- For the period December 30, 1996
(commencement of operations) through March 31, 1997 (unaudited): $244.
Disciplined Equity Fund -- For the period January 3, 1997 (commencement of
operations) through March 31, 1997 (unaudited): $164.
The International Opportunities Portfolio -- For the period February 26, 1997
(commencement of operations) through May 31, 1997 (unaudited):$706.
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International Opportunities Fund -- For the period February 26, 1997
(commencement of operations) through May 31, 1997 (unaudited):$740.
The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to Signature Broker-Dealer Services, Inc.
(which provided distribution and administrative services to the Trust and
placement agent and administrative services to the Portfolios prior to August 1,
1996) for the fiscal periods indicated. See "Expenses" in the Prospectus and
below for applicable expense limitations.
The Prime 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.
Prime 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. For the period April 1, 1996 through July 31,
1996: $4,617.
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. For the period April 1, 1996 through July 31, 1996: $2,361.
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 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.
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 International 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
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.
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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 Master Portfolios and JPM Series Trust in accordance
with the following annual schedule: 0.09% on the first $7 billion of their
aggregate average daily net assets and 0.04% of their 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 Master Portfolios for which Morgan provides similar services and JPM
Series Trust.
Under Administrative Services Agreements in effect from December 29,
1995 through July 31, 1996, with Morgan, certain Funds and their corresponding
Portfolios 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 those Portfolios in accordance with the following schedule: 0.06% of
the first $7 billion of the Portfolios' aggregate average daily net assets, and
0.03% of the Portfolios' average daily net assets in excess of $7 billion. Prior
to December 29, 1995, the Trust and certain Portfolios 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
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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 Prime 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.
Prime Money Market Fund -- For the fiscal year ended November 30, 1994:
$(265,806)*. For the fiscal year ended November 30, 1995: $(967,889)*. For the
fiscal year ended November 30, 1996: $(945,013)*.
The Tax Exempt Money Market Portfolio -- For the fiscal year ended August 31,
1994: $153,204. For the fiscal year ended August 31, 1995: $169,754. For the
fiscal year ended August 31, 1996: $205,419.
Tax Exempt Money Market Fund -- For the fiscal year ended August 31, 1994:
$(103,541)*. For the fiscal year ended August 31, 1995: $(56,396)*. For the
fiscal year ended August 31, 1996: $30,085.
The Federal Money Market Portfolio -- For the fiscal year ended October 31 1994:
$(13,844)*. For the fiscal year ended October 31, 1995: $(146,180)*. For the
fiscal year ended October 31, 1996: $(165,137)*.
Federal Money Market Fund -- For the fiscal year ended October 31, 1994:
$(118,050)*. For the fiscal year ended October 31, 1995: $(236,058)*. For the
fiscal year ended October 31, 1996: $(198,465)*.
The Short Term Bond Portfolio -- For the fiscal year ended October 31, 1994:
$(22,054)*. For the fiscal year ended October 31, 1995: $(21,070)*. For the
fiscal year ended October 31, 1996: $(42,274)*.
Short Term Bond Fund -- For the fiscal year ended October 31, 1994: $(89,141)*.
For the fiscal year ended October 31, 1995: $(91,382)*. For the fiscal year
ended October 31, 1996: $(83,872)*.
The U.S. Fixed Income Portfolio -- For the fiscal year ended October 31, 1994:
$140,493. For the fiscal year ended October 31, 1995: $167,081. For the fiscal
year ended October 31, 1996: $191,348.
Bond Fund -- For the fiscal year ended October 31, 1994: $(141,179)*. For the
fiscal year ended October 31, 1995: $(146,399)*. For the fiscal year ended
October 31, 1996: $(18,383)*.
The Tax Exempt Bond Portfolio -- For the fiscal year ended August 31, 1994:
$210,795. For the fiscal year ended August 31, 1995: $189,892. For the fiscal
year ended August 31, 1996: $80,281.
Tax Exempt Bond Fund -- For the fiscal year ended August 31, 1994: $(82,093)*.
For the fiscal year ended August 31, 1995: $(61,012)*. For the fiscal year ended
August 31, 1996: $16,596.
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. For the fiscal year ended March 31, 1997:
$37,675.
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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)*. For the fiscal year ended March 31, 1997: $21,188.
The Global Strategic Income Portfolio -- For the period March 17, 1997
(commencement of operations) through April 30, 1997 (unaudited): $1,974. Global
Strategic Income Fund -- For the period March 17, 1994 (commencement of
operations) through April 30, 1997 (unaudited): $1,968.
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 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.
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 International Equity Portfolio --For the fiscal year ended October 31, 1994:
$327,569. For the fiscal year ended October 31, 1995: $349,443. For the fiscal
year ended October 31, 1996: $196,299.
International Equity Fund -- For the fiscal year ended October 31, 1994:
$(118,900)*. For the fiscal year ended October 31, 1995: $(63,230)*. For the
fiscal year ended October 31, 1996: $114,261.
The Diversified Portfolio -- For the period July 8, 1993 (commencement of
operations) through June 30, 1994: $(17,807)*. For the fiscal year ended
June 30, 1995: $63,153. For the fiscal year ended June 30, 1996: $45,687.
Diversified Fund -- For the period July 8, 1993 (commencement of operations)
through June 30, 1994: $(100,039)*. For the fiscal year ended June 30, 1995:
$(96,795)*. For the fiscal year ended June 30, 1996: $12,610.
The Emerging Markets Equity Portfolio -- For the period November 15, 1993
(commencement of operations) through October 31, 1994: $347,925. For the fiscal
year ended October 31, 1995: $337,050. For the fiscal year ended October 31,
1996: $183,498.
Emerging Markets Equity Fund -- For the period November 15, 1993 (commencement
of operations) through October 31, 1994: $(120,061)*. For the fiscal year ended
October 31, 1995: $(26,975)*. For the fiscal year ended October 31, 1996:
$57,566.
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The 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)*.
The 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)*.
The 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)*.
The Disciplined Equity Portfolio -- For the period December 30, 1996
(commencement of operations) through March 31, 1997 (unaudited): $3,104.
Disciplined Equity Fund -- For the period January 3, 1997 (commencement of
operations) through March 31, 1997 (unaudited): $1,524.
The International Opportunities Portfolio -- For the period February 26, 1997
(commencement of operations) through May 31, 1997 (unaudited):$8,136.
International Opportunities Fund -- For the period February 26, 1997
(commencement of operations) through May 31, 1997 (unaudited):$($25,989)*.
- ------------------------------------
(*) Indicates a reimbursement by Morgan for expenses in excess of its fees under
the 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
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.
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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): Prime
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, 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.
Prime 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.
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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. For the fiscal year ended March 31, 1997: $53,364.
Global Strategic Income Fund -- For the period March 17, 1997 (commencement of
operations) through April 30, 1997 (unaudited): $6,312.
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.
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.
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.
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Disciplined Equity Fund -- For the period January 3, 1997 (commencement of
operations) through March 31, 1997 (unaudited): $4,866.
International Opportunities Fund -- For the period February 26, 1997
(commencement of operations) through May 31, 1997 (unaudited):$23,241.
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 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
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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 Prime Money Market,
Tax Exempt Money Market or Federal Money Market Funds should be aware that these
Funds attempt to maintain a stable net asset value of $1.00 per share; however,
there can be no assurance that they will be able to continue to do so, and in
that case the net asset value of the Funds' shares might deviate from $1.00 per
share. Accordingly, a redemption request might result in payment of a dollar
amount which differs from the number of shares redeemed. See "Net Asset Value"
in the Prospectus and below.
If the Trust on behalf of a Fund and its corresponding Portfolio
determine that it would be detrimental to the best interest of the remaining
shareholders of a Fund to make payment wholly or partly in cash, payment of the
redemption price may be made in whole or in part by a distribution in kind of
securities
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from the Portfolio, in lieu of cash, in conformity with the applicable rule of
the SEC. If shares are redeemed in kind, the redeeming shareholder might incur
transaction costs in converting the assets into cash. The method of valuing
portfolio securities is described under "Net Asset Value," and such valuation
will be made as of the same time the redemption price is determined. The Trust
on behalf of all of the Funds and their corresponding Portfolios (except the
Prime Money Market, Tax Exempt Money Market, Non-U.S. Fixed Income, European
Equity, Japan Equity, Asia Growth, International Opportunities and Global
Strategic Income Portfolios) have elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which the Funds and the corresponding Portfolios are
obligated to redeem shares solely in cash up to the lesser of $250,000 or one
percent of the net asset value of the Fund during any 90 day period for any one
shareholder. The Trust will redeem Fund shares in kind only if it has received a
redemption in kind from the corresponding Portfolio and therefore shareholders
of the Fund that receive redemptions in kind will receive securities of the
Portfolio. The Portfolios have advised the Trust that the Portfolios will not
redeem in kind except in circumstances in which a Fund is permitted to redeem in
kind.
Further Redemption Information. The Trust, on behalf of a Fund, and the
Portfolios reserve the right to suspend the right of redemption and to postpone
the date of payment upon redemption as follows: (i) for up to seven days, (ii)
during periods when the New York Stock Exchange is closed for other than
weekends and holidays or when trading on such Exchange is restricted as
determined by the SEC by rule or regulation, (iii) during periods in which an
emergency, as determined by the SEC, exists that causes disposal by the
Portfolio of, or evaluation of the net asset value of, its portfolio securities
to be unreasonable or impracticable, or (iv) for such other periods as the SEC
may permit.
EXCHANGE OF SHARES
An investor may exchange shares from any JPM Institutional Fund into
any other JPM Institutional Fund or JPM Pierpont Fund, as described under
"Exchange of Shares" in the Prospectus. For complete information, the Prospectus
as it relates to the Fund into which a transfer is being made should be read
prior to the transfer. Requests for exchange are made in the same manner as
requests for redemptions. See "Redemption of Shares." Shares of the Fund to be
acquired are purchased for settlement when the proceeds from redemption become
available. In the case of investors in certain states, state securities laws may
restrict the availability of the exchange privilege. The Trust reserves the
right to discontinue, alter or limit the exchange privilege at any time.
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares and pays dividends and distributions as described
under "Dividends and Distributions" in the Prospectus.
Net investment income of the Prime 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."
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Determination of the net income for Prime 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, Martin Luther King, Jr. 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.
Prime Money Market, Tax Exempt Money Market and Federal Money Market
Funds. In the case of the Portfolios for the Prime Money Market, Tax Exempt
Money Market and Federal Money Market Funds, all portfolio securities are valued
by the amortized cost method. The purpose of this method of calculation is to
attempt to maintain a constant net asset value per share of the Fund of $1.00.
No assurances can be given that this goal can be attained. The amortized cost
method of valuation values a security at its cost at the time of purchase and
thereafter assumes a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. If a difference of more than 1/2 of 1% occurs between
valuation based on the amortized cost method and valuation based on market
value, the Trustees will take steps necessary to reduce such deviation, such as
changing the Fund's dividend policy, shortening the average portfolio maturity,
realizing gains or losses, or reducing the number of outstanding Fund shares.
Any reduction of outstanding shares will be effected by having each shareholder
contribute to a Fund's capital the necessary shares on a pro rata basis. Each
shareholder will be deemed to have agreed to such contribution in these
circumstances by his investment in the Funds. See "Taxes."
Bond, Tax Exempt Bond, New York Total Return Bond, Short Term Bond,
International Bond, Global Strategic Income and Diversified Funds. In the case
of the Bond, Tax Exempt Bond, New York Total Return Bond, International Bond,
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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.
U.S. Equity, Disciplined Equity, U.S. Small Company, International
Equity, Emerging Markets Equity, International Opportunities, Diversified,
European Equity, Japan Equity and Asia Growth Funds. In the case of the Equity
Portfolios, the value of investments listed on a domestic securities exchange,
other than options on stock indexes, is based on the last sale prices on such
exchange at 4:00 P.M. or, in the absence of recorded sales, at the average of
readily available closing bid and asked prices on such exchange. Securities
listed on a foreign exchange are valued at the last quoted sale price available
before the time when net assets are valued. Unlisted securities are valued at
the average of the quoted bid and asked prices in the OTC market. The value of
each security for which readily available market quotations exist is based on a
decision as to the broadest and most representative market for such security.
For purposes of calculating net asset value all assets and liabilities initially
expressed in foreign currencies will be converted into U.S. dollars at the
prevailing market rates available at the time of valuation.
Options on stock indexes traded on national securities exchanges are
valued at the close of options trading on such exchanges which is currently 4:10
P.M., New York time. Stock index futures and related options, which are traded
on commodities exchanges, are valued at their last sales price as of the close
of
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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 Prime 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 Prime
Money Market, Tax Exempt Money Market and Federal Money Market Funds is computed
by annualizing the seven-day return with all dividends reinvested in additional
Fund shares. In the case of the Tax Exempt Money Market Fund, the tax equivalent
yield is computed by first computing the yield as discussed above. Then the
portion of the yield attributable to securities the income of which was exempt
for federal income tax purposes is determined. This portion of the yield is then
divided by one minus the stated assumed federal income tax rate for individuals
and then added to the portion of the yield that is not attributable to
securities, the income of which was tax exempt.
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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:
Prime Money Market Fund (5/31/97): 7-day current yield: 5.47%; 7-day effective
yield: 5.62%.
Tax Exempt Money Market Fund (2/28/97): 7-day current yield: 3.22%; 7-day tax
equivalent yield at 39.6% tax rate: 5.33%; 7-day effective yield: 3.28%.
Federal Money Market Fund (4/30/97): 7-day current yield: 5.18%; 7-day effective
yield: 5.31%.
Short Term Bond Fund (4/30/97): 30-day yield: 6.74%.
Bond Fund (4/30/97): 30-day yield: 6.80%.
International Bond Fund (3/31/97): 30-day yield: 5.60%.
Tax Exempt Bond Fund (2/28/97): 30-day yield: 4.46%; 30-day tax equivalent yield
at 39.6% tax rate: 7.38%.
New York Total Return Bond Fund (3/31/97): 30-day yield: 4.58%; 30-day tax
equivalent yield at 39.6% tax rate: 7.58%.
Global Strategic Income Fund (4/30/97): 30-day yield: 6.40%.
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, U.S. Equity,
Disciplined Equity, U.S. Small Company, International Equity, Emerging Markets
Equity, International Opportunities, Diversified, European Equity, Japan Equity
and Asia Growth Funds for a period is computed by assuming a hypothetical
initial payment of $1,000. It is then assumed that all of the dividends and
distributions by the Fund over the period are reinvested. It is then assumed
that at the end of the period, the entire amount is redeemed. The annualized
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.
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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:
Prime Money Market Fund (5/31/97): Average annual total return, 1 year: 5.44%;
average annual total return, 5 years: 4.52%; average annual total return, 10
years: 5.87%; aggregate total return, 1 year: 5.44%; aggregate total return, 5
years: 24.75%; aggregate total return, 10 years: 76.96%.
Tax Exempt Money Market Fund (2/28/97): Average annual total return, 1 year:
3.23%; Average annual total return, 5 years: 2.88%; average annual total return,
10 years: 3.92%; aggregate total return, 1 year: 3.23%; aggregate total return,
5 years: 15.26%; aggregate total return, 10 years: 46.95%.
Federal Money Market Fund (4/30/97): Average annual total return, 1 year: 5.22%;
average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 4.49%; aggregate total return, 1
year: 5.22%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 20.88%.
Short Term Bond Fund (4/30/97): Average annual total return, 1 year: 6.30%;
average annual total return, 5 years; N/A; average annual total return,
commencement of operations(*) to period end: 4.95%; aggregate total return, 1
year: 6.30%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 20.17%.
Bond Fund (4/30/97): Average annual total return, 1 year: 7.02%; average annual
total return, 5 years: 7.35%; average annual total return, commencement of
operations(*) to period end: 7.81%; aggregate total return, 1 year: 7.02%;
aggregate total return, 5 years: 42.58%; aggregate total return, commencement of
operations(*) to period end: 48.82%.
Tax Exempt Bond Fund (2/28/97): Average annual total return, 1 year: 4.25%;
average annual total return, 5 years: 6.47%; average annual total return, 10
years: 6.40%; aggregate total return, 1 year: 4.25%; aggregate total return, 5
years: 36.81%; aggregate total return, 10 years: 86.01%.
New York Total Return Bond Fund (3/31/97): Average annual total return, 1 year:
4.54%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 5.87%; aggregate total return, 1
year: 4.54%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 18.40%.
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Global Strategic Income Fund (4/30/97):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: 0.61%; aggregate total return,
1 year: N/A; aggregate total return, 5 years: N/A; aggregate total return
commencement of operations(*) to period end: 0.61%.
International Bond Fund (3/31/97): Average annual total return, 1 year: 12.03%;
average annual total return, 5 years: N/A; average annual total return,
commencement of operations (*) to period end: 12.98%; aggregate total return, 1
year: 12.03%; aggregate total return, 5 years: N/A; aggregate total return
commencement of operations (*) to period end: 32.92%.
Diversified Fund (6/30/97): Average annual total return, 1 year: 20.72%; average
annual total return, 5 years: N/A; average annual total return, commencement of
operations(*) to period end: 14.02%; aggregate total return, 1 year: 20.72%;
aggregate total return, 5 years: N/A; aggregate total return, commencement of
operations(*) to period end: 64.70%.
U.S. Equity Fund (5/31/97): Average annual total return, 1 year: 25.21%; average
annual total return, 5 years: 16.65%; average annual total return, ten years:
14.53%; aggregate total return, 1 year: 25.21%; aggregate total return, 5 years:
116.01%; aggregate total return, ten years: 288.17%.
U.S. Small Company Fund (5/31/97): Average annual total return, 1 year: 9.44%;
average annual total return, 5 years: 16.15%; average annual total return, 10
years: 11.11%; aggregate total return, 1 year: 9.44%; aggregate total return, 5
years: 111.43%; aggregate total return, 10 years: 186.69%.
International Equity Fund (4/30/97): Average annual total return, 1 year: 1.92%;
average annual total return, 5 years: 8.77%; average annual total return,
commencement of operations(*) to period end: 4.81%; aggregate total return, 1
year: 1.92%; aggregate total return, 5 years: 52.24%; aggregate total return,
commencement of operations(*) to period end: 38.42%.
