As filed with the Securities and Exchange Commission on December 21, 1995
Registration Nos. 33-54632 and 811-7340
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 17
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 18
The Pierpont Funds
(Exact Name of Registrant as Specified in Charter)
6 St. James Avenue, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 423-0800
Philip W. Coolidge
6 St. James Avenue, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Copy to:
Stephen K. West, Esq.
Sullivan & Cromwell
125 Broad Street, New York, New York 10004
It is proposed that this filing will become effective (check appropriate box)
[ ] Immediately upon filing pursuant to paragraph (b)
[X] on December 29, 1995 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has previously registered an indefinite number of its shares
under the Securities Act of 1933, as amended, pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. The Registrant has filed Rule 24f-2
notices with respect to its series as follows: Tax Exempt Money Market and Tax
Exempt Bond Funds (for their fiscal years ended August 31, 1995) on October 30,
1995; Treasury Money Market, Short Term Bond, Bond, Emerging Markets Equity and
International Equity Funds (for their fiscal years ended October 31, 1994) on
December 22, 1994; Money Market Fund (for its fiscal year ended November 30,
1994) on January 27, 1995; Equity and Capital Appreciation Funds (for their
fiscal years ended May 31, 1995) on July 26, 1995; Diversified Fund (for its
fiscal year ended June 30, 1995) on August 15, 1995; and New York Total Return
Bond Fund (for its fiscal year ended March 31, 1995) on May 23, 1995.
The Money Market Portfolio, The Tax Exempt Money Market Portfolio, The
Treasury Money Market Portfolio, The Short Term Bond Portfolio, The U.S. Fixed
Income Portfolio, The Tax Exempt Bond Portfolio, The Selected U.S. Equity
Portfolio, The U.S. Small Company Portfolio, The Non-U.S. Equity Portfolio, The
Diversified Portfolio, The Emerging Markets Equity Portfolio and The New York
Total Return Bond Portfolio have also executed this Registration Statement.
JPM492.EDG
<PAGE>
CROSS REFERENCE SHEET
(As required by Rule 495)
PART A ITEM NUMBER: Prospectus Headings.
1. COVER PAGE: Cover Page.
2. SYNOPSIS: Investors for Whom the Funds are Designed.
3. CONDENSED FINANCIAL INFORMATION: Financial Highlights.
4. GENERAL DESCRIPTION OF REGISTRANT: Cover Page; Investors for Whom the
Funds are Designed; Investment Objectives and Policies; Additional
Investment Information; Investment Restrictions; Special Information
Concerning Hub and Spoke(R); Organization; Appendix.
5. MANAGEMENT OF THE FUND: Management of the Trust and the Portfolios;
Shareholder Servicing; Additional Information.
5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE: Not Applicable.
6. CAPITAL STOCK AND OTHER SECURITIES: Special Information Concerning Hub
and Spoke(R); Shareholder Servicing; Net Asset Value; Purchase of
Shares; Taxes; Dividends and Distributions; Organization.
7. PURCHASE OF SECURITIES BEING OFFERED: Purchase of Shares; Exchange of
Shares; Investors for Whom the Funds are Designed; Dividends and
Distributions; Net Asset Value.
8. REDEMPTION OR REPURCHASE: Redemption of Shares; Exchange of Shares; Net
Asset Value.
9. PENDING LEGAL PROCEEDINGS: Not Applicable.
PART B ITEM NUMBER: Statement of Additional Information Headings.
10. COVER PAGE: Cover Page.
11. TABLE OF CONTENTS: Table of Contents.
12. GENERAL INFORMATION AND HISTORY: General.
13. INVESTMENT OBJECTIVES AND POLICIES: Investment Objectives and Policies;
Additional Investments; Investment Restrictions; Quality and
Diversification Requirements; Appendix A.
14. MANAGEMENT OF THE FUND: Trustees and Officers.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES: Description of
Shares.
16. INVESTMENT ADVISORY AND OTHER SERVICES: Investment Advisor;
Administrator and Distributor; Services Agent; Custodian; Shareholder
Servicing; Independent Accountants; Expenses.
17. BROKERAGE ALLOCATION AND OTHER PRACTICES: Portfolio Transactions.
18. CAPITAL STOCK AND OTHER SECURITIES: Massachusetts Trust; Description of
Shares.
19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED: Net Asset
Value; Purchase of Shares; Redemption of Shares; Exchange of Shares;
Dividends and Distributions.
20. TAX STATUS: Taxes.
21. UNDERWRITERS: Administrator and Distributor.
22. CALCULATION OF PERFORMANCE DATA: Performance Data.
23. FINANCIAL STATEMENTS: Financial Statements.
PART C
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
<PAGE>
EXPLANATORY NOTE
This post-effective amendment no. 17 (the "Amendment") to the Registrant's
registration statement on Form N-1A (File no. 33-54632) is being filed with
respect to The Pierpont Tax Exempt Money Market Fund and The Pierpont Tax
Exempt Bond Fund (the "Funds"), to include updated financial and other
disclosure in (i) the Statement of Additional Information and (ii) the
prospectuses which describe the Funds. As a result, the Amendment does not
affect any of the Registrant's other currently effective prospectuses, each of
which is hereby incorporated herein by reference as most recently filed pursuant
to Rule 497 under the Securities Act of 1933, as amended.