Emerging Markets Equity Fund (4/30/97): Average annual total return, 1 year:
7.05%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 4.90%; aggregate total return, 1
year: 7.05%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 17.97%.
European Equity Fund (6/30/97): Average annual total return, 1 year: 26.65%;
average annual total return, 5 years: N/A; average annual total return
commencement of operations(*) to period end: 23.15%; aggregate total return,
1 year: 26.65%; aggregate total return, 5 years: N/A; aggregate total return
commencement of operations(*) to period end: 32.10%.
Japan Equity Fund (6/30/97): Average annual total return, 1 year: (12.12)%;
average annual total return, 5 years: N/A; average annual total return
commencement of operations(*) to period end: (5.44)%; aggregate total return,
1 year:(12.12)%; aggregate total return, 5 years: N/A; aggregate total return
commencement of operations(*) to period end: (7.20)%.
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Asia Growth Fund (6/30/97):Average annual total return, 1 year: (2.06)%; average
annual total return, 5 years: N/A; average annual total return commencement of
operations(*) to period end: (0.67)%; aggregate total return, 1 year:(2.06)%;
aggregate total return, 5 years: N/A; aggregate total return commencement of
operations(*) to period end: (0.89)%.
Disciplined Equity Fund (3/31/97): 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: 1.40%; aggregate total return,
1 year: N/A; aggregate total return, 5 years: N/A; aggregate total return
commencement of operations(*) to period end: 1.40%.
International Opportunities Fund (5/31/97): 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: 4.70%; aggregate total return,
1 year: N/A; aggregate total return, 5 years: N/A; aggregate total return
commencement of operations(*) to period end: 4.70%.
- --------------------
(*) The Federal Money Market, Short Term Bond, Diversified, Emerging Markets
Equity, New York Total Return Bond, International Bond, European Equity, Japan
Equity, Asia Growth, Disciplined Equity, International Opportunities and Global
Strategic Income 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, February 29, 1996, January 3, 1997, February 26, 1997
and March 14, 1997, 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.
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From time to time, the Funds may quote performance in terms of yield,
actual distributions, total return, or capital appreciation in reports, sales
literature, and advertisements published by the Funds. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See "Additional
Information" in the Prospectus.
PORTFOLIO TRANSACTIONS
The Advisor places orders for all Portfolios for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of all the Portfolios. See "Investment Objectives and Policies."
Fixed income and debt securities and municipal bonds and notes are
generally traded at a net price with dealers acting as principal for their own
accounts without a stated commission. The price of the security usually includes
profit to the dealers. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On occasion,
certain securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
Prime 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 Prime 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 Prime 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 Prime 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
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investments should not adversely affect the net asset value or net income of the
Portfolios.
U.S. Equity, Disciplined Equity, U.S. Small Company, International Equity,
Emerging Markets Equity, International Opportunities, Diversified, European
Equity, Japan Equity and Asia Growth Funds. In connection with portfolio
transactions for the Equity Portfolios, the overriding objective is to obtain
the best possible execution of purchase and sale orders.
In selecting a broker, the Advisor considers a number of factors
including: the price per unit of the security; the broker's reliability for
prompt, accurate confirmations and on-time delivery of securities; the firm's
financial condition; as well as the commissions charged. A broker may be paid a
brokerage commission in excess of that which another broker might have charged
for effecting the same transaction if, after considering the foregoing factors,
the Advisor decides that the broker chosen will provide the best possible
execution. The Advisor monitors the reasonableness of the brokerage commissions
paid in light of the execution received. The Trustees of each Portfolio review
regularly the reasonableness of commissions and other transaction costs incurred
by the Portfolios in light of facts and circumstances deemed relevant from time
to time, and, in that connection, will receive reports from the Advisor and
published data concerning transaction costs incurred by institutional investors
generally. Research services provided by brokers to which the Advisor has
allocated brokerage business in the past include economic statistics and
forecasting services, industry and company analyses, portfolio strategy
services, quantitative data, and consulting services from economists and
political analysts. Research services furnished by brokers are used for the
benefit of all the Advisor's clients and not solely or necessarily for the
benefit of an individual Portfolio. The Advisor believes that the value of
research services received is not determinable and does not significantly reduce
its expenses. The Portfolios do not reduce their fee to the Advisor by any
amount that might be attributable to the value of such services.
The Portfolios or their predecessors corresponding to the U.S. Equity,
U.S. Small Company, International Equity, Diversified, Emerging Markets Equity,
European Equity, Japan Equity, Asia Growth and Disciplined Equity Funds paid the
following approximate brokerage commissions for the indicated fiscal periods:
U.S. Equity (May): 1996: $1,375,696; 1995: $1,179,132; 1994: $744,676.
U.S. Small Company (May): 1996: $1,554,459; 1995:$1,217,016; 1994: $1,760,320.
International Equity (October): 1996: $2,303,648; 1995: $1,691,642; 1994:
$1,413,238.
Diversified (June): 1996: $220,206; 1995: $145,589; 1994: $78,737.
Emerging Markets Equity (October): 1996: $1,840,532; 1995: $1,475,147; 1994:
$1,262,905.
European Equity (December): 1996: $1,189,817; 1995: $143,417.
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Japan Equity (December): 1996: $1,245,419; 1995: $0.
Asia Growth (December): 1996: $881,897; 1995: $27,322.
Disciplined Equity (For the period December 30, 1996 (commencement of operations
of the Disciplined Equity Portfolio) through March 31, 1997) (unaudited):
$10,350.
International Opportunities (For the period February 26, 1997 (commencement of
operations) through May 31, 1997) (unaudited): $328,603.
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
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executed by the same broker-dealer who executed the sale of the option. The
writing of options by a Portfolio will be subject to limitations established by
each of the exchanges governing the maximum number of options in each class
which may be written by a single investor or group of investors acting in
concert, regardless of whether the options are written on the same or different
exchanges or are held or written in one or more accounts or through one or more
brokers. The number of options which a Portfolio may write may be affected by
options written by the Advisor for other investment advisory clients. An
exchange may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which each Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
Effective January 9, 1997, the name of the Federal Money Market Fund
was changed 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. Effective May 12, 1997, the name of the Prime
Money Market Fund was changed from The JPM Institutional Money Market Fund to
The JPM Institutional Prime Money Market Fund, and the Fund's corresponding
Portfolio changed its name accordingly. Effective May 12, 1997, the name of the
U.S. Equity Fund was changed from The JPM Institutional Selected U.S. Equity
Fund to The JPM Institutional U.S. Equity 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.
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The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of a Fund is liable to a
Fund or to a shareholder, and that no Trustee, officer, employee, or agent is
liable to any third persons in connection with the affairs of a Fund, except as
such liability may arise from his or its own bad faith, willful misfeasance,
gross negligence or reckless disregard of his or its duties to such third
persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of a
Fund. With the exceptions stated, the Trust's Declaration of Trust provides that
a Trustee, officer, employee, or agent is entitled to be indemnified against all
liability in connection with the affairs of a Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which each Fund represents a separate series of
shares of beneficial interest. See "Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in a Fund (or in the assets of other series, if applicable). To
date shares of the 24 series 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.
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Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statements
filed, the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing to
sustain any of them. If the SEC shall enter an order refusing to sustain any of
such objections, or if, after the entry of an order sustaining one or more of
such objections, the SEC shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have authorized the issuance and sale to the public of
shares of 24 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
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the rights of creditors of the Trust and would be subject to the liabilities
related thereto. Shareholders of any additional series or class will approve the
adoption of any management contract or distribution plan relating to such series
or class and of any changes in the investment policies related thereto, to the
extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see
"Redemption of Shares" in the Prospectus.
As of July 22, 1997, the following owned of record or, to the knowledge
of management, beneficially owned more than 5% of the outstanding shares of:
Prime Money Market Fund -- Citibank - Private Bank (28.51%), J.W. Henry
Trust U/A/D 7/27/90 J.W. Henry Trustee (7.35%), Morgan as Agent for Great
Western Employee Savings Incentive Plan Trust - Chase Manhattan Bank as Trustee
(7.08%), The Northern Trust Company as Trustee for T. Perrin (5.82%); Morgan as
Agent for Dugan Realty LLC (5.29%);
Federal Money Market Fund --Morgan as Agent for Cantor Fitzgerald, Inc.
(14.38%), Gwel Ventures (11.50%), S. Berson and/or I. Berson (9.24%),R. Felton
(7.95%), Kings Highway Hospital Center, Inc. (7.78%), Morgan as Agent for Schick
Technologies Inc. (10.73%), Leonard A. Lauder/Estee Lauder Inc (6.14%), Alliance
Gateway No. 29 Ltd. (8.02%), LWG Family Partners LP (5.58%), GWEL Ventures
(15.81%);
Tax Exempt Money Market Fund -- Morgan as Agent for Trust for H.F.
Dickenson (40.27%), E.H. Skove (15.94%), Morgan as Agent for S.R. Wexner
(11.50%);
Bond Fund --Morgan as Agent for Ameritech Union Werfare Benefit Trust -
Global Balanced U.S. Fixed Income - State Street Master Trust (6.60%);
Short Term Bond Fund -- Morgan as Agent for Warner Lambert Benefits Trust
(33.50%), Morgan as Agent for Florida Atlantic University Foundation - Non
Endowed Fund (13.01%), Morgan as Agent for G.C. Bible Trust (9.76%), Morgan as
Agent for H.G. Storr Trust (5.75%), Morgan as Agent for R.W. Murray Trust
(5.72%), Morgan as Agent for Honor Emergency (6.28%);
Tax Exempt Bond Fund -- Morgan as Agent for Engelhard Hanovia, Inc.
(6.77%), Morgan as Agent for General Real Estate Employee Benefit Trust (6.05%);
New York Total Return Bond Fund--Morgan as Agent for Trust U/W of L.H.P.
Klotz FBO R. Klotz (12.09%), Morgan as Agent for Trust for H.F. Dickenson
(7.75%), Morgan as Agent for E.A. Barish (7.32%), Morgan as Agent for Shubert
Organization (5.72%);
International Bond Fund -- Charles Schwab & Co., Inc. Special Custody
Account for Benefit of Customers (35.76%), Morgan as Agent for J. Urrutia
(15.08%), National Financial Services Corp. (46.18%);
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U.S. Equity Fund -- Morgan as Trustee for Major League Baseball Master
Pension Trust (8.88%), Wachovia Bank of North Carolina, Trustee U/A DTD 1/1/88
for Newmont Gold Co. Master Pension Trust (7.37%), Morgan as Agent for
Diversified Growth Fund (6.41%), Morgan as Trustee for Degussa Defined Benefit
Trust (6.48%), Lin Television Corp. Retirement Plan - P.E. Maloney, J. Moylan
and D. Jacobson (5.71%);
Diversified Fund -- Celtic Insurance Company Ltd. (12.53%), Boston
Foundation Inc. (11.38%), Morgan as Agent for Unifi Inc. Profit Sharing Plan
Trust JPM Institutional Dividend Fund NationsBank Master Trust (10.43%),
Westinghouse Personal Investment Plan Bankers Trust Co. as Trustee (7.59%), BG
Sulzle Inc. Employee Pension Chase Manhattan Bank NA (5.73), Retirement Plan for
Employees of Association American Arbitration Pension Committee (5.74%), T.J.
Martell Foundation (5.22%);
Emerging Markets Equity -- Batrus & Co. (10.87%), Morgan as Agent for
Alfred P. Sloan Foundation (7.04%);
International Equity Fund -- Blue Cross Blue Shield of North Carolina
(5.93%);
European Equity Fund--Morgan as Agent for M.D. Palm (31.13%), Morgan as
Agent for ASA Gent for C. Chan Family Trust (26.69%), Morgan as Agent for P.
Ponzek Irrevocable Trust (23.57%), Morgan as Agent for J.A. Johnson and M.
Isaacs (6.41%), Morgan as Agent for J.M. Watkins (6.22%), Morgan as Agent for B.
Price (5.94%);
Japan Equity Fund -- Morgan as Agent for M.D. Palm (38.92%), Morgan as
Agent for HEP Living Trust DTD 5/31/95 (25.47%), Charles Schwab & Co Inc.
Special Custody Account for Benefit of Customers (20.08%), Morgan as Agent for
J.M. Watkins (5.33%);
Asia Growth Fund -- Morgan as Agent for P. Ponzek Irrevocable Trust
(49.80%), Morgan as Agent for J.M. Watkins (30.05%), Morgan as Agent for J.A.
Johnson and M. Isaacs (11.73%), Morgan as Agent for M.C. Ross Living Trust
(7.53%);
Disciplined Equity Fund -- The Queen's Health Systems (39.35%), Charles
Schwab & Co. Inc. Special Custody Account for Benefit of Customers (15.25%),
Morgan as Agent for 500 Property Management Corp.(5.77%), Wachovia Bank NA
Trustee U/A 7/1/97 Master Builders Inc. (16.30%);
Global Strategic Income Fund -- Morgan as Agent for R. Lauder (38.79%),
Morgan as Agent for the Dyson Foundation (14.41%), Morgan as Agent for Ameritech
Union Werfare Benefit Trust - Global Balanced (7.19%), Morgan as Agent for B.K.
Johnson (6.81%), Morgan as Agent for the Green Family Holdings (6.60%), Morgan
as Agent for Persimmon Trust (6.29%); and
International Opportunities Fund -- Morgan as Agent for Diversified Growth
Fund (12.96%).
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The address of each owner listed above is c/o Morgan, 522 Fifth Avenue,
New York, New York 10036. As of the date of this Statement of Additional
Information, the officers and Trustees as a group owned less than 1% of the
shares of each Fund.
TAXES
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, a Fund must, among
other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to loans of stock and securities, gains from the
sale or other disposition of stock, securities or foreign currency and other
income (including but not limited to gains from options, futures, and forward
contracts) derived with respect to its business of investing in such stock,
securities or foreign currency; (b) derive less than 30% of its gross income
from the sale or other disposition of stock, securities, options, futures or
forward contracts (other than options, futures or forward contracts on foreign
currencies) held less than three months, or foreign currencies (or options,
futures or forward contracts on foreign currencies) held less than three months,
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
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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 of the above Fund's investment policies, it is
expected that a substantial portion of all dividends will be exempt-interest
dividends, although the Funds may from time to time realize and distribute net
short-term capital gains and may invest limited amounts in taxable securities
under certain circumstances. See "Investment Objective(s) and Policies" in the
Prospectus.
Distributions of net investment income, certain foreign currency gains, and
realized net short-term capital gain in excess of net long-term capital loss
(other than exempt interest dividends) are generally taxable to shareholders of
the Funds as ordinary income whether such distributions are taken in cash or
reinvested in additional shares. The 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 Prime 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. The
International Bond and Global Strategic Income Funds each pay a monthly
dividend. If dividend payments exceed income earned by the Fund, the
overdistribution would be considered a return of capital rather than a dividend
payment. The Advisor intends to pay dividends in such a manner so as to minimize
the possibility of a return of capital.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 Prime 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."
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Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where a put is acquired or a call option is
written thereon or the straddle rules described below are otherwise applicable.
Other gains or losses on the sale of securities will be short-term capital gains
or losses. Gains and losses on the sale, lapse or other termination of options
on securities will be treated as gains and losses from the sale of securities.
Except as described below, if an option written by a Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio will realize a short-term capital
gain or loss, depending on whether the premium income is greater or less than
the amount paid by the Portfolio in the closing transaction. If securities are
purchased by a Portfolio pursuant to the exercise of a put option written by it,
the Portfolio will subtract the premium received from its cost basis in the
securities purchased.
Under the Code, gains or losses attributable to disposition of foreign
currency or to certain foreign currency contracts, or to fluctuations in
exchange rates between the time a Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time a
Portfolio actually collects such income or pays such liabilities, are generally
treated as ordinary income or ordinary loss. Similarly, gains or losses on the
disposition of debt securities held by a Portfolio, if any, denominated in
foreign currency, to the extent attributable to fluctuations in exchange rates
between the acquisition and disposition dates are also treated as ordinary
income or loss.
Forward currency contracts, options and futures contracts entered into
by a Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by the
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities. Certain straddles treated as short sales for tax purposes
may also result in the loss of the holding period of underlying securities for
purposes of the 30% of gross income test described above, and therefore, a
Portfolio's ability to enter into forward currency contracts, options and
futures contracts may be limited.
Certain options, futures and foreign currency contracts held by a
Portfolio at the end of each taxable year will be required to be "marked to
market" for federal income tax purposes -- i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
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
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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 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, 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
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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
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
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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
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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<PAGE>
FINANCIAL STATEMENTS
The following financial statements and the report thereon of Price
Waterhouse LLP of each Fund are incorporated herein by reference from their
respective annual report filings, if applicable, made with the SEC pursuant to
Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder. The following
financial statements of each Fund are incorporated herein by reference from
their respective semi-annual report filings, if applicable, 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
JP 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. Interim
unaudited financial statements as of March 31, 1997 for each of the Disciplined
Equity Fund and the Disciplined Equity Portfolio are attached hereto fulfilling
the Trust's undertaking to file a post-effective amendment on behalf of The
Disciplined Equity Fund, using financial statements which need not be certified,
within four to six months from the commencement of public investment operations
of such fund.
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<PAGE>
Date of Semi-Annual Date of Annual
Report; Date Semi- Report; Date Annual
Annual Report Filed; Report Filed; and
Name of Fund and Accession Number Accession Number
- --------------------------------- ----------------------- ---------------------
The JPM Institutional Prime N/A 11/30/96
Money Market Fund 01/30/97
0000912057-97-002304
The JPM Institutional Tax 02/28/97 08/31/96
Exempt Money Market Fund 04/28/97 11/06/96
0000912057-97-014367 0000912057-96-024854
The JPM Institutional Federal 04/30/97 10/31/96
Money Market Fund 06/27/97 12/30/96
0000912057-97-022211 0000912057-96-030430
The JPM Institutional Short 04/30/97 10/31/96
Term Bond Fund 06/25/97 01/08/97
0000912057-97-021826 0000912057-97-000396
The JPM Institutional Bond 04/30/97 10/31/96
Fund 07/02/97 01/08/97
0000912057-97-023274 0000912057-97-000419
The JPM Institutional Tax 02/28/97 08/31/96
Exempt Bond Fund 04/28/97 11/06/96
0000912057-97-014264 0000912057-96-024847
The JPM Institutional U.S. 11/30/96 05/31/96
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
The JPM Institutional 04/30/97 10/31/96
International Equity Fund 06/27/97 01/07/97
0000912057-97-022097 0000912057-97-000342
The JPM Institutional 12/31/96 06/30/96
Diversified Fund 03/07/97 09/06/96
0000912057-97-008103 0000912057-96-019775
The JPM Institutional Emerging 04/30/97 10/31/96
Markets Equity Fund 06/27/97 01/08/97
0000912057-97-022114 0000912057-97-000391
The JPM Institutional New York N/A 03/31/97
Total Return Bond Fund 06/05/97
0000912057-97-019653
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<PAGE>
- ------------------------------------------------
Date of Semi-Annual Date of Annual
Report; Date Semi- Report; Date Annual
Annual Report Filed; Report Filed; and
Name of Fund and Accession Number Accession Number
- -------------------------------- ------------------------ ------------------
The JPM Institutional Global 04/30/97 N/A
Strategic Income Fund 06/27/97
0000912057-97-022164
The JPM Institutional Japan N/A 12/31/96
Equity Fund 03/10/97
0000912057-97-008379
The JPM Institutional European N/A 12/31/96
Equity Fund 03/10/97
0000912057-97-008375
The JPM Institutional Asia N/A 12/31/96
Growth Fund 03/10/97
0000912057-97-008376
The JPM Institutional 03/31/97 09/30/96
International Bond Fund 06/03/97 12/06/96
0000912057-97-019357 0000912057-96-028534
The JPM Institutional 05/31/97 N/A
International Opportunities 07/29/97
Fund 0000912057-97-025357
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<PAGE>
<PAGE>
THE JPM INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 20, 1997
- -----------------------------------------------------------------------------
ASSETS
Investment in The Global Strategic Income
Portfolio ("Portfolio"), at value $100,000
Deferred Organization Expenses 36,300
--------
Total Assets 136,300
--------
LIABILITIES
Organization Expenses Payable 36,300
--------
Total Liabilities 36,300
--------
NET ASSETS
Applicable to 10,000 Shares of Beneficial
Interest Outstanding (par value $0.001,
unlimited shares authorized) $100,000
========
Net Asset Value, Offering and Redemption
Price Per Share $ 10.00
========
The Accompanying Notes are an Integral Part of the Financial Statement.
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<PAGE>
THE JPM INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENT
FEBRUARY 20, 1997
- -----------------------------------------------------------------------------
1. ORGANIZATION
The JPM Institutional Global Strategic Income Fund (the "Fund") is a series of
The JPM Institutional Funds, a Massachusetts business trust (the "Trust")
organized on November 4, 1992 and an open-end management investment company
registered under the Investment Company Act of 1940, as amended. The Fund was
established on October 10, 1996, and has been inactive since that date except
for matters relating to its organization, registration under federal securities
laws and the sale of 10,000 shares (the "initial shares") of the Fund to FDI
Distribution Services, Inc. ("FDSI"), the parent company of Funds Distributor,
Inc. ("FDI"), the Trust's co-administrator and distributor.
The Fund will invest all of its investable assets in The Global Strategic Income
Portfolio (the "Portfolio"), a trust organized under the laws of the state of
New York. The Portfolio intends to register as an open-end management investment
company and has the same investment objective and policies as the Fund.
The Fund has incurred $36,300 in organization expenses. These costs are being
deferred and will be amortized on a straight-line basis over a period not to
exceed five years beginning with the commencement of operations of the Fund.
2. SERVICE AGREEMENTS WITH AFFILIATES
The Trust has entered into (i) an Administrative Services Agreement with Morgan
Guaranty Trust Company of New York ("Morgan") to provide administrative and
related services to the Trust and (ii) a Shareholder Servicing Agreement with
Morgan pursuant to which Morgan will provide shareholder servicing to
shareholders of the Fund. The Trust is a party to a Co-Administration Agreement
and Distribution Agreement with FDI pursuant to which FDI provides
co-administration and distribution services, respectively, for the Trust. The
officers of the Trust, excluding its Chief Executive Officer, are employees of
FDI. The Trust has entered into a Fund Services Agreement with Pierpont Group,
Inc. to assist the Trustees in exercising their overall responsibilities for the
affairs of the Trust. The Trustees of the Trust represent all the existing
shareholders of Pierpont Group, Inc.
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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 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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<PAGE>
THE JPM INSTITUTIONAL DISCIPLINED EQUITY FUND
MARCH 31, 1997
(UNAUDITED)
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<PAGE>
THE JPM INSTITUTIONAL DISCIPLINED EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
MARCH 31, 1997
- -------------------------------------------------------------------
ASSETS
Investment in The Disciplined Equity Portfolio
("Portfolio"), at value $38,686,274
Receivable for Shares of Beneficial Interest Sold 1,899,753
Receivable for Expense Reimbursements 27,267
Deferred Organization Expenses 9,534
-----------
Total Assets 40,622,828
-----------
LIABILITIES
Organization Expenses Payable 6,209
Shareholder Servicing Fee Payable 3,355
Administrative Services Fee Payable 1,049
Accrued Trustees' Fees and Expenses 224
Administration Fee Payable 120
Fund Services Fee Payable 94
Accrued Expenses 27,105
-----------
Total Liabilities 38,156
-----------
NET ASSETS
Applicable to 4,004,300 Shares of Beneficial Interest
Outstanding (par value $0.001, unlimited shares
authorized) $40,584,672
===========
Net Asset Value, Offering and Redemption Price Per Share $10.14
===========
ANALYSIS OF NET ASSETS
Paid-in Capital $42,898,878
Undistributed Net Investment Income 81,299
Accumulated Net Realized Loss on Investment (18,733)
Net Unrealized Depreciation of Investment (2,376,772)
-----------
Net Assets $40,584,672
===========
The Accompanying Notes are an Integral Part of the Financial Statements.
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<PAGE>
THE JPM INSTITUTIONAL DISCIPLINED EQUITY FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE PERIOD FROM JANUARY 3, 1997 (COMMENCEMENT OF OPERATIONS) TO
MARCH 31, 1997
- -------------------------------------------------------------------
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Dividend Income (Net
of Foreign Withholding Tax of $43) 90,637
Allocated Interest Income 12,560
Allocated Portfolio Expenses (Net
of Reimbursement of $14,340) (21,898)
------------
Net Investment Income Allocated from Portfolio 81,299
FUND EXPENSES
Registration Fees 11,579
Professional Fees 5,906
Shareholder Servicing Fee 4,866
Transfer Agent Fees 4,565
Printing Expenses 4,291
Administrative Services Fee 1,524
Amortization of Organization Expenses 466
Trustees' Fees and Expenses 224
Administration Fee 164
Fund Services Fee 122
Miscellaneous 2,054
-------
Total Fund Expenses 35,761
Less: Reimbursement of Expenses (35,761)
-------
NET FUND EXPENSES 0
------------
NET INVESTMENT INCOME 81,299
NET REALIZED LOSS ON INVESTMENT
ALLOCATED FROM PORTFOLIO (18,733)
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO (2,376,772)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ($2,314,206)
============
The Accompanying Notes are an Integral Part of the Financial Statements.
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<PAGE>
THE JPM INSTITUTIONAL DISCIPLINED EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------
FOR THE PERIOD FROM
JANUARY 3, 1997
(COMMENCEMENT OF
OPERATIONS) TO
MARCH 31, 1997
(UNAUDITED)
-----------
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $81,299
Net Realized Loss on Investment Allocated from Portfolio (18,733)
Net Change in Unrealized Depreciation of Investment
Allocated from Portfolio (2,376,772)
-----------
Net Decrease in Net Assets Resulting from Operations (2,314,206)
-----------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 42,898,878
-----------
Total Increase in Net Assets 40,584,672
NET ASSETS
Beginning of Period 0
-----------
End of Period (including undistributed net investment
income of $81,299) $40,584,672
===========
The Accompanying Notes are an Integral Part of the Financial Statements.
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<PAGE>
THE JPM INSTITUTIONAL DISCIPLINED EQUITY FUND
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------
Selected data for a share outstanding throughout the period is as follows:
FOR THE PERIOD FROM
JANUARY 3, 1997
(COMMENCEMENT OF
OPERATIONS) TO
MARCH 31, 1997
(UNAUDITED)
-----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
------------
Income from Investment Operations
Net Investment Income 0.02
Net Realized and Unrealized Gain on Investment 0.12
------------
Total from Investment Operations 0.14
------------
NET ASSET VALUE, END OF PERIOD $ 10.14
============
Total Return 1.40%(a)
============
Ratios and Supplemental Data
Net Assets, End of Period (in thousands) $ 40,585
Ratios to Average Net Assets
Expenses 0.45%(b)
Net Investment Income 1.67%(b)
Decrease Reflected in Expense Ratio due
to Expense Reimbursement 1.03%(b)
- -------------------------
(a) Not Annualized
(b) Annualized
The Accompanying Notes are an Integral Part of the Financial Statements.
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<PAGE>
THE JPM INSTITUTIONAL DISCIPLINED EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1997
- -------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The JPM Institutional Disciplined Equity Fund (the "Fund") is a separate series
of The JPM Institutional Funds, a Massachusetts business trust (the "Trust")
which was organized on November 4, 1992. The Trust is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. The Fund commenced operations on January 3, 1997.
The Fund invests all of its investable assets in The Disciplined Equity
Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Fund. The value of such
investment included in the Statement of Assets and Liabilities reflects the
Fund's proportionate interest in the net assets of the Portfolio (65% at March
31, 1997). The performance of the Fund is directly affected by the performance
of the Portfolio. The financial statements of the Portfolio, including the
Schedule of Investments, are included elsewhere in this report and should be
read in conjunction with the Fund's financial statements.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the Fund:
a) Valuation of securities by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements which are included elsewhere in this
report.
b) The Fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the Portfolio each day.
All the net investment income and realized and unrealized gain and loss of the
Portfolio is allocated pro rata among the Fund and other investors in the
Portfolio at the time of such determination.
c) Substantially all the Fund's net investment income is declared as
dividends and paid semi-annually. Distributions to shareholders of net realized
capital gain, if any, are declared and paid annually.
d) The Fund incurred organization expenses in the amount of $10,000. Morgan
Guaranty Trust Company of New York ("Morgan") has agreed to pay the organization
expenses of the Fund. The Fund 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 Fund.
e) The Fund is treated as a separate entity for federal income tax purposes
and intends to comply with the provisions of the Internal Revenue Code of 1986,
as amended, applicable to regulated investment companies and to distribute
substantially all of its income, including net realized capital gains, if any,
within the prescribed time periods. Accordingly, no provision for federal income
or excise tax is necessary.
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<PAGE>
THE JPM INSTITUTIONAL DISCIPLINED EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1997
- ------------------------------------------------------------------
f) Expenses incurred by the Trust with respect to any two or more funds in
the Trust are allocated in proportion to the net assets of each fund in
the Trust, except where allocations of direct expenses to each fund can
otherwise be made fairly. Expenses directly attributable to a fund are
charged to that fund.
2. TRANSACTIONS WITH AFFILIATES
a) The Trust has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as co-administrator and distributor. Under a Co-
Administration Agreement between FDI and the Trust on behalf of the Fund, FDI
provides administrative services necessary for the operations of the Fund,
furnishes office space and facilities required for conducting the business of
the Fund and pays the compensation of the Fund's officers affiliated with FDI.
The Fund 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 is based on the ratio of the Fund's net assets to the
aggregate net assets of the Trust, The JPM Pierpont Funds, the Portfolio and the
other portfolios in which The JPM Pierpont Funds and The JPM Institutional Funds
invest (the "Master Portfolios"), JPM Series Trust and JPM Series Trust II. For
the period from January 3, 1997 (commencement of operations) to March 31, 1997,
the fee for these services amounted to $164.
b) The Trust, on behalf of the Fund, has an Administrative Services
Agreement (the "Services Agreement") with Morgan under which Morgan is
responsible for overseeing certain aspects of the administration and operation
of the Fund. Under the Services Agreement, the Fund has agreed to pay Morgan a
fee equal to its allocable share of an annual complex-wide charge. This charge
is calculated daily based on the aggregate net assets of the Master Portfolios
and JPM Series Trust in accordance with the following annual schedule: 0.09% on
the first $7 billion of their aggregate average daily net assets and 0.04% of
the aggregate average daily net assets in excess of $7 billion less the
complex-wide fees payable to FDI. The portion of this charge payable by the Fund
is determined by the proportionate share that its net assets bear to the net
assets of the Trust, the Master Portfolios, other investors in the Master
Portfolios for which Morgan provides similar services, and JPM Series Trust. For
the period from January 3, 1997 (commencement of operations) to March 31, 1997,
the fee for these services amounted to $1,524.
In addition, Morgan has agreed to reimburse the Fund to the extent
necessary to maintain the total operating expenses of the Fund,
including the expenses allocated to the Fund from the Portfolio, at no
more than 0.45% of the average daily net assets of the Fund through
February 28, 1998. For the period from January 3, 1997 (commencement of
operations) to March 31, 1997, Morgan has agreed to reimburse the Fund
$35,761 for expenses that exceeded this limit.
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<PAGE>
THE JPM INSTITUTIONAL DISCIPLINED EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1997
- -------------------------------------------------------------------
c) The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan. The agreement provides for the Fund to pay Morgan a fee for these
services which is computed daily and paid monthly at an annual rate of 0.10% of
the average daily net assets of the Fund. For the period from January 3, 1997
(commencement of operations) to March 31, 1997, the fee for these services
amounted to $4,866.
d) The Trust, on behalf of the Fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") to assist the Trustees in exercising their
overall supervisory responsibilities for the Trust's affairs. The Trustees of
the Trust represent all the existing shareholders of Group. The Fund's allocated
portion of Group's costs in performing its services amounted to $122 for the
period from January 3, 1997 (commencement of operations) to March 31, 1997.
e) An aggregate annual fee of $65,000 is paid to each Trustee for serving
as a Trustee of the Trust, The JPM Pierpont Funds, the Master Portfolios and JPM
Series Trust. The Trustees' Fees and Expenses shown in the financial statements
represent the Fund's allocated portion of the total fees and expenses. The
Trust's Chairman and Chief Executive Officer also serves as Chairman of Group
and received compensation and employee benefits from Group in his role as
Group's Chairman. The allocated portion of such compensation and benefits
included in the Fund Services Fee shown in the financial statements was $25.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the Fund were as follows:
FOR THE PERIOD FROM
JANUARY 3, 1997
(COMMENCEMENT OF
OPERATIONS) TO
MARCH 31, 1997
(UNAUDITED)
-----------
Shares of beneficial interest sold 4,004,300
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<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
MARCH 31, 1997
(unaudited)
(THE FOLLOWING PAGES SHOULD BE READ IN CONJUNCTION
WITH THE JPM INSTITUTIONAL DISCIPLINED EQUITY FUND
FINANCIAL STATEMENTS AS OF MARCH 31, 1997)
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<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
MARCH 31, 1997
- -----------------------------------------------------------------
Security Description Shares Value
COMMON STOCK (97.3%)
BASIC INDUSTRIES (4.8%)
AGRICULTURE (0.1%)
Pioneer Hi-Bred International, Inc. 1,000 $ 62,875
----------
CHEMICALS (2.4%)
Air Products and Chemicals, Inc. 300 20,362
Albemarle Corp. 300 5,362
Crompton & Knowles Corp. 1,000 19,500
Cytec Industries, Inc. + 700 26,512
Dow Chemical Co. 3,300 264,000
E.I. Du Pont De Nemours & Co. (a) 7,800 826,800
Georgia Gulf Corp. 100 2,525
IMC Global, Inc. 400 14,450
Lyondell Petrochemical Co. 1,000 22,875
PPG Industries Inc. 2,100 113,400
Rohm & Haas Co. 700 52,412
Union Carbide Corp. 2,000 88,500
-----------
1,456,698
-----------
FOREST PRODUCTS & PAPER (0.9%)
Boise Cascade Corp. 900 27,450
Bowater Inc. 800 31,100
Champion International Corp. 1,800 81,900
James River Corp. of Virginia 1,100 32,037
Louisiana Pacific Corp. 2,000 41,500
Mead Corp. 1,000 53,000
Temple-Inland, Inc. 1,000 52,500
Union Camp Corp. 600 28,275
Weyerhaeuser Co. 3,700 165,112
-----------
512,874
-----------
METALS & MINING (1.4%)
Alcan Aluminum Ltd. 500 16,937
Allegheny Teledyne, Inc. 4,300 120,937
Aluminum Company of America (ALCOA) 4,300 292,400
Bethlehem Steel Corp. + 700 5,775
Freeport-McMoran Copper & Gold, Inc. 4,000 117,500
Nucor Corp. 2,100 96,075
Reynolds Metals Co. 1,500 93,000
USX-U.S. Steel Group, Inc. 1,200 31,950
Worthington Industries, Inc. 1,700 32,619
-----------
807,193
-----------
TOTAL BASIC INDUSTRIES 2,839,640
-----------
The Accompanying Notes are an Integral Part of the Financial Statements.