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
The Pierpont Tax Exempt Money Market Fund
6 St. James Avenue
Boston, Massachusetts 02116
For information call (800) 521-5411
The Pierpont Tax Exempt Money Market Fund (the "Fund") seeks to provide a high
level of current income exempt from federal income tax and maintain a high level
of liquidity. It is designed for investors who seek current income exempt from
federal income tax, stability of capital and liquidity.
The Fund is a diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The Pierpont
Funds, an open-end management investment company organized as a Massachusetts
business trust (the "Trust").
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO
OF SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING
ALL OF ITS INVESTABLE ASSETS IN THE TAX EXEMPT MONEY MARKET PORTFOLIO (THE
"PORTFOLIO"), A CORRESPONDING DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT COMPANY
HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND INVESTS IN THE
PORTFOLIO THROUGH SIGNATURE FINANCIAL GROUP, INC.'S HUB AND
SPOKE-REGISTERED TRADEMARK- FINANCIAL SERVICES METHOD. THE HUB AND
SPOKE-REGISTERED TRADEMARK- INVESTMENT FUND STRUCTURE EMPLOYS A TWO-TIER MASTER
FEEDER STRUCTURE AND IS A REGISTERED SERVICE MARK OF SIGNATURE FINANCIAL GROUP,
INC. SEE SPECIAL INFORMATION CONCERNING HUB AND SPOKE-REGISTERED TRADEMARK- ON
PAGE 4.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or "Advisor").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and it should be retained
for future reference. Additional information about the Fund has been filed with
the Securities and Exchange Commission in a Statement of Additional Information
dated December 29, 1995 (as supplemented from time to time). This information is
incorporated herein by reference and is available without charge upon written
request from the Fund's Distributor, Signature Broker-Dealer Services, Inc., 6
St. James Avenue, Boston, Massachusetts 02116, Attention: The Pierpont Funds, or
by calling (800) 847-9487.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK. SHARES
OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE
HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR. ALTHOUGH
THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, THERE
CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO CONTINUE TO DO SO.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER 29, 1995.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
Investors for Whom the Fund Is Designed................ 1
Financial Highlights................................... 3
Special Information Concerning Hub and
Spoke-Registered Trademark-............................ 4
Investment Objective and Policies...................... 5
Additional Investment Information and Risk
Factors.............................................. 6
Investment Restrictions................................ 8
Management of the Trust and the Portfolio.............. 9
Shareholder Servicing.................................. 11
Page
Purchase of Shares..................................... 12
Redemption of Shares................................... 13
Exchange of Shares..................................... 14
Dividends and Distributions............................ 14
Net Asset Value........................................ 14
Organization........................................... 15
Taxes.................................................. 15
Additional Information................................. 17
</TABLE>
<PAGE>
The Pierpont Tax Exempt Money Market Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed for investors who seek current income exempt from federal
income tax, stability of capital and liquidity. See Taxes. The Fund seeks to
achieve its investment objective by investing all of its investable assets in
The Tax Exempt Money Market Portfolio, a diversified open-end management
investment company having the same investment objective as the Fund. Since the
investment characteristics and experience of the Fund will correspond directly
with those of the Portfolio, the discussion in this Prospectus focuses on the
investments and investment policies of the Portfolio.
THE PIERPONT TAX EXEMPT MONEY MARKET FUND SEEKS TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO
CONTINUE TO DO SO.
The Fund requires a minimum initial investment of $25,000, except that the
minimum initial investment is $10,000 for shareholders of another Pierpont Fund.
See Purchase of Shares. The minimum subsequent investment is $5,000. If a
shareholder reduces his or her total investment in shares of the Fund to less
than $10,000 minimum investment, the investment will be subject to mandatory
redemption. See Redemption of Shares--Mandatory Redemption by the Fund.
This Prospectus describes the financial history, investment objective and
policies, management and operation of the Fund to enable investors to decide if
the Fund suits their needs. The Fund operates through Signature Financial Group,
Inc.'s ("Signature") Hub and Spoke-Registered Trademark- financial services
method. The Trustees believe that the Fund may achieve economies of scale over
time by investing through the Hub and Spoke-Registered Trademark- structure.