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<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1997
Security Description Shares Value
CONSUMER GOODS & SERVICES (23.8%)
AUTOMOTIVE (2.0%)
Ford Motor Co. 17,200 539,650
General Motors Corp. 10,600 586,975
Goodyear Tire and Rubber Co. 400 21,092
Lear Corp. + 900 30,037
-----------
1,177,754
-----------
AUTOMOTIVE SUPPLIES (0.0%)*
Echlin, Inc. 800 $ 27,200
-----------
Broadcasting & Publishing (1.1%)
Comcast Corp. 6,100 103,319
Cox Communications, Inc. + 1,000 20,625
R.R. Donnelley & Sons Co. 3,100 108,112
TCI Satellite Entertainment, Inc. - A+ 400 3,075
Tele-Communications TCI, Series A + 15,500 186,000
U.S. West, Inc. Media Group + 14,100 262,612
-----------
683,743
-----------
ENTERTAINMENT, LEISURE & MEDIA (2.2%)
Carnival Corp. 2,100 77,700
Circus Circus Enterprises, Inc. + 2,500 65,000
Disney (Walt) Co. 700 51,100
Harrah's Entertainment, Inc. + 2,600 44,525
International Game Technology 3,000 48,375
ITT Corp. + 2,200 129,525
MGM Grand, Inc. + 1,100 39,875
Mirage Resorts, Inc. + 3,400 72,250
Time Warner Inc. 10,900 471,425
Viacom, Inc., Class B + 8,800 291,500
-----------
1,291,275
-----------
FOOD, BEVERAGES & TOBACCO (8.8%)
Anheuser Busch Companies Inc. 6,600 278,025
Coca-Cola Co. 19,800 1,106,325
CPC International, Inc. 1,900 155,800
General Mills, Inc. 2,300 142,887
Heinz (H.J.) Company 4,300 169,850
Hershey Foods Corp. 1,600 80,000
Kellogg Co. 3,000 201,750
Nabisco Holdings Corp., Class A 700 28,525
PepsiCo., Inc. (a) 22,400 730,800
Philip Morris Companies, Inc. (a) 11,800 1,346,675
Ralston Purina Co. 1,400 109,375
Sara Lee Corp. 6,400 259,200
Seagram Company Ltd. 7,000 267,750
Unilever NV (ADR) 2,100 391,125
-----------
5,268,087
-----------
The Accompanying Notes are an Integral Part of the Financial Statements.
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<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1997
Security Description Shares Value
HOUSEHOLD APPLIANCES FURNISHINGS (0.5%)
Black & Decker Corp. 2,800 89,950
Leggett & Platt, Inc. 2,100 68,250
Maytag Corp. 600 12,375
Whirlpool Corp. 2,400 114,300
-----------
284,875
-----------
HOUSEHOLD PRODUCTS (2.1%)
Colgate-Palmolive Co. 900 89,662
Procter & Gamble Co., (a) 9,300 1,069,500
Rubbermaid, Inc. 3,500 87,062
-----------
1,246,224
-----------
PERSONAL CARE (1.0%)
Avon Products, Inc. 1,800 $ 94,500
Gillette Co. 7,300 530,162
-----------
624,662
-----------
RESTAURANTS & HOTELS (0.9%)
Extended Stay America, Inc. + 1,200 18,150
Hilton Hotels Corp. 4,700 113,975
McDonald's Corp. 8,500 401,625
-----------
533,750
-----------
RETAIL (5.0%)
Albertson's, Inc. 4,300 146,200
AutoZone, Inc. + 2,500 56,250
Circuit City Stores, Inc. - Circuit City Group 1,600 53,400
Dayton Hudson Corp. 1,600 66,800
Federated Department Stores, Inc. + 3,500 115,062
Footstar, Inc. + 100 2,962
General Nutrition Companies, Inc. + 1,400 28,525
Hasbro Inc. 1,950 53,381
Home Depot, Inc. 1,600 85,600
K Mart Corp. + 7,600 92,150
Limited, Inc. 4,400 80,850
Lowe's Companies, Inc. 2,800 104,650
Mattel, Inc. 8,300 199,200
Nine West Group, Inc. + 600 26,850
Nordstrom, Inc. 1,400 53,112
Penney (J.C.) Inc. 4,300 204,787
Sears, Roebuck & Co. 6,700 336,675
Toys 'R' Us, Inc. + 5,000 140,000
Wal-Mart Stores, Inc. (a) 39,200 1,092,700
-----------
2,939,154
-----------
The Accompanying Notes are an Integral Part of the Financial Statements.
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<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1997
- -----------------------------------------------------------------
Security Description Shares Value
TEXTILES (0.2%)
Fruit of the Loom Inc. + 1,600 66,400
V.F. Corp. 1,100 73,562
-----------
139,962
-----------
TOTAL CONSUMER GOODS & SERVICES 14,216,686
-----------
ENERGY (10.0%)
GAS EXPLORATION (0.6%)
Enron Corp. 6,000 228,000
Pogo Producing Co. 700 25,200
Union Pacific Resources Group, Inc. 4,900 131,075
-----------
384,275
-----------
NATURAL GAS (0.4%)
PanEnergy Corp. 5,500 237,187
-----------
OIL-PRODUCTION (7.5%)
Anadarko Petroleum Corp. 1,300 72,962
Ashland Inc. 1,400 56,350
Atlantic Richfield Co., 3,100 418,500
Chevron Corp. 100 $ 6,962
Exxon Corp. (a) 18,400 1,982,600
Mobil Corp. 8,500 1,110,312
Royal Dutch Petroleum Co. (ADR) (a) 2,900 507,500
Texaco Inc. 400 43,800
Tosco Corp. 2,800 79,800
Unocal Corp. 4,300 163,937
Valero Energy Corp. 700 25,462
-----------
4,468,185
-----------
OIL-SERVICES (1.5%)
Cooper Cameron Corp. + 600 41,100
Diamond Offshore Drilling Inc. + 700 47,950
Dresser Industries, Inc. 3,500 105,875
Global Marine, Inc. + 3,300 70,950
Input/Output, Inc. + 200 2,900
Noble Drilling Corp. + 2,400 41,400
Schlumberger Ltd. 4,700 504,075
Smith International, Inc. + 800 36,500
Western Atlas, Inc. + 1,100 66,687
-----------
917,437
-----------
TOTAL ENERGY 6,007,084
-----------
The Accompanying Notes are an Integral Part of the Financial Statements.
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<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1997
Security Description Shares Value
FINANCE (14.7%)
BANKING (7.1%)
Banc One Corp. 2,300 91,425
Bancorp Hawaii, Inc. 600 25,725
Bank of Boston Corp. 2,200 147,400
BankAmerica Corp. 600 60,450
Bankers Trust New York Corp. 1,200 98,400
Barnett Banks, Inc. 900 41,850
Central Fidelity Banks, Inc. 900 24,806
Charter One Financial, Inc. 800 35,150
Chase Manhattan Corp. 2,700 252,787
Citicorp 2,700 292,275
CoreStates Financial Corp. 3,500 166,250
Crestar Financial Corp. 1,700 58,862
Deposit Guaranty Corp. 600 18,000
Dime Bancorp, Inc. + 1,800 27,675
First Chicago NBD Corp. 5,400 292,275
First Commerce Corp. 600 24,337
First Empire State Corp. 100 32,000
First Hawaiian, Inc. 200 6,200
First Tennessee National Corp. 1,000 42,375
First Union Corp. 4,500 365,062
First Virginia Banks, Inc. 500 25,625
Firstar Corp. 2,300 63,250
Fleet Financial Group, Inc. 4,100 234,725
Golden West Financial Corp. 900 56,475
Great Western Financial Corp. 2,000 80,750
H.F. Ahmanson and Co. 1,600 58,400
Hibernia Corp. 1,900 24,937
Household International Inc. 1,500 129,187
Mark Twain Bancshares, Inc. 400 $ 20,200
Mercantile Bancorporation Inc. 800 42,400
Mercantile Bankshares Corp. 700 23,494
NationsBank Corp. (a) 12,200 675,575
North Fork Bancorporation, Inc. 500 18,062
Old Kent Financial Corp. 700 33,031
PNC Bank Corp. 1,700 68,000
Provident Bancorp Inc. 600 21,000
Regions Financial Corp. 1,000 55,625
Republic New York Corp. 900 79,312
Signet Banking Corp. 1,000 29,500
Southern National Corp. 400 14,900
Southtrust Corp. 1,700 61,519
Standard Federal Bancorporation 100 5,800
Summit Bancorp 700 30,625
TCF Financial Corp. 600 23,775
Union Planters Corp. 1,000 40,625
United Carolina Bancshares, Inc. 1,500 63,844
Washington Federal, Inc. 700 15,969
Washington Mutual, Inc. 2,000 96,625
Wilmington Trust Corp. 500 21,375
-----------
4,217,909
-----------
The Accompanying Notes are an Integral Part of the Financial Statements.
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<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1997
Security Description Shares Value
FINANCIAL SERVICES (3.4%)
Advanta Corp. 600 15,562
Associates First Capital Corp., Class A 900 38,700
Bear Stearns Companies, Inc. 2,000 52,500
Beneficial Corp. 900 58,162
Contifinancial Corp. + 700 21,700
Dean Witter Discover & Co. 2,200 76,725
Edwards (A.G.), Inc. 1,000 30,750
Federal Home Loan Mortgage Corporation 11,300 307,925
Federal National Mortgage Association 18,500 668,312
Finova Group, Inc. 400 27,050
First USA, Inc. 6,500 275,437
Lehman Brothers Holdings, Inc. 1,500 43,687
Money Store, Inc. 900 18,844
Morgan Stanley Group, Inc. 4,500 264,375
Paine Webber Group Inc. 1,300 36,725
Salomon, Inc. 1,800 89,775
-----------
2,026,229
-----------
INSURANCE (4.2%)
Aetna Inc. 1,100 94,462
American General Corp. 4,900 199,675
American International Group, Inc. 4,500 528,187
Chubb Corp. 4,200 226,275
CIGNA Corp. 900 131,513
General Re Corporation 1,400 221,200
ITT Hartford Group, Inc. 500 36,063
Lincoln National Corp. 2,500 133,750
MBIA, Inc. 1,000 95,875
Ohio Casualty Corp. 300 12,263
PMI Group, Inc. 800 40,100
Progressive Corp. 1,600 $ 102,200
Providian Corp. 2,300 123,050
Safeco Corp. 2,700 108,506
St. Paul Companies, Inc. 1,400 90,825
Torchmark Corp. 1,700 94,138
Transamerica Corp. 1,600 143,200
Unum Corp. 1,800 131,400
-----------
2,512,682
-----------
TOTAL FINANCE 8,756,820
-----------
HEALTH CARE (10.1%)
HEALTH SERVICES (3.1%)
Apria Healthcare Group, Inc. + 500 9,063
Columbia / HCA Healthcare Corp. (a) 7,600 255,550
Health Care & Retirement Corp. + 1,800 51,750
Health Management Associates, Inc. + 2,000 47,500
Humana, Inc. + 6,700 147,400
Manor Care, Inc. 2,600 63,375
The Accompanying Notes are an Integral Part of the Financial Statements.
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<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1997
- -----------------------------------------------------------------
Security Description Shares Value
HEALTH CARE (CONTINUED)
Perkin-Elmer Corp. 1,900 122,313
Tenet Healthcare Corp. + 12,400 305,350
United Healthcare Corp. 7,700 366,713
Value Health, Inc. 23,300 431,050
Vivra, Inc. + 1,800 48,600
-----------
1,848,664
-----------
MEDICAL SUPPLIES (0.3%)
Bard (C.R.), Inc. 2,400 68,400
Bausch & Lomb, Inc. 2,300 90,850
Biomet, Inc. 2,100 35,569
-----------
194,819
-----------
Pharmaceuticals (6.7%)
Alza Corp. + 3,100 85,250
American Home Products Corp. (a) 15,700 942,000
Bristol-Myers Squibb Co. 12,700 749,300
Forest Laboratories, Inc. + 500 18,813
Johnson & Johnson 2,500 132,188
Merck & Company, Inc. 5,100 429,675
Pfizer, Inc. 4,300 361,738
Schering-Plough Corp. 9,100 662,025
Warner-Lambert Co. 6,700 579,550
Watson Pharmaceuticals, Inc. + 1,000 35,625
-----------
3,996,164
-----------
TOTAL HEALTH CARE 6,039,647
-----------
INDUSTRIAL PRODUCTS & SERVICES (9.3%)
BUILDING MATERIALS (0.2%)
Owens Corning 1,700 68,425
USG Corp. + 1,500 47,063
-----------
115,488
-----------
CAPITAL GOODS (0.4%)
Cummins Engine Company, Inc. 600 $ 30,750
Eastman Kodak Co. 900 68,287
Eaton Corp. 1,300 92,138
Foster Wheeler Corp. 600 21,225
Precision Castparts Corp. 200 10,200
-----------
222,600
-----------
The Accompanying Notes are an Integral Part of the Financial Statements.
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<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1997
- -----------------------------------------------------------------
Security Description Shares Value
COMMERCIAL SERVICES (0.3%)
Ecolab, Inc. 800 30,400
Service Corp. International 4,500 133,875
-----------
164,275
-----------
DIVERSIFIED MANUFACTURING (6.2%)
AlliedSignal, Inc. 7,900 562,875
Cooper Industries, Inc. 1,900 82,413
General Electric Co. 10,400 1,032,200
General Motors Corp., Class H 10,400 564,200
ITT Industries, Inc. 3,200 71,600
Johnson Controls, Inc. 1,200 96,600
Monsanto Co. 5,400 206,550
Olin Corp. 300 11,925
Parker Hannifin Corp. 1,100 47,025
Raychem Corp. 1,200 98,850
Tenneco, Inc. - New Shares 4,800 187,200
Tyco International Ltd. 4,600 253,000
Xerox Corp. 9,100 517,563
-----------
3,732,001
-----------
ELECTRICAL EQUIPMENT (0.8%)
Emerson Electric Co. 7,100 319,500
Grainger (W.W.), Inc. 1,100 81,400
National Service Industries Inc. 700 27,388
UCAR International, Inc. + 800 31,700
-----------
459,988
-----------
MACHINERY (0.5%)
Caterpillar, Inc. 3,200 256,800
Ingersoll-Rand Co. 1,600 69,800
-----------
326,600
-----------
MISCELLANEOUS (0.1%)
Fluor Corp. 900 47,250
-----------
POLLUTION CONTROL (0.8%)
Browning-Ferris Industries, Inc. 600 17,325
Wheelabrator Technologies Inc. 2,300 30,188
WMX Technologies, Inc. 13,500 413,438
-----------
460,951
-----------
TOTAL INDUSTRIAL PRODUCTS & SERVICES 5,529,153
-----------
The Accompanying Notes are an Integral Part of the Financial Statements.
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<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1997
Security Description Shares Value
TECHNOLOGY (14.6%)
AEROSPACE (2.3%)
Boeing Co. 2,900 $ 286,013
Coltec Industries, Inc. + 2,100 38,850
General Dynamics Corp. 500 33,688
Lockheed Martin Corp., 1,500 126,000
McDonnell Douglas Corp. 12,400 756,400
Northrop Grumman Corp. 500 37,813
Raytheon Co. 2,000 90,250
-----------
1,369,014
-----------
COMPUTER PERIPHERALS (0.5%)
EMC Corp. + 4,900 173,950
Gateway 2000, Inc. + 500 25,656
Quantum Corp. + 1,400 54,163
Read-Rite Corp. + 600 15,188
-----------
268,957
-----------
COMPUTER SOFTWARE (1.8%)
Adobe Systems, Inc. 400 16,025
Autodesk, Inc. 700 21,744
Computer Associates International, Inc. 5,000 194,375
Microsoft Corp. + 5,700 522,619
Oracle Corp. + 9,000 347,063
-----------
1,101,826
-----------
COMPUTER SYSTEMS (3.9%)
Apple Computer, Inc. + 1,700 31,131
Compaq Computer Corp. + 5,700 436,763
Dell Computer Corp. + 1,500 101,531
Hewlett-Packard Co. 7,600 404,700
International Business Machines Corp.(a) 8,100 1,112,738
Silicon Graphics, Inc. + 2,400 46,818
Sun Microsystems, Inc. + 7,700 221,856
-----------
2,355,537
-----------
ELECTRONICS (1.4%)
Bay Networks, Inc. + 2,600 46,475
Cisco Systems, Inc. + 13,700 660,169
Harris Corp. 700 53,813
Sensormatic Electronics Corp. 1,400 23,625
Sunstrand Corp. 300 13,013
Symbol Technologies, Inc. 600 28,950
-----------
826,045
-----------
The Accompanying Notes are an Integral Part of the Financial Statements.
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<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1997
Security Description Shares Value
INFORMATION PROCESSING (0.8%)
Electronic Data System Corp. New 4,000 161,500
First Data Corp. 9,400 318,425
-----------
479,925
-----------
SEMICONDUCTORS (3.5%)
Applied Materials, Inc. + 2,400 111,150
Intel Corp. (a) 12,700 1,766,094
National Semiconductor Corp. + 2,400 66,000
Texas Instruments, Inc. 2,000 $ 149,750
Xilinx, Inc. + 300 14,606
-----------
2,107,600
-----------
TELECOMMUNICATIONS (0.2%)
360 Communications Co. + 3,100 53,475
Airtouch Communications, Inc. + 1,200 27,600
Paging Network, Inc. + 2,100 16,997
-----------
98,072
-----------
TELECOMMUNICATIONS-EQUIPMENT (0.2%)
Lucent Technologies, Inc. 2,300 121,325
-----------
TOTAL TECHNOLOGY 8,728,301
-----------
TRANSPORTATION (1.4%)
AIRLINES (0.3%)
AMR Corp. + 1,200 99,000
Comair Holdings Inc. 200 4,338
Delta Airlines, Inc. 300 25,238
Southwest Airlines Co. 1,900 42,038
-----------
170,614
-----------
RAILROADS (1.0%)
Burlington Northern Santa Fe 2,100 155,400
CSX Corp. 2,900 134,850
Norfolk Southern Corp. 1,700 144,925
Union Pacific Corp. 3,300 187,275
-----------
622,450
-----------
TRUCK & FREIGHT CARRIERS (0.1%)
Consolidated Freightways Corp. + 100 1,194
Consolidated Freightways, Inc. 300 8,138
Ryder System, Inc. 900 26,325
-----------
35,657
-----------
TOTAL TRANSPORTATION 828,721
-----------
The Accompanying Notes are an Integral Part of the Financial Statements.
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<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1997
Security Description Shares Value
UTILITIES (8.6%)
ELECTRIC (2.5%)
Allegheny Power System, Inc. 1,600 47,400
American Electric Power Co. 2,700 111,375
Central & South West Corp. 2,900 61,988
Cinergy Corp. 800 27,300
Consolidated Edison Co. of New York, Inc. 3,200 96,000
Dominion Resources, Inc. 2,500 90,938
DTE Energy Co. 2,000 53,750
Edison International 2,400 54,000
Entergy Corp. 3,100 75,950
GPU, Inc. 600 19,275
Houston Industries, Inc. 3,200 66,800
Illinova Corp. 1,000 22,875
New England Electric System 900 30,938
Niagara Mohawk Power Corp. + 700 5,950
Northeast Utilities 500 $ 3,938
Northern States Power Co. 1,800 85,275
P P & L Resources, Inc. 2,200 44,550
Peco Energy Co. 3,000 61,125
PG&E Corp. 5,700 133,950
Pinnacle West Capital Corp. 1,200 36,150
Potomac Electric Power Co. 1,700 41,650
Southern Co. 9,300 196,463
Teco Energy, Inc. 400 9,600
Unicom Corp. 3,400 66,300
Union Electric Co. 500 18,438
Wisconsin Energy Corp. 900 22,050
-----------
1,484,028
-----------
TELEPHONE (6.1%)
Ameritech Corp. 2,000 123,000
AT & T Corp. 26,900 934,775
Bell Atlantic Corp. 1,800 109,575
Frontier Corp. 2,600 46,475
GTE Corp. 16,000 746,000
MCI Communications Corp. 11,400 405,413
NYNEX Corp. 2,100 95,813
SBC Communications, Inc. 10,100 531,513
Sprint Corp. 7,200 327,600
US West Communications Group 600 20,400
WorldCom, Inc. + 14,400 315,900
-----------
3,656,464
-----------
WATER (0.0%)*
American Water Works, Inc. 400 8,400
-----------
TOTAL UTILITIES 5,148,892
-----------
TOTAL COMMON STOCK (cost $60,565,765) 58,094,944
The Accompanying Notes are an Integral Part of the Financial Statements.
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THE DISCIPLINED EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MARCH 31, 1997
- -----------------------------------------------------------------
Principal
Security Description Amount Value
SHORT-TERM INVESTMENTS (2.6%)
REPURCHASE AGREEMENT (2.4%)
State Street Repurchase Agreement, dated
03/31/97 due 04/01/97, proceeds $1,460,203
(collateralized by U.S. Treasury Note, 5.00%,
due 02/15/99, valued at $1,491,000) $1,460,000 $ 1,460,000
-----------
U.S. TREASURY OBLIGATIONS (0.2%)
United States Treasury Bills, 5.04%
due 07/31/97 (a) 75,000 73,694
United States Treasury Bills, 5.08%
due 07/17 50,000 49,218
-----------
TOTAL U.S. TREASURY OBLIGATIONS 122,912
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $1,582,974) $ 1,582,912
-----------
TOTAL INVESTMENTS (cost $62,148,739) (99.9%) 59,677,856
OTHER ASSETS IN EXCESS OF LIABILITIES (0.1%) 38,755
-----------
NET ASSETS (100.0%) $59,716,611
===========
- ----------------------------------
Note: For Federal Income Tax purposes, the cost of securities at March 31,
1997, was substantially the same as the cost of securities for
financial statement purposes.
+ Non-income producing security
* Less than 0.1%
ADR-Securities whose value is determined or significantly influenced by trading
on exchanges not located in the United States or Canada. ADR after the name of a
foreign holding stands for American Depository Receipt, representing ownership
of foreign securities on deposit with a domestic custodian bank.
(a) Security is fully or partially segregrated as collateral for futures
contracts. Total market value of collateral is $3,815,600.
The Accompanying Notes are an Integral Part of the Financial Statements.
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<PAGE>
THE DISCIPLINED EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
MARCH 31, 1997
- -----------------------------------------------------------------
ASSETS
Investments at Value (Cost $62,148,739 ) $59,677,856
Cash 1,939
Receivable for Investments Sold 325,015
Dividends Receivable 91,278
Receivable for Expense Reimbursement 23,970
Deferred Organization Expenses 9,501
Interest Receivable 7,448
-----------
Total Assets 60,137,007
-----------
LIABILITIES
Payable for Investments Purchased 315,365
Variation Margin Payable 31,758
Custody Fee Payable 19,809
Advisory Fee Payable 18,253
Organization Expenses Payable 10,000
Administrative Services Fee Payable 1,631
Accrued Trustees' Fees and Expenses 456
Fund Services Fee Payable 144
Administration Fee Payable 126
Accrued Expenses 22,854
-----------
Total Liabilities 420,396
-----------
NET ASSETS
Applicable to Investors' Beneficial Interests $59,716,611
===========
The Accompanying Notes are an Integral Part of the Financial Statements.
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THE DISCIPLINED EQUITY PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE PERIOD FROM DECEMBER 30, 1996 (COMMENCEMENT OF OPERATIONS) TO
MARCH 31, 1997
- -----------------------------------------------------------------
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax of $67 ) $179,967
Interest Income 19,871
-----------
Investment Income 199,838
EXPENSES
Advisory Fee 34,580
Professional Fees and Expenses 20,064
Custodian Fees and Expenses 19,809
Administrative Services Fee 3,104
Printing Expenses 1,940
Amortization of Organization Expenses 499
Trustees' Fees and Expenses 463
Registration Fees 323
Fund Services Fee 303
Administration Fee 244
Miscellaneous 529
---------
Total Expenses 81,858
Less: Reimbursement of Expenses (37,398)
---------
Net Expenses 44,460
----------
NET INVESTMENT INCOME 155,378
NET REALIZED GAIN ON INVESTMENTS
(including $15,458 net realized gain from futures contracts) 104,791
NET CHANGE IN UNREALIZED DEPRECIATION OF INVESTMENTS
(including $57,652 net unrealized depreciation from futures (2,528,535)
----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ($2,268,366)
==========
The Accompanying Notes are an Integral Part of the Financial Statements.
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THE DISCIPLINED EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------
FOR THE PERIOD FROM
DECEMBER 30, 1996
(COMMENCEMENT OF
OPERATIONS) TO
MARCH 31, 1997
(UNAUDITED)
-----------
INCREASE IN NET ASSETS
From Operations
Net Investment Income $155,378
Net Realized Gain on Investments 104,791
Net Change in Unrealized Depreciation of Investments (2,528,535)
-----------
Net Decrease in Net Assets Resulting from Operations (2,268,366)
-----------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 61,999,698
Withdrawals (14,721)
-----------
Net Increase from Investors' Transactions 61,984,977
-----------
Total Increase in Net Assets 59,716,611
NET ASSETS
Beginning of Period 0
-----------
End of Period $59,716,611
===========
SUPPLEMENTARY DATA
FOR THE PERIOD FROM
DECEMBER 30, 1996
(COMMENCEMENT OF
OPERATIONS) TO
MARCH 31, 1997
(UNAUDITED)
-----------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.45%(a)
Net Investment Income 1.57%(a)
Decrease Reflected in Expense Ratio
due to Expense Reimbursement 0.38%(a)
Portfolio Turnover 8.45%(b)
Average Broker Commissions $0.0101
- ----------------------
(a) Annualized.
(b) Not Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
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THE DISCIPLINED EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31,1997
- -----------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Disciplined Equity Portfolio (the "Portfolio") is one of eight subtrusts
(portfolios) comprising The Series Portfolio (the "Series Portfolio"). The
Series Portfolio is registered under the Investment Company Act of 1940, as
amended (the "Act"), as a no-load, diversified, open-end management investment
company which was organized as a trust under the laws of the State of New York
on June 24, 1994. The Portfolio commenced operations on December 30, 1996. The
Portfolio's investment objective is to provide a high total return from a
broadly diversified portfolio of equity securities. The Declaration of Trust
permits the Trustees to issue an unlimited number of beneficial interests in the
Portfolio.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the Portfolio:
a) The value of each security for which readily available market quotations
exists is based on a decision as to the broadest and most representative market
for such security. The value of such security will be based either on the last
sale price on a national securities exchange, or, in the absence of recorded
sales, at the average of readily available closing bid and asked prices on such
exchanges. Securities listed on a foreign exchange are valued at the last quoted
sale price available before the time when net assets are valued. Unlisted
securities are valued at the average of the quoted bid and asked prices in the
over-the-counter market. Securities or other assets for which market quotations
are not readily available are valued at fair value in accordance with procedures
established by the Portfolio's 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. All portfolio securities
with a remaining maturity of less than 60 days are valued by the amortized cost
method.
b) Futures - A futures contract is an agreement to purchase/sell a
specified quantity of an underlying instrument at a specified future date or to
make/receive a cash payment based on the value of a securities index. The price
at which the purchase and sale will take place will be fixed when the Portfolio
enters into the contract. Upon entering into such a contract the Portfolio is
required to pledge to the broker an amount of cash and/or liquid securities
equal to the minimum "initial margin" requirements of the exchange. Pursuant to
the contract, the Portfolio agrees to receive from, or pay to, the broker an
amount of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as "variation margin" and are
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THE DISCIPLINED EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1997
recorded by the Portfolio as unrealized gains or losses. When the
contract is closed, the Portfolio records a realized gain or loss equal
to the difference between the value of the contract at the time it was
opened and the value at the time when it was closed. The Portfolio
invests in futures contracts for the purpose of hedging its existing
portfolio securities, or securities the Portfolio intends to purchase,
against fluctuations in value caused by changes in prevailing market
interest rates or securities movements. The use of futures transactions
involves the risk of imperfect correlation of movements in the price of
futures contracts, interest rates and the underlying hedged assets, and
the possible inability of counterparties to meet the terms of their
contracts.
FUTURES CONTRACTS
PRINCIPAL
AMOUNT
NUMBER OF CONTRACTS OF CONTRACTS
Contracts opened 12 $4,712,586
Contracts closed (8) (3,138,934)
- ----------
Open at end of period 4 $1,573,652
= ==========
SUMMARY OF OPEN CONTRACTS AT MARCH 31, 1997
CONTRACTS LONG NET UNREALIZED
DEPRECIATION
S&P 500, due June 1997 4 $57,652
c) Securities transactions are recorded on a trade date basis. Dividend
income is recorded on the ex-dividend date or the time that the
relevant ex-dividend date and amount becomes known. Interest income,
which includes the amortization of premiums and discounts, if any, is
recorded on an accrual basis. For financial and tax reporting purposes,
realized gains and losses are determined on the basis of specific lot
identification.
d) The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be subject
to taxation on its share of the Portfolio's ordinary income and capital
gains. It is intended that the Portfolio's assets will be managed in
such a way that an investor in the Portfolio will be able to satisfy
the requirements of Subchapter M of the Internal Revenue Code.
e) The Portfolio's custodian takes possession of the collateral pledged
for investments in repurchase agreements on behalf of the Portfolio. It
is the policy of the Portfolio to value the underlying collateral daily
on a mark-to-market basis to determine that the value, including
accrued interest, is at least equal to the repurchase price plus
accrued
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THE DISCIPLINED EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31,1997
- -----------------------------------------------------------------
interest. In the event of default of the obligation to repurchase, the
Portfolio has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. Under certain
circumstances, in the event of default or bankruptcy by the other party
to the agreement, realization and/or retention of the collateral or
proceeds may be subject to legal proceedings.
f) The Portfolio incurred organization expenses in the amount of $10,000.
Morgan Guaranty Trust Company of New York ("Morgan") has agreed to pay
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.
g) Expenses incurred by the Series Portfolio with respect to any two or
more portfolios in the Series Portfolio are allocated in proportion to
the net assets of each portfolio in the Series Portfolio, except where
allocations of direct expenses to each portfolio can otherwise be made
fairly. Expenses directly attributable to a portfolio are charged to
that portfolio.
2. TRANSACTIONS WITH AFFILIATES
a) The Portfolio has an Investment Advisory Agreement with Morgan. Under
the terms of the agreement, the Portfolio pays Morgan at an annual rate
of 0.35% of the Portfolio's average daily net assets. For the period
from December 30, 1996 (commencement of operations) to March 31, 1997,
this fee amounted to $34,580.
b) The Portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement agent.
Under a Co-Administration Agreement between FDI and the Portfolio, FDI provides
administrative services necessary for the operations of the Portfolio, furnishes
office space and facilities required for conducting the business of the
Portfolio and pays the compensation of the officers affiliated with FDI. 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 Portfolio is based on the ratio of the Portfolio's net assets
to the aggregate net assets of The JPM Pierpont Funds, The JPM Institutional
Funds, the Portfolio and the other portfolios in which The JPM Pierpont Funds
and The JPM Institutional Funds invest (the "Master Portfolios"), JPM Series
Trust and JPM Series Trust II. For the period from December 30, 1996
(commencement of operations) to March 31, 1997, the fee for these services
amounted to $244.
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THE DISCIPLINED EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31,1997
- -----------------------------------------------------------------
c) The Portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan under which Morgan is responsible for overseeing certain
aspects of the administration and operation of the Portfolio. Under the Services
Agreement, the Portfolio has agreed to pay Morgan a fee equal to its allocable
share of an annual complex-wide charge. This charge is calculated daily based on
the aggregate net assets of the Master Portfolios and JPM Series Trust in
accordance with the following annual schedule: 0.09% on the first $7 billion of
the aggregate average daily net assets and 0.04% of the aggregate average daily
net assets in excess of $7 billion less the complex-wide fees payable to FDI.
The portion of this charge payable by the Portfolio is determined by the
proportionate share that the net assets bear to the total net assets of the
Master Portfolios, other investors in the Master Portfolios for which Morgan
provides similar services, The JPM Pierpont Funds, The JPM Institutional Funds,
and JPM Series Trust. For the period from December 30, 1996 (commencement of
operations) to March 31, 1997, the fee for these services amounted to $3,104.
In addition, Morgan has agreed to reimburse the Portfolio to the extent
necessary to maintain the total operating expenses of the Portfolio at
no more than 0.45% of the average daily net assets of the Portfolio
through February 28,1998. For the period from December 30,1996
(commencement of operations) to March 31,1997, Morgan has agreed to
reimburse the Portfolio $37,398 for expenses under this agreement.
d) The Portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's affairs. The Trustees
of the Portfolio represent all the existing shareholders of Group. The
Portfolio's allocated portion of Group's costs in performing its
services amounted to $303 for the period from December 30, 1996
(commencement of operations) to March 31, 1997.
e) An aggregate annual fee of $65,000 is paid to each Trustee for serving
as a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds, the Master
Portfolios and JPM Series Trust. The Trustees' Fees and Expenses shown in the
financial statements represents the Portfolio's allocated portion of the total
fees and expenses. The Portfolio's Chairman and Chief Executive Officer also
serves as Chairman of Group and received compensation and employee benefits from
Group in his role as Group's Chairman. The allocated portion of such
compensation and benefits included in the Fund Services Fee shown in the
financial statements was $60.
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THE DISCIPLINED EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31,1997
- -----------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the period from
December 30, 1996 (commencement of operations) to March 31, 1997 were as
follows:
COST OF PROCEEDS
PURCHASES FROM SALES
$63,108,114 $2,633,155
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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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A-2
<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 June
6, 1997) to the Annual Information Statement of the State of New York dated July
26, 1996, as updated January 31 1997, and other sources of information. The
factors affecting the financial condition of New York State (the "State") and
New York City (the "City") are complex and the following description constitutes
only a summary.
General
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.
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. Historically, the older northeast cities have suffered
because of the relative success that the South and the West have had in
attracting people and business. 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 the 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
U. S. Economy
The State has updated its mid-year forecast of national and State
economic activity through the end of calendar year 1998. The current projection
is for slightly slower growth than expected in October 1996. The revised
forecast projects real GDP growth of 2.3 percent in 1997, which is the same rate
now estimated for 1996, followed by a 2.4 percent increase in 1998. The growth
of nominal GDP is expected to rise from 4.3 percent in 1996 to 4.5 percent in
1997 and 4.8 percent in 1998. The inflation rate is expected to remain stable at
2.9 percent in 1997 and decrease to 2.8 percent in 1998. The annual rate of job
growth is expected to slow to 1.6 percent in both 1997 and 1998, down from the
2.0 percent increase in 1996. Growth in personal income and wages are expected
to slow accordingly in 1997 and 1998.
State Economy
The State economic forecast has been changed only slightly from the one
formulated in October 1996. Moderate growth is projected to continue in 1997 for
employment, wages, and personal income, followed by a slight slowing in 1998.
Personal income is estimated to have grown by 5.2 percent in 1996, fueled in
part by an unusually large increase in financial sector bonus payments, and is
projected to grow 4.5 percent in 1997 and 4.2 percent in 1998. Overall
employment growth will continue at a modest rate, reflecting the moderate growth
of the national economy, continued spending restraint in government and
restructuring in the health care, social service and banking sectors.
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.
1997-98 State Financial Plan
The Governor presented his 1997-98 executive budget to the legislature
on January 14, 1997. The executive budget also contains financial projections
for the State's 1998-99 and 1999-2000 fiscal years, detailed estimates of
receipts and an updated capital plan. It is expected that the Governor will
prepare amendments to his executive budget as permitted under law and that these
amendments will be reflected in a revised State Financial Plan to be released on
or before February 13, 1997. There can be no assurance that the legislature will
enact the executive budget as proposed by the Governor into law, or that the
State's adopted budget projections will not differ materially and adversely from
the projections set forth in the State Financial Plan.
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<PAGE>
The 1997-98 State Financial Plan projects balance on a cash basis in
the General Fund. It reflects a continuing strategy of substantially reduced
State spending, including program restructurings, reductions in social welfare
spending and efficiency and productivity initiatives. Total General Fund
receipts and transfers from other funds are projected to be $32.88 billion, a
decrease of $88 million from total receipts projected in the current fiscal
year. Total General Fund disbursement and transfers to other funds are projected
to be $32.84 billion, a decrease of $56 million from spending totals projected
for the current fiscal year. As compared to the 1996-97 State Financial Plan,
the executive budget proposes a year-to-year decline in General Fund spending of
0.2 percent. State funds spending (i.e., General Fund plus other dedicated
funds, with the exception of federal aid) is projected to grow by 1.2 percent.
Spending from all governmental funds (excluding transfers) is proposed to
increase by 2.2 percent from the prior fiscal year.
The executive budget proposes $2.3 billion in actions to balance the
1997-98 State Financial Plan. Before reflecting any actions proposed by the
Governor to restrain spending, General Fund disbursements for 1997-98 were
projected to grow by approximately 4 percent. This increase would have resulted
from growth in Medicaid, higher fixed costs such as pensions and debt service,
collective bargaining agreements, inflation and the loss of non-recurring
resources that offset spending in 1996-97. General Fund receipts were projected
to fall by roughly 3 percent. 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 1996-97 and implementation of previously
enacted tax reduction programs.
The executive budget proposes to close this gap primarily through a
series of spending reductions and Medicaid cost containment measures, the use of
a portion of the 1996-97 projected budget surplus and other actions. The 1997-98
State Financial Plan projects receipts of $32.88 billion and spending of $32.84
billion, allowing for a deposit of $24 million into the Contingency Reserve Fund
("CRF") and a year-ending CRF reserve of $65 million, and a required repayment
of $15 million to the Tax Stabilization Reserve Fund ("TSRF").
The State has not yet adopted a budget for the 1997-98 fiscal year,
which began on April 1, 1997. Debt service appropriations for existing
State-supported obligations have been enacted for the entire 1997-98 fiscal
year. Legislation extending certain revenue-raising authority and making interim
appropriations for State personal service costs, various grants to local
governments and certain other items has been submitted by the Governor and
enacted by the legislature for the period through June 20, 1997. The Division of
the Budget expects that, if the 1997-98 budget is not enacted by that date,
additional interim appropriations will be submitted by the Governor and enacted
by the legislature. While there can be no assurances that a protracted delay in
adoption of the 1997-98 budget will not have an adverse impact on the State
Financial Plan, the Division of the Budget believes that continued reliance upon
interim appropriations and extension of existing law would not produce a
materially adverse impact on the State's cash flow position.
On February 13, 1997 the Governor submitted amendments to his executive
budget as permitted under the State Constitution. These amendments had the
effect
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of increasing total disbursements by $63 million, fully offset by additional
resources expected to be available in 1997-98. The 1997-98 State Financial Plan,
as amended, continued to project balance on a cash basis in the General Fund.
Total General Fund receipts and transfers from other funds were projected to be
$32.94 billion. Total General Fund disbursements and transfers to other funds
were projected to be $32.90 billion.
On March 10, 1997 the legislature and the Governor conducted a
consensus economic and revenue forecasting process as required under law. As a
part of the consensus revenue forecasting process, the Division of the Budget
updated the economic forecast upon which receipts estimates are based. The
forecast for income growth in 1997 was increased modestly to the 5.2 to 5.6
percent range, consistent with an economic outlook of modest growth in the
State's economy and moderate inflation. A complete revision to the State's
economic forecast will accompany the adopted budget and 1997-98 State Financial
Plan.
Since the submission of amendments to the executive budget, discussions
between the Governor and the State legislature have focused on the level of
resources available to finance the 1997-98 State Financial Plan, as well as
various approaches for resolving differences in a variety of programmatic areas.
The executive branch has identified approximately $1.56 billion in unbudgeted
resources for use in the 1997-98 State Financial Plan. The Governor has
indicated his willingness to seek agreement on an adopted budget for the 1997-98
fiscal year that addresses both executive and legislative priorities and any
newly identified costs to the State within the constraints of available
resources and a balanced State Financial Plan.
These additional resources have arisen primarily from revenues produced
by stronger-than-expected growth in the State's economy and higher final
personal income tax payments for the 1996 tax year; an additional $373 million
in non-recurring 1996-97 cash resources (discussed in the heading entitled
"1996-97 State Financial Plan" below); and approximately $200 million in
non-recurring federal aid for reimbursement of previous costs incurred by the
State for providing child protective services.
1996-97 State Financial Plan
The State ended its 1996-97 fiscal year on March 31, 1997 in balance on
a cash basis, with a 1996-97 General Fund cash surplus as reported by the
Division of the Budget of approximately $1.4 billion. The cash surplus was
derived primarily from higher-than-expected revenues and lower-than-expected
spending for social services programs. Of the cash surplus amount, $1.05 billion
was previously budgeted by the Governor in his executive budget to finance the
1997-98 State Financial Plan, and the additional $373 million is available for
use in financing the 1997-98 State Financial Plan when enacted by the
legislature.
The General Fund closing fund balance was $433 million. Of that amount,
$317 million was in the TSRF, after a required deposit of $15 million and an
additional deposit of $65 million in 1996-97. The TSRF can be used in the event
of any future General Fund deficit, as provided under the State Constitution and
State finance law. In addition, $41 million remains on deposit in the CRF. This
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fund assists the State in financing any extraordinary litigation during the
fiscal year. The remaining $75 million reflects amounts on deposit in the
Community Projects Fund. This fund was created to fund certain legislative
initiatives. The General Fund closing fund balance does not include $1.86
billion in the tax refund reserve account, of which $521 million was made
available as a result of the Local Government Assistance Corporation ("LGAC")
financing program and was required to be on deposit as of March 31, 1997.
General Fund receipts and transfers from other funds for the 1996-97
fiscal year totaled $33.04 billion, an increase of less than 1 percent from
1995-96 levels (excluding deposits into the tax refund reserve account). This
was $129 million lower than originally projected in the 1996-97 State Financial
Plan as enacted in July 1996. As compared to the State's July projections,
personal income tax receipts were $730 million less than projected. Tax receipts
in all other categories were higher than estimated in the July projections,
including user taxes and fees ($72 million), business tax receipts ($457
million) and other taxes and fees ($133 million). Miscellaneous receipts and
transfers were a combined $63 million less than projected in the original
1996-97 State Financial Plan. The large variance in the personal income tax
projections reflects year-end actions that had the effect of reducing personal
income tax receipts and miscellaneous receipts by about $1.7 billion. These
actions included early implementation of withholding table changes accompanying
scheduled 1997 personal income tax reductions, accelerated payment of an
estimated $217 million in personal income tax refunds and a $1.26 billion
deposit of otherwise excess receipts to the tax refund reserve account. Adjusted
for these actions, personal income taxes were almost $1 billion higher than
expected, largely due to higher-than-projected withholding and estimated tax
collections as a result of stronger-than-projected economic growth, particularly
in the financial markets and the securities industries.
General Fund disbursements and transfers to other funds totaled $32.90
billion for the 1996-97 fiscal year, an increase of less than 1 percent from
unadjusted 1995-96 levels. Disbursements and transfers were $226 million lower
than levels projected in the July 1996-97 State Financial Plan forecast. As
compared to the July projections, grants to local governments were $250 million
lower, State operations spending was $38 million lower, general State charges
and debt service were $35 million lower than projected, and transfers to other
funds for debt service, capital projects and other purposes were $99 million
higher than originally projected. Much of the decline in local assistance
spending was the result of lower-than-projected public assistance caseload,
while the increase in transfers relates to re-estimates in lottery proceeds.
Disbursements in governmental funds for the 1996-97 fiscal year totaled
$62.95 billion, $3 billion lower than projected at the beginning of the fiscal
year. Much of this variance was due to the uncertainty surrounding federal
action on entitlement spending at the beginning of the fiscal year. Total
unadjusted governmental funds spending decreased $278 million or 0.4 percent
below the 1995-96 fiscal year.
Special Considerations
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The Division of the Budget believes that the economic assumptions and
projections of receipts and disbursements accompanying the 1997-98 executive
budget, as modified by its revised economic forecast, are reasonable, and that
the 1997-98 State Financial Plan is balanced as currently projected. However,
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, can vary from fiscal year to fiscal year and are frequently the result
of actions taken not only by the State but also by entities such as the federal
government that are outside the State's control. Because of the uncertainty and
unpredictability of changes in these factors, their impact cannot be fully
included in the assumptions underlying the State's projections. There can be no
assurance that the State economy will not experience results that are worse than
predicted, with corresponding material and adverse effects on the State's
financial projections. There can also be no assurance that the legislature will
enact the executive budget as currently proposed or that the State's actions
will be sufficient to preserve budgetary balance or to align recurring receipts
and disbursements in either 1997-98 or in future fiscal years.
Both houses of the legislature have proposed additional tax reductions
beyond those reflected in the State's current projections for 1997-98 and beyond
that, if enacted, could make it more difficult to achieve budget balance over
this period. In particular, reduction or elimination of the State's sales tax
treatment of clothing and footwear costing under $500 has been discussed. The
State now receives approximately $700 million annually under the current tax
statutes from taxation on clothing, and localities receive a roughly equivalent
amount.
Potential changes to federal tax law currently under discussion as part
of the federal government's efforts to enact a multiyear deficit and tax
reduction package could alter the federal definitions of income on which certain
State taxes rely. Certain proposals, if enacted, could have a significant impact
on State revenues in 1997-98 and thereafter. For example, proposals to alter the
maximum effective tax rate on capital gains could raise or lower State tax
receipts materially, depending upon the statutory approach adopted by Congress,
as well as on the resulting taxpayer behavior.
On August 22, 1996, the President signed into law the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996. This federal
legislation fundamentally changed the programmatic and fiscal responsibilities
for administration of welfare programs at the federal, state and local levels:
The new law abolishes the federal Aid to Families with Dependent Children
program ("AFDC"), and creates a new Temporary Assistance to Needy Families
program ("TANF") funded with a fixed federal block grant to states. The new law
also imposes (with certain exceptions) a five-year durational limit on TANF
recipients, requires that virtually all recipients be engaged in work or
community service activities within two years of receiving benefits and limits
assistance provided to certain immigrants and other classes of individuals.
States are required to meet work activity participation targets for their TANF
caseload; these requirements are phased in over time. States that fail to meet
these federally mandated job participation rates, or that fail to conform with
certain other federal standards, face potential sanctions in the form of a
reduced federal block grant.
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Proposed legislation that includes both provisions necessary to
implement the State's TANF plan to conform with federal law and implement the
Governor's welfare reform proposal is still pending before the legislature.
There can be no assurances of timely enactment of certain conforming provisions
required under federal law. Further delay increases the risk that the State
could incur fiscal penalties for failure to comply with federal law.
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 1997-98 State Financial Plan projects General Fund receipts
(including transfers from other funds) of $32.88 billion, a decrease of $88
million from the 1996-97 projected level. The estimate of taxes for 1997-98
reflects overall growth in the yield of the tax structures (when adjusted for
tax law and administrative changes) of between 4 and 4.5 percent, reflecting
modest growth in the economy and continued moderate inflation. The effects of
this growth are offset by the impact of previously enacted tax reductions and
new tax cut proposals as outlined below.
The executive budget contains several new tax initiatives which are
projected to reduce total receipts by $170 million in 1997-98. First, the
Governor has proposed a School Tax Relief initiative ("STAR"), a multiyear
property tax reduction proposal that, when fully implemented, would provide $1.7
billion in school property tax savings through the replacement of these local
revenues with dedicated State revenues. The initial year of the STAR property
tax reduction program has the effect of reducing personal income tax receipts by
$110 million in the 1997-98 State Financial Plan. Second, the executive budget
proposes to begin the process of eliminating the State portion of the estate tax
through adoption of the federal credit for State death taxes, and also phasing
out the State gift tax over a multiyear period. This proposal would reduce
revenues from these taxes by $10 million in 1997-98 and larger amounts in future
years. Finally, the Governor has proposed an unspecified $50 million tax
reduction program designed to spur private sector job creation in the State. For
State Financial Plan purposes, the $50 million is shown as a charge against the
personal income tax.
Personal income tax collections for 1997-98 are now projected to be
$17.04 billion, an increase of $471 million from the projected 1996-97 level.
This estimate reflects growth in "constant law" liability (i.e., taxpayer
liability before scheduled or proposed tax reductions) of about 5 percent in
1997, partially offset by personal income tax reductions already in law, which
are estimated to produce taxpayer savings of almost $4 billion in 1997-98 ($1.7
billion more than in the current fiscal year) and the proposed STAR tax
reduction program referenced above.
User tax and fee receipts are projected at $7.02 billion in 1997-98, up
$255 million from 1996-97 projected levels. Total collections in this category
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are dominated by the State sales and use tax, which accounts for 77 percent of
total receipts in the category. The moderate economic expansion experienced this
year is expected to slow somewhat next year, producing an estimated growth in
the base of the sales and use tax of 4.2 percent in 1997-98.
Total business taxes are now projected at $4.76 billion in 1997-98, a
decrease of $65 million from 1996-97 levels. While "constant-law" liability
growth is anticipated to continue in 1997-98 the effect of scheduled tax
reductions taking effect in 1997 (including the elimination of the business tax
surcharge) leads to a year-to-year decline. The business tax decline also
reflects the continuing diversion of business tax receipts into dedicated
transportation funds.
Other tax receipts are now projected at $850 million, down $191 million
from the estimated current year level. The decline in receipts reflects the
dedication of the real estate transfer tax for support of environmental purposes
($87 million of receipts from this tax support the Environmental Protection
Fund, and the balance supports debt service on the Clean Water/Clean Air Bond
Act with any excess transferred back to the General Fund). The decline also
reflects the first full-year impact of the repeal of the real property gains tax
and the initial impact of the proposed gift and estate tax changes referenced
above.
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 estimated to total $l.49 billion in 1997-98,
a decline of $657 million from the current year. This decline is largely
attributable to the loss of several one-time transactions in 1996-97 that
contributed approximately $750 million in receipts in 1996-97.
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 1997-98 total $1.72 billion, an
increase of $99 million from 1996-97 levels.
Disbursements
The 1997-98 State Financial Plan projects General Fund disbursements of
$32.84 billion, a decrease of $56 million from projected spending levels for the
current year.
Disbursements from the category of Grants to Local Governments
constitute approximately 68 percent of all General Fund spending and include
payments to local governments, nonprofit providers and individuals.
Disbursements in this category are projected to decline by $705 million,
primarily reflecting proposed reductions in State Medicaid spending of $579
million. The State's tuition assistance program would be reduced to achieve
savings of $142 million. General Fund support for school aid would increase by
$293 million on a State fiscal year basis. This category is also affected by the
proposed reclassification of economic development spending previously reflected
in the State operations category ($13 million) and a further proposed
reclassification of higher
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education debt service payments from this category to the debt service category
of the State Financial Plan ($207 million).
Support for State operations is projected to decline by $615 million to
$5.2 billion in 1997-98. Almost all of this decline is attributable to the
proposed transfer of support for State University of New York ("SUNY")
operations from the General Fund to the Special Revenue fund type. All General
Fund support for SUNY is proposed for transfer into a single unified fund for
SUNY operations. After adjusting for this proposed change, State operations
disbursements increase modestly, reflecting the costs of previously negotiated
salary increases offset by proposed agency efficiencies and the continued
decline in the size of the State's workforce. The executive budget recommends
net reductions of approximately 1,700 positions, bringing the size of the State
workforce to approximately 191,000 by the end of the 1997-98 fiscal year.
General State charges are projected to total $2.29 billion in 1997-98,
an increase of $146 million from 1996-97 projected levels. This change is
affected by the proposed transfer of costs for SUNY operations to a Special
Revenue Fund, which lowers projected spending in this category by $126 million.
Pension-related costs are expected to increase by $270 million, reflecting the
impact of certain non-recurring actions taken in 1996-97 which lowered General
Fund costs, and the increase in costs associated with the amortization of
certain pension liabilities. Health insurance costs, the largest component of
this category, are projected to remain stable from calendar year 1996 to 1997.
General Fund debt service includes short-tern obligations of the
State's commercial paper program and debt service on its long-term bonds, which
are reflected as transfers to the Debt Service Fund. Projected short-term debt
service costs are expected to be $11 million for 1997-98. Transfers in support
of debt service are projected to be $1.89 billion in 1997-98, an increase of
$314 million. Of the projected increase, $207 million is attributable to the
reclassification of City University of New York ("CUNY") higher education
spending from grants to local governments to the debt service category so that
this category conforms to debt service levels. Transfers to the Capital Projects
Fund are projected to be $180 million for 1997-98, an increase of $59 million.
This transfer is net of all other resources available in the Capital Projects
Fund and reflects increased General Fund support for maintenance and
rehabilitation of State facilities in order to replace certain non-recurring
revenues available in 1996-97 for this purpose.
General Fund Closing Fund Balance
The 1997-98 closing fund balance in the General Fund is projected to be
$397 million. The required deposit to the TSRF adds $15 million to the expected
1996-97 balance of $317 million in that fund, bringing the total to $332 million
at the close of 1997-98. The remaining General Fund balance reflects a reserve
of $65 million in the CRF (after an additional deposit of $24 million in
1997-98) to provide resources to finance potential costs associated with
litigation against the State. The closing fund balance excludes amounts on
deposit in the tax refund reserve account.
Non-recurring Resources
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The Division of the Budget estimates that the 1997-98 State Financial
Plan includes approximately $66 million in non-recurring resources, comprising
0.4 percent of the General Fund budget. These include $25 million from a
refunding of Housing Finance Agency bonds and $41 million in miscellaneous
receipts and revenue transfers. Recommendations included in the executive budget
are expected to provide fully annualized savings in 1998-99 which more than
offset the non-recurring resources used in 1997-98. The 1997-98 executive budget
also utilizes $943 million of projected 1996-97 resources for purposes of
balancing the 1997-98 State Financial Plan.
Special Revenue Funds
For 1997-98, the State Financial Plan projects disbursements of $29.46
billion from Special Revenue Funds, increase of $2.13 billion. This includes
$8.4 billion from Special Revenue Funds containing State revenues and $21.05
billion from funds containing federal grants, primarily for social welfare
programs.
The 1997-98 executive budget recommends that all SUNY 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 $2.74 billion in
1997-98. 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 $1.29 billion in 1997-98. Disbursements also include $1.66
billion in STAR proceeds from a new fund financed by lottery proceeds and
dedicated personal income tax receipts. Proceeds from this fund will be used to
make start-up payments to school districts each year, as well as the local
property tax reduction payments for the STAR program. Disbursements of $660
million from the Disproportionate Share Medicaid Assistance Fund constitute most
of the remaining estimated State Special Revenue Funds disbursements for
1997-98.
Total federal Special Revenue Fund disbursements are projected at
$21.05 billion in 1997-98, an increase of $944 million from the current year
projected level. Federal Special Revenue Fund projections assume the receipt of
$12.16 billion in total federal Medicaid reimbursements and $2.7 billion in
federal reimbursement for the State's welfare programs. Most of the increase in
federal funds is due to increased welfare funding under the new federal welfare
block grant. All other federal spending is projected at $6.19 billion for
1997-98, an increase of $405 million.
Capital Projects Funds
Disbursements from the Capital Projects Funds in 1997-98 are estimated
at $3.93 billion, or $57 million less than 1996-97 projections. The spending
plan includes: $2.2 billion in disbursements for the third year of the five-year
$12.7 billion State and local highway and bridge program; $110 million in
spending from the Clean Water/Clean Air Bond Act approved by the voters in 1996;
correctional services spending of $251 million; and SUNY capital spending of
$185 million.
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The share of capital projects to be financed by "pay-as-you-go"
resources is projected to be approximately 24 percent. State-supported bond
issuances finance 48 percent of capital projects, with federal grants financing
the remaining 28 percent.
Debt Service Funds
Disbursements from Debt Service Funds are estimated at $3.02 billion m
1997-98, an increase of $464 million from 1996-97. Of this increase, $81 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, and $45 million is for the mental hygiene programs financed through the
Mental Health Services Fund. This increase also reflects $262 million in CUNY
senior and community college debt service formally classified as local
assistance in the General Fund. Debt service for LGAC bonds is projected at $340
million.
Cash Flow
The projected 1997-98 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 1997-98 cash flow projects substantial closing balances in each
quarter of the fiscal year, with excesses in receipts over disbursements in
every quarter of the fiscal year, and no monthly balance (prior to March) lower
than $400 million. The closing fund balance is projected at $397 million. The
cash flow projections assume continuation of legislation enacted in 1996-97 that
permits the State to use balances in the Lottery Fund for cash flow purposes.
Outyear Projections of Receipts and Disbursements
General Fund receipts are projected at $33.02 billion and $33.91
billion for 1998-99 and 1999-2000, respectively. The receipts projections were
prepared on the basis of an economic forecast of a steadily growing national
economy, in an environment of low inflation and slow employment growth. The
forecast for the State's economic performance likewise is for slow but steady
economic growth. The receipt projections reflect tax reductions proposed in the
executive budget that will reduce receipts by an estimated $798 million in
1998-99 and at $1.43 billion in 1999-2000. The bulk of previously enacted tax
reductions are annualized in 1997-98, and their impact in the out years is
largely proportional to projected growth in the underlying tax liability.
Disbursements from the General Fund are projected at $34.60 billion in
1998-99 and $35.93 billion in 1999-2000, before assuming additional spending
efficiencies and/or additional federal revenue maximization. Assuming
implementation of proposed cost containment and other actions proposed in the
executive budget, annual disbursements for fiscal years 1998-99 and 1999-2000
grow by $1.77 billion and $1.33 billion, respectively. This includes additional
support for school aid pursuant to the STAR program. Disbursement growth is
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higher in 1998-99, in part, because an additional payroll date and Medicaid
cycle will come due, adding non-recurring costs of $286 million to that year.
It is expected that the State's 1998-99 State Financial Plan will
reflect a continuing strategy of substantially reduced State spending, including
agency consolidations, reductions in the State workforce, and efficiency and
productivity initiatives. As Medicaid, welfare and other reforms continue to
evolve at both the State and federal level, additional savings are expected to
accrue to the State. As in the past, the State also expects to continue
aggressive efforts to secure federal funds. Therefore, the outyear projections
assume a target of $600 million in savings from these reforms in 1998-99,
growing to $800 million in 1999-2000. It is expected that the Governor will
propose to close these remaining budget imbalances primarily through further
spending reductions.
Prior Fiscal Years
1995-96 Fiscal Year
The State ended its 1995-96 fiscal year on March 31, 1996 with a
General Fund cash surplus. The Division of the Budget reported that revenues
exceeded projections by $270 million, while spending for social service programs
was lower than forecast by $120 million and all other spending was lower by $55
million. From the resulting benefit of $445 million, a $65 million voluntary
deposit was made into the TSRF, and $380 million was used to reduce 1996-97
State Financial Plan liabilities by accelerating 1996-97 payments, deferring
1995-96 revenues and making a deposit to the tax refund reserve account.
The General Fund closing fund balance was $287 million, an increase of
$129 million from 1994-95 levels. The $129 million change in fund balance is
attributable to the $65 million voluntary deposit to the TSRF, a $15 million
required deposit to the TSRF, a $40 million deposit to the CRF and a $9 million
deposit to the Revenue Accumulation Fund. The closing fund balance includes $237
million on deposit in the TSRF, to be used in the event of any future General
Fund deficit as provided under the State Constitution and State finance law. In
addition, $41 million is on deposit in the CRF. The CRF was established in State
fiscal year 1993-94 to assist the State in financing the costs of extraordinary
litigation. The remaining $9 million reflects amounts on deposit in the Revenue
Accumulation Fund. This fund was created to hold certain tax receipts
temporarily before their deposit to other accounts. In addition, $678 million
was on deposit in the tax refund reserve account, of which $521 million was
necessary to complete the restructuring of the State's cash flow under LGAC.
General Fund receipts totaled $32.81 billion, a decrease of 1.1 percent
from 1994-95 levels. This decrease reflects the impact of tax reductions enacted
and effective in both 1994 and 1995. General Fund disbursements totaled $32.68
billion for the 1995-96 fiscal year, a decrease of 2.2 percent from 1994-95
levels. Mid-year spending reductions, taken as part of a management review
undertaken in October at the direction of the Governor, yielded savings from
Medicaid utilization controls, office space consolidation, overtime and
contractual expense reductions, and statewide productivity improvements achieved
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by State agencies. Together with decreased social services spending, this
management review accounts for the bulk of the decline in spending.
1994-95 Fiscal Year
The State ended its 1994-95 fiscal year with the General Fund in
balance. The $241 million decline in the fund balance reflects the planned use
of $264 million from the CRF, partially offset by the required deposit of $23
million to the TSRF. In addition, $278 million was on deposit in the tax refund
reserve account, $250 million of which was deposited to continue the process of
restructuring the State's cash flow as part of the LGAC program. The closing
fund balance of $158 million reflects $157 million in the TSRF and $1 million in
the CRF.
General Fund receipts totaled $33.16 billion, an increase of 2.9%
percent from 1993-94 levels. General Fund disbursements totaled $33.40 billion
for the 1994-95 fiscal year, an increase of 4.7 percent from the previous fiscal
year. The increase in disbursements was primarily the result of one-time
litigation costs for the State, funded by the use of the CRF, offset by $188
million in spending reductions initiated in January 1995 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
nonessential capital projects.
Certain Litigation
The legal proceedings noted below involve State finances, State
programs or 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
hereafter. The State will describe newly initiated proceedings.
State Finance Policies
Insurance Law
In Trustees of and The Pension, Hospitalization Benefit Plan of the
Electrical Industry, et al. v. Cuomo, et al. (commenced November 25, 1992 in the
United States District Court for the Eastern District of New York), plaintiff
employee welfare benefit plans sought a declaratory judgment nullifying on the
ground of federal preemption provisions of Section 2807-c of the Public Health
Law and implementing regulations which impose a bad debt and charity care
allowance on all hospital bills and a 13 percent surcharge on inpatient bills
paid by employee welfare benefit plans. This case has been dismissed by
stipulation and order, by and among the parties, with prejudice.
Two separate proceedings challenge regulations promulgated by the
Superintendent of Insurance establishing excess medical malpractice premium
rates for the 1986-87 through 1995-96 and 1996-97 fiscal years, respectively
(New York State Health Maintenance Organization Conference, Inc., et al. v.
Muhl, et al., Supreme Court, Albany County). Plaintiffs allege that the method
of rate calculation is arbitrary, capricious and excessive and seek, inter alia,
to annul
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the present rates and to compel the State to refund accumulated surpluses not
actuarially required.
Tax Law
Aspects of petroleum business taxes are the subject of administrative
claims and litigation. In Tug Buster Bouchard, et al. v. Wetzler (Supreme Court,
Albany County, commenced November 13, 1992), petitioner tugboat corporations,
which purchased fuel out of State and consumed such fuel within the State,
contended that the assessment of the petroleum business tax pursuant to Tax Law
ss.301 to such fuel violated the commerce clause of the United States
Constitution. Petitioners contended that the application of Section 301 to the
interstate transaction but not to purchasers who purchased and consumed fuel
within the State discriminated against interstate commerce. By decision dated
November 14, 1996, based upon the State's concession that the challenged
provision was unconstitutional as applied to the petitioners and other similarly
situated vessels, the Court of Appeals affirmed the order of the Appellate
Division, Third Department, dated January 4, 1996, which held that Tax Law
ss.301(a)(l)(ii) (the portion of the petroleum business tax applicable between
1984 and September 1, 1990 to petroleum businesses which import petroleum into
the State for consumption in the State) was unconstitutional. The State's motion
for reargument, seeking clarification and/or modification of the Court of
Appeals decision, was denied by order dated December 20, 1996.
In Matter of the Petition of Consolidated Rail Corporation v. Tax
Appeals Tribunal (Appellate Division, Third Department, commenced December 22,
1995), petitioner rail freight corporation, which purchases diesel motor fuel
out of State and imports the fuel into the State for use, distribution, storage
or sale in the State, contends that the assessment of the petroleum business tax
pursuant to Tax Law ss.301-a to such fuel purchases violates the commerce clause
of the United States Constitution. Petitioner contends that the application of
Section 301-a to the interstate transaction but not to purchasers who purchase
fuel within the State for use, distribution, storage or sale within the State
discriminates against interstate commerce.
In New York Association of Convenience Stores, et al. v. Urbach, et
al., petitioners New York Association of Convenience Stores, National
Association of Convenience Stores, M.W.S. Enterprises, Inc. and Sugarcreek
Stores, Inc. seek to compel respondents, the Commissioner of Taxation and
Finance and the Department of Taxation and Finance, to enforce sales and excise
taxes pursuant to Tax Law Articles 12-A, 20 and 28 on tobacco products and motor
fuel sold to non-Indian consumers on Indian reservations. In orders dated August
13, 1996 and August 24, 1996, the Supreme Court, Albany County, ordered, inter
alia, that there be equal implementation and enforcement of said taxes for sales
to non-Indian consumers on and off Indian reservations and further ordered that
if respondents failed to comply within 120 days, no tobacco products or motor
fuel could be introduced onto Indian reservations other than for Indian
consumption or, alternatively, the collection and enforcement of such taxes
would be suspended statewide. Respondents appealed to the Appellate Division,
Third Department and invoked CPLR 5519(a)(1), which provides that the taking of
the appeal stayed all proceedings to enforce the orders pending the appeal.
Petitioner's motion to vacate the stay was denied. In a decision entered May 8,
1997, the Third Department modified the
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orders by deleting the portion thereof that provided for the statewide
suspension of the enforcement and collection of the sales and excise taxes on
motor fuel and tobacco products. The Third Department held, inter alia, that
petitioners had not sought such relief in their petition and that it was an
error for the Supreme Court to have awarded such undemanded relief without
adequate notice of its intent to do so. On May 22, 1997, respondents appealed to
the Court of Appeals on other grounds and again invoked the statutory stay.
On May 23, 1997, petitioners moved in Supreme Court, Albany County, for
an order compelling the enforcement of the provisions of Articles 12-A, 20 and
28 as applicable to tobacco products and motor fuel sold to non-Indian consumers
on Indian reservations by barring introduction of tobacco products and motor
fuel onto Indian reservations other than for Indian consumption or, in the
alternative, suspending statewide the collection of Articles 12-A, 20 and 28
taxes respecting tobacco products and motor fuel.
Localities
The City of New York
The fiscal health of the State may also be affected by the fiscal
health of the City, which continues to require significant financial assistance
from the State. The City depends on State aid both to enable the City to balance
its budget and to meet its cash requirements. The City has achieved balanced
operating results for each of its fiscal years since 1981 as reported in
accordance with the then-applicable GAAP standards.
Fiscal Oversight
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
("NYC 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; and the Office of the State Deputy Comptroller for the City of New York
("OSDC") to assist the Control Board in exercising its powers and
responsibilities. A control period existed from 1975 to 1986 during which the
City was subject to certain statutorily prescribed fiscal controls. Although the
Control Board terminated the control period in 1986 when certain statutory
conditions were met and suspended certain Control Board powers, 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 or impaired access to public credit markets, 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 moneys from the City directly, indirectly or
contingently) operate under a four-year financial plan which the City prepares
annually and periodically updates. The City's financial plan includes its
capital, revenue and expense projections and outlines proposed gap-closing
programs for years with projected budget gaps. The City's projections set forth
in its financial plan are based on various assumptions and contingencies, some
of which are uncertain and
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may not materialize. Unforeseen developments and changes in major assumptions
could significantly affect the City's ability to balance its budget as required
by State law and to meet its annual cash flow and financing requirements.
Implementation of the City's financial plan is also dependent upon the
ability of the City and certain covered organizations to market their securities
successfully. The City issues securities to finance, refinance and rehabilitate
infrastructure and other capital needs, as well as for seasonal financing needs.
The City currently projects that if no action is taken, it will exceed its State
constitutional general debt limit beginning in City fiscal year 1998. The
current financial plan includes certain alternative methods of financing a
portion of the City's capital program which require State or other outside
approval. Future developments concerning the City or its covered organizations
and public discussion of such developments, as well as prevailing market
conditions and securities credit ratings, may affect the ability or cost to sell
securities issued by the City or such covered organizations and may also affect
the market for their outstanding securities.
Monitoring Agencies
The staffs of the Control Board, OSDC and the City Comptroller issue
periodic reports on the City's financial plans which analyze the City's
forecasts of revenues and expenditures, cash flow and debt service requirements
for, and financial plan compliance by, the City and its covered organizations.
According to recent staff reports, the City's economy has experienced
weak employment and moderate wage and income growth throughout the mid-1990's.
Although this trend is expected to continue for the rest of the decade, there is
the risk of a slowdown in the City's economy in the next few years, which would
depress revenue growth and put further strains on the City's budget. These
reports have also indicated that recent City budgets have been balanced in part
through the use of non-recurring resources; that the City's financial plan tends
to rely on actions outside its direct control; that the City has not yet brought
its long-term expenditure growth in line with recurring revenue growth; and that
the City is therefore likely to continue to face substantial future budget gaps
that must be closed with reduced expenditures and/or increased revenues.
Other Localities
Certain localities outside the City have experienced financial problems
and have requested and received additional State assistance during the last
several State fiscal years. The potential impact on the State of any future
requests by localities for additional assistance is not included in the
projections of the State's receipts and disbursements for the State's 1996-97
fiscal year.
Fiscal difficulties experienced by the City of Yonkers resulted in the
reestablishment of the Financial Control Board for the City of Yonkers by the
State in 1984. That Board is charged with oversight of the fiscal affairs of
Yonkers. Future actions taken by the State to assist Yonkers could result in
increased State expenditures for extraordinary local assistance.
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Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy Municipal Assistance Corporation ("Troy MAC") was created to help Troy
avoid default on certain obligations. The legislation creating Troy MAC
prohibits the city from seeking federal bankruptcy protection while Troy MAC
bonds are outstanding.
Seventeen municipalities received extraordinary assistance during the
1996 legislative session through $50 million in special appropriations targeted
for distressed cities.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1994, the total indebtedness of all
localities in the State other that in the City was approximately $17.7 billion.
A small portion (approximately $82.9 million) of that indebtedness represented
borrowing to finance budgetary deficits and was issued pursuant to State
enabling legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than the City authorized by State law to issue debt to finance deficits during
the period that such deficit financing is outstanding. Seventeen localities had
outstanding indebtedness for deficit financing at the close of their fiscal year
ending in 1994.
From time to time, federal expenditure reductions could reduce, or in
some cases eliminate, federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If the State, the City or any of the public authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within the State could be adversely affected. Localities also face
anticipated and potential problems resulting from certain pending litigation,
judicial decisions and long-range economic trends. Long-range potential problems
of declining urban population, increasing expenditures and other economic trends
could adversely affect localities and require increasing State assistance in the
future.
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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 International Opportunities Fund
The following financial statements are incorporated by reference into Part B:
The JPM Institutional Prime 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 Prime 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
Statement of Assets and Liabilities at February 28, 1997 (unaudited)
Statement of Operations for the six months ended February 28, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements February 28, 1997 (unaudited)
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
Schedule of Investments at February 28, 1997 (unaudited)
Statement of Assets and Liabilities at February 28, 1997 (unaudited)
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Statement of Operations for the six months ended February 28, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements February 28, 1997 (unaudited)
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
Statement of Assets and Liabilities at April 30, 1997 (unaudited)
Statement of Operations for the six months ended April 30, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1997 (unaudited)
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
Schedule of Investments at April 30, 1997 (unaudited)
Statement of Assets and Liabilities at April 30, 1997 (unaudited)
Statement of Operations for the six months ended April 30, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1997 (unaudited)
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
Statement of Assets and Liabilities at April 30, 1997 (unaudited)
Statement of Operations for the six months ended April 30, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1997 (unaudited)
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
Schedule of Investments at April 30, 1997 (unaudited)
Statement of Assets and Liabilities at April 30, 1997 (unaudited)
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Statement of Operations for the six months ended April 30, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1997 (unaudited)
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
Statement of Assets and Liabilities at April 30, 1997 (unaudited)
Statement of Operations for the six months ended April 30, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1997 (unaudited)
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
Schedule of Investments at April 30, 1997 (unaudited)
Statement of Assets and Liabilities at April 30, 1997 (unaudited)
Statement of Operations for the six months ended April 30, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1997 (unaudited)
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
Statement of Assets and Liabilities at February 28, 1997 (unaudited)
Statement of Operations for the six months ended February 28, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements February 28, 1997 (unaudited)
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
Schedule of Investments at February 28, 1997 (unaudited)
Statement of Assets and Liabilities at February 28, 1997 (unaudited)
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Statement of Operations for the six months ended February 28, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements February 28, 1997 (unaudited)
The JPM Institutional 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)
Financial Highlights (unaudited)
Notes to Financial Statements November 30, 1996 (unaudited)
The 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)
Supplementary Data (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)
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Statement of Operations for the six months ended November 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (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
Statement of Assets and Liabilities at April 30, 1997 (unaudited)
Statement of Operations for the six months ended April 30, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1997 (unaudited)
The International 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
Schedule of Investments at April 30, 1997 (unaudited)
Statement of Assets and Liabilities at April 30, 1997 (unaudited)
Statement of Operations for the six months ended April 30, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1997 (unaudited)
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
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)
Financial Highlights (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)
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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
Statement of Assets and Liabilities at April 30, 1997 (unaudited)
Statement of Operations for the six months ended April 30, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1997 (unaudited)
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
Schedule of Investments at April 30, 1997 (unaudited)
Statement of Assets and Liabilities at April 30, 1997 (unaudited)
Statement of Operations for the six months ended April 30, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1997 (unaudited)
The JPM Institutional New York Total Return Bond Fund
Statement of Assets and Liabilities at March 31, 1997
Statement of Operations for the fiscal year ended March 31, 1997
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements March 31, 1997
The New York Total Return Bond Portfolio
Schedule of Investments at March 31, 1997
Statement of Assets and Liabilities at March 31, 1997
Statement of Operations for the fiscal year ended March 31, 1997
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements March 31, 1997
The JPM Institutional Global Strategic Income Fund
Statement of Assets and Liabilities at April 30, 1997 (unaudited)
Statement of Operations for the six months ended April 30, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
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Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1997 (unaudited)
The Global Strategic Income Portfolio
Schedule of Investments at April 30, 1997 (unaudited)
Statement of Assets and Liabilities at April 30, 1997 (unaudited)
Statement of Operations for the six months ended April 30, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1997 (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
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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
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
Statement of Assets and Liabilities at March 31, 1997 (unaudited)
Statement of Operations for the six months ended March 31, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements March 31, 1997 (unaudited)
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
Schedule of Investments at March 31, 1997 (unaudited)
Statement of Assets and Liabilities at March 31, 1997 (unaudited)
Statement of Operations for the six months ended March 31, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements March 31, 1997 (unaudited)
The JPM Institutional International Opportunities Fund
Statement of Assets and Liabilities at May 31, 1997 (unaudited)
Statement of Operations for the period February 26, 1997 (commencement of
operations) through May 31, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited) Financial Highlights (unaudited)
Notes to Financial Statements May 31, 1997 (unaudited)
The International Opportunities Portfolio
Schedule of Investments at May 31, 1997 (unaudited)
Statement of Assets and Liabilities at May 31, 1997 (unaudited)
Statement of Operations for the period February 26, 1997 (commencement of
operations) through May 31, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited) Notes to Financial Statements May 31, 1997
(unaudited)
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The following financial statements are included in Part B:
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
The JPM Institutional Disciplined Equity Fund
Statement of Assets and Liabilities at March 31, 1997 (unaudited)
Statement of Operations for the fiscal period ended March 31, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements March 31, 1997 (unaudited)
The Disciplined Equity Portfolio
Schedule of Investments at March 31, 1997 (unaudited)
Statement of Assets and Liabilities at March 31, 1997 (unaudited)
Statement of Operations for the fiscal period ended March 31, 1997 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements March 31, 1997 (unaudited)
(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.*
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6. Distribution Agreement between Registrant and Funds Distributor, Inc.
("FDI").*
8. Custodian Contract between Registrant and State Street Bank and Trust
Company ("State Street").*
9(a). Co-Administration Agreement between Registrant and FDI.*
9(b). Restated Shareholder Servicing Agreement between Registrant and Morgan
Guaranty Trust Company of New York ("Morgan Guaranty").**
9(c). Transfer Agency and Service Agreement between Registrant and State
Street.*
9(d). Restated Administrative Services Agreement between Registrant and
Morgan Guaranty.*
9(e). Fund Services Agreement, as amended, between Registrant and Pierpont
Group, Inc.*
9(f). Service Plan with respect to Registrant's Service Money Market Funds.**
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).
** Incorporated herein by reference to Post-Effective No. 33 to the
Registration Statement filed on April 30, 1997 (Accession Number 00001016964-
97-000059).
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 June 30, 1997.
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The JPM Institutional Prime Money Market Fund: 167
The JPM Institutional Federal Money Market Fund: 15
The JPM Institutional Bond Fund: 151
The JPM Institutional Diversified Fund: 42
The JPM Institutional U.S. Small Company Fund: 473
The JPM Institutional International Equity Fund: 401
The JPM Institutional Emerging Markets Equity Fund: 475
The JPM Institutional International Bond Fund: 7
The JPM Institutional Short Term Bond Fund: 26
The JPM Institutional U.S. Equity Fund: 133
The JPM Institutional Tax Exempt Money Market Fund: 67
The JPM Institutional Tax Exempt Bond Fund: 167
The JPM Institutional New York Total Return Bond Fund: 73
The JPM Institutional European Equity Fund: 7
The JPM Institutional Japan Equity Fund: 9
The JPM Institutional Asia Growth Fund: 6
The JPM Institutional Disciplined Equity Fund: 55
The JPM Institutional International Opportunities Fund: 105
The JPM Institutional Global Strategic Income Fund: 31
The JPM Institutional Treasury Money Market Fund: 0
The JPM Institutional Service Money Market Fund: 1
The JPM Institutional Service Prime Money Market Fund: 1
The JPM Institutional Service Federal Money Market Fund: 1
The JPM Institutional Service Tax Exempt Money Market Fund: 1
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
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expressed in the 1933 Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Not Applicable.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) FDI, located at 60 State Street, Suite 1300, Boston, Massachusetts 02109, is
the principal underwriter of the Registrant's shares.
FDI acts as principal underwriter of the following investment companies other
than the Registrant:
BJB Investment Funds
Burridge Funds
Foreign Fund, Inc.
Fremont Mutual Funds, Inc.
Harris Insight Funds Trust
H.T. Insight Funds, Inc. d/b/a
Harris Insight Funds
LKCM Fund
Monetta Fund, Inc.
Monetta Trust
The Munder Framlington Funds Trust
The Munder Funds, Inc.
The Munder Funds Trust
The PanAgora Institutional Funds
RCM Capital Funds, Inc.
RCM Equity Funds, Inc.
The Skyline Funds
St. Clair Money Market Fund
Waterhouse Investors Cash Management Funds, Inc.
The JPM Pierpont Funds
JPM Series Trust
JPM Series Trust II
FDI is registered with the Securities and Exchange Commission as a broker-dealer
and is a member of the National Association of Securities Dealers. FDI is an
indirect wholly-owned subsidiary of Boston Institutional Group, Inc., a holding
company all of whose outstanding shares are owned by key employees.
(b) The information required by this Item 29(b) with respect to each director,
officer and partner of FDI is incorporated herein by reference to Schedule A
of Form BD filed by FDI with the Securities and Exchange Commission pursuant to
the Securities Act of 1934 (SEC File No. 8-20518).
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
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PIERPONT GROUP, INC.: 461 Fifth Avenue, New York, New York 10017 (records
relating to its assisting the Trustees in carrying out their duties in
supervising the Registrant's affairs).
MORGAN GUARANTY TRUST COMPANY OF NEW YORK: 60 Wall Street, New York, New York
10260-0060, 522 Fifth Avenue, New York, New York 10036 or 9 West 57th Street,
New York, New York 10019 (records relating to its functions as shareholder
servicing agent, and administrative services agent).
STATE STREET BANK AND TRUST COMPANY: 1776 Heritage Drive, North Quincy,
Massachusetts 02171 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 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.
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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 1st
day of August, 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 August 1, 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
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*By /s/ Richard W. Ingram
----------------------------
Richard W. Ingram
as attorney-in-fact pursuant to a power of attorney previously filed.
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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 1st
day of August, 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 August 1, 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
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*By /s/ Richard W. Ingram
----------------------------
Richard W. Ingram
as attorney-in-fact pursuant to a power of attorney previously filed.
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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 1st day of August,
1997.
THE PRIME MONEY MARKET PORTFOLIO, THE SHORT TERM BOND PORTFOLIO, THE U.S.
FIXED INCOME PORTFOLIO, THE U.S. EQUITY PORTFOLIO, THE U.S. SMALL COMPANY
PORTFOLIO, THE INTERNATIONAL 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 August 1, 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
I:\dsfndlgl\institut\0897.pea\wrapper.wpf
C-18
<PAGE>
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.
I:\dsfndlgl\institut\0897.pea\wrapper.wpf
C-19
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ------------- ----------------------
EX-99.B11 Consents of independent accountants
EX-27.1 - EX-27.19 Financial Data Schedules
I:\dsfndlgl\institut\0897.pea\wrapper.wpf
C-20
Consents of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 36 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
February 20, 1997, relating to the statements of assets and liabilities of The
JPM Institutional Global Strategic Income Fund and The Global Strategic Income
Portfolio at February 20, 1997, which appear in the Statement of Additional
Information, and to the incorporation by reference of our reports into the
Prospectus which constitutes part of this Registration Statement.
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of 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.
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated December 18, 1996, relating to the financial
statements and financial highlights of The JPM Institutional Treasury Money
Market Fund, The JPM Institutional Bond Fund and The JPM
<PAGE>
Consents of Independent Accountants
Page 2
Institutional Short Term Bond Fund and the financial statements and
supplementary data of The Treasury Money Market Portfolio, The U.S. Fixed Income
Portfolio and The Short Term Bond Portfolio, appearing in the October 31, 1996
Annual Reports, which are also incorporated by reference into the Registration
Statement.
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated December 26, 1996, relating to the financial
statements and financial highlights of The JPM Institutional Emerging Markets
Equity Fund and The JPM Institutional International Equity Fund and the
financial statements and supplementary data of The Emerging Markets Equity
Portfolio and The Non-U.S. Equity Portfolio appearing in the October 31, 1996
Annual Reports, which are also incorporated by reference into the Registration
Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated January 16, 1997, relating to the financial
statements and financial highlights of The JPM Institutional Money Market Fund
and the financial statements and supplementary data of The Money Market
Portfolio appearing in the November 30, 1996 Annual Report, which is also
incorporated by reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated February 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 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 14, 1997, 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, 1997 Annual Report,
which is also incorporated by reference into the Registration Statement.
We also consent to the reference to us under the heading "Independent
Accountants" in the Statement of Additional Information.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
July 30, 1997
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
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<LEGEND>
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<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 APRIL 30, 1997 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> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 647013
<INVESTMENTS-AT-VALUE> 677109
<RECEIVABLES> 847
<ASSETS-OTHER> 18
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 677974
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 615
<TOTAL-LIABILITIES> 615
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 628109
<SHARES-COMMON-STOCK> 59827
<SHARES-COMMON-PRIOR> 63585
<ACCUMULATED-NII-CURRENT> 2818
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 16335
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 30097
<NET-ASSETS> 677359
<DIVIDEND-INCOME> 5364
<INTEREST-INCOME> 1255
<OTHER-INCOME> 0
<EXPENSES-NET> 3317
<NET-INVESTMENT-INCOME> 3302
<REALIZED-GAINS-CURRENT> 16535
<APPREC-INCREASE-CURRENT> 1369
<NET-CHANGE-FROM-OPS> 21206
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 16232
<DISTRIBUTIONS-OF-GAINS> 12924
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6698
<NUMBER-OF-SHARES-REDEEMED> 11528
<SHARES-REINVESTED> 1072
<NET-CHANGE-IN-ASSETS> (49505)
<ACCUMULATED-NII-PRIOR> 15748
<ACCUMULATED-GAINS-PRIOR> 12725
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3317
<AVERAGE-NET-ASSETS> 718804
<PER-SHARE-NAV-BEGIN> 11.43
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> .29
<PER-SHARE-DIVIDEND> .25
<PER-SHARE-DISTRIBUTIONS> .20
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.32
<EXPENSE-RATIO> .93
<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 APRIL 30, 1997 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> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 375110
<RECEIVABLES> 302
<ASSETS-OTHER> 53
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 375465
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2259
<TOTAL-LIABILITIES> 2259
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 350828
<SHARES-COMMON-STOCK> 32596
<SHARES-COMMON-PRIOR> 28600
<ACCUMULATED-NII-CURRENT> 114
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5458)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 27722
<NET-ASSETS> 373206
<DIVIDEND-INCOME> 3078
<INTEREST-INCOME> 560
<OTHER-INCOME> 0
<EXPENSES-NET> 2340
<NET-INVESTMENT-INCOME> 1298
<REALIZED-GAINS-CURRENT> 6875
<APPREC-INCREASE-CURRENT> 29982
<NET-CHANGE-FROM-OPS> 38157
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2687)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9064
<NUMBER-OF-SHARES-REDEEMED> 5177
<SHARES-REINVESTED> 109
<NET-CHANGE-IN-ASSETS> 3996
<ACCUMULATED-NII-PRIOR> 1502
<ACCUMULATED-GAINS-PRIOR> (12333)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 344040
<PER-SHARE-NAV-BEGIN> 10.27
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 1.23
<PER-SHARE-DIVIDEND> .09
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.45
<EXPENSE-RATIO> 1.37
<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 MARCH 31, 1997 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> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 90655
<INVESTMENTS-AT-VALUE> 91110
<RECEIVABLES> 12
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4
<TOTAL-ASSETS> 91126
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 334
<TOTAL-LIABILITIES> 334
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 90357
<SHARES-COMMON-STOCK> 8809
<SHARES-COMMON-PRIOR> 4636
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 44
<ACCUMULATED-NET-GAINS> 64
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 455
<NET-ASSETS> 90792
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 3398
<EXPENSES-NET> 49
<NET-INVESTMENT-INCOME> 3349
<REALIZED-GAINS-CURRENT> 65
<APPREC-INCREASE-CURRENT> 224
<NET-CHANGE-FROM-OPS> 3060
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3349
<DISTRIBUTIONS-OF-GAINS> 49
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 50415
<NUMBER-OF-SHARES-REDEEMED> 8086
<SHARES-REINVESTED> 875
<NET-CHANGE-IN-ASSETS> 42866
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 93
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 150
<AVERAGE-NET-ASSETS> 71290
<PER-SHARE-NAV-BEGIN> 10.34
<PER-SHARE-NII> .48
<PER-SHARE-GAIN-APPREC> .02
<PER-SHARE-DIVIDEND> .48
<PER-SHARE-DISTRIBUTIONS> .01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.31
<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 FEBRUARY 28, 1997 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> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 1722
<INVESTMENTS-AT-VALUE> 1722
<RECEIVABLES> 0
<ASSETS-OTHER> 13
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1735
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 90
<TOTAL-LIABILITIES> 90
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1256
<SHARES-COMMON-STOCK> 202
<SHARES-COMMON-PRIOR> 1178
<ACCUMULATED-NII-CURRENT> 31
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 484
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (126)
<NET-ASSETS> 1645
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 192
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 192
<REALIZED-GAINS-CURRENT> 748
<APPREC-INCREASE-CURRENT> (423)
<NET-CHANGE-FROM-OPS> 517
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 909
<DISTRIBUTIONS-OF-GAINS> 325
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 298
<NUMBER-OF-SHARES-REDEEMED> (1403)
<SHARES-REINVESTED> 129
<NET-CHANGE-IN-ASSETS> (11664)
<ACCUMULATED-NII-PRIOR> 367
<ACCUMULATED-GAINS-PRIOR> 590
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 120
<AVERAGE-NET-ASSETS> 7539
<PER-SHARE-NAV-BEGIN> 11.30
<PER-SHARE-NII> 2.23
<PER-SHARE-GAIN-APPREC> (1.71)
<PER-SHARE-DIVIDEND> 2.71
<PER-SHARE-DISTRIBUTIONS> .97
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.14
<EXPENSE-RATIO> .49
<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
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<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
REPORT ON FORM N-SAR DATED APRIL 30, 1997 FOR THE JPM INSTITUTIONAL GLOBAL
STRATEGIC INCOME FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
SUCH REPORT.
</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> 2-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> APR-30-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 58167
<RECEIVABLES> 20
<ASSETS-OTHER> 35
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 58222
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 288
<TOTAL-LIABILITIES> 288
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 57839
<SHARES-COMMON-STOCK> 5799
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 40
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (121)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 176
<NET-ASSETS> 57934
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 413
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 413
<REALIZED-GAINS-CURRENT> (121)
<APPREC-INCREASE-CURRENT> 176
<NET-CHANGE-FROM-OPS> 468
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 373
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5786
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 13
<NET-CHANGE-IN-ASSETS> 5799
<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> 30
<AVERAGE-NET-ASSETS> 51201
<PER-SHARE-NAV-BEGIN> 10
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> (.02)
<PER-SHARE-DIVIDEND> .07
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.99
<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
UNAUDITED INTERIM FINANCIAL STATEMENTS DATED MARCH 31, 1997 FOR THE JPM
INSTITUTIONAL DISCIPLINED EQUITY FUND AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 013
<NAME> THE JPM INSTITUTIONAL DISCIPLINED EQUITY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JAN-03-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 38686274
<RECEIVABLES> 1927020
<ASSETS-OTHER> 9534
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 40622828
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 38156
<TOTAL-LIABILITIES> 38156
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 42898878
<SHARES-COMMON-STOCK> 4004300
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 81299
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 18733
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2376772
<NET-ASSETS> 40584672
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 81299
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 81299
<REALIZED-GAINS-CURRENT> 18733
<APPREC-INCREASE-CURRENT> 2376772
<NET-CHANGE-FROM-OPS> 2314206
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4004300
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 40584672
<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> 71999
<AVERAGE-NET-ASSETS> 20895569
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> .12
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.14
<EXPENSE-RATIO> .45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED MAY 31, 1997 FOR THE JPM INSTITUTIONAL INTERNATIONAL
OPPORTUNITIES FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000894088
<NAME> THE JPM INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 019
<NAME> THE JPM INSTITUTIONAL INTERNATIONAL OPPORTUNITIES FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> FEB-26-1997
<PERIOD-END> MAY-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 119818
<RECEIVABLES> 3332
<ASSETS-OTHER> 77
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 123227
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 50
<TOTAL-LIABILITIES> 50
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 118037
<SHARES-COMMON-STOCK> 11770
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 704
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 397
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4038
<NET-ASSETS> 123177
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 734
<EXPENSES-NET> 30
<NET-INVESTMENT-INCOME> 704
<REALIZED-GAINS-CURRENT> 397
<APPREC-INCREASE-CURRENT> 4038
<NET-CHANGE-FROM-OPS> 5139
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11900
<NUMBER-OF-SHARES-REDEEMED> 130
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 123177
<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> 63
<AVERAGE-NET-ASSETS> 90245
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> .41
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.47
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