The following table illustrates that investors in the Fund incur no shareholder
transaction expenses; their investment in the Fund is subject only to the
operating expenses set forth below for the Fund and the Portfolio, as a
percentage of average net assets of the Fund. The Trustees of the Trust believe
that the aggregate per share expenses of the Fund and the Portfolio will be
approximately equal to and may be less than the expenses that the Fund would
incur if it retained the services of an investment adviser and invested its
assets directly in portfolio securities. Fund and Portfolio expenses are
discussed below under the headings Management of the Trust and the Portfolio and
Shareholder Servicing.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases............................................................. None
Sales Load Imposed on Reinvested Dividends.................................................. None
Deferred Sales Load......................................................................... None
Redemption Fees............................................................................. None
Exchange Fees............................................................................... None
</TABLE>
1
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees............................................................................. 0.17%
Rule 12b-1 Fees........................................................................... None
Other Expenses............................................................................ 0.31%
---------
Total Operating Expenses.................................................................. 0.48%
</TABLE>
* Fees and expenses are expressed as a percentage of the Fund's estimated
average daily net assets for its current fiscal year and reflect the fact that
no expense reimbursement arrangements are currently applicable. For actual
historical expense information, see Financial Highlights. See also Management of
the Trust and the Portfolio.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year....................................................................................... $ 5
3 Years...................................................................................... $ 15
5 Years...................................................................................... $ 27
10 Years..................................................................................... $ 60
</TABLE>
The above expense table is designed to assist investors in understanding the
various direct and indirect costs and expenses that investors in the Fund bear.
The fees and expenses included in Other Expenses are the fees paid to Morgan
under the Administrative Services and the Shareholder Servicing Agreements,
organizational expenses, the fees paid Pierpont Group, Inc. under the Fund
Services Agreements, the fees paid to SBDS under the Administration Agreements,
the fees paid to State Street Bank and Trust Company as custodian and transfer
agent, and other usual and customary expenses of the Fund and the Portfolio. For
a more detailed description of contractual fee arrangements, see Management of
the Trust and the Portfolio and Shareholder Servicing. In connection with the
above Example, please note that $1,000 is less than the Fund's minimum
investment requirement and that there are no redemption or exchange fees of any
kind. See Purchase of Shares and Redemption of Shares. THE EXAMPLE IS
HYPOTHETICAL; IT IS INCLUDED SOLELY FOR ILLUSTRATIVE PURPOSES. IT SHOULD NOT BE
CONSIDERED A REPRESENTATION OF FUTURE PERFORMANCE; ACTUAL EXPENSES MAY BE MORE
OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following selected data for a share outstanding for the indicated periods
have been audited by independent accountants. The Fund's annual report, which is
incorporated by reference into the Statement of Additional Information, includes
a discussion of those factors, strategies and techniques that materially
affected its performance during the period of the report, as well as certain
related information. A copy of the Fund's annual report will be made available
without charge upon request.
<TABLE>
<CAPTION>
For the fiscal year ended August 31
---------------------------------------------------------------------
1995 1994 1993 (1) 1992 1991
------------- ------------- --------- -------- --------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------- ------------- --------- -------- --------------
Income from Investment Operations:
Net Investment Income................. 0.0336 0.0212 0.0214 0.0317 0.0460
Net Realized Gain (Loss) on
Investment........................... (0.0002) (0.0000)(a) 0.0001 0.0002 (0.0000)(a)
------------- ------------- --------- -------- --------------
Total from Investment Operations........ 0.0334 0.0212 0.0215 0.0319 0.0460
------------- ------------- --------- -------- --------------
Less Distributions:
Dividends from Net Investment
Income............................... (0.0336) (0.0212) (0.0214) (0.0317) (0.0460)
Distributions from Net Realized
Gains................................ -- (0.0000)(a) (0.0002) -0- -0-
------------- ------------- --------- -------- --------------
Total Distributions..................... (0.0336) (0.0212) (0.0216) (0.0317) (0.0460)
------------- ------------- --------- -------- --------------
Net Asset Value, End of Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------- ------------- --------- -------- --------------
------------- ------------- --------- -------- --------------
Total Return............................ 3.41% 2.14% 2.15% 3.19% 4.60%
Ratios and Supplemental Data:
Net Assets, End of Period (In
Thousands)........................... $985,069 $973,599 $1,007,330 $922,358 $877,422
Ratio to Average Net Assets:
Expenses............................ 0.51% 0.52% 0.52% 0.53% 0.55%
Net Investment Income............... 3.35% 2.10% 2.14% 3.16% 4.60%
Decrease Reflected in Above Expense
Ratio due to Expense
Reimbursements..................... 0.00%(b) 0.01% 0.01% 0.01% 0.01%
<CAPTION>
1990 1989 1988 1987 1986
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- --------- --------- --------- ---------
Income from Investment Operations:
Net Investment Income................. 0.0550 0.0581 0.0455 0.0387 0.0460
Net Realized Gain (Loss) on
Investment........................... -0- 0.0001 0.0001 0.0005 0.0001
---------- --------- --------- --------- ---------
Total from Investment Operations........ 0.0550 0.0582 0.0456 0.0392 0.0461
---------- --------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment
Income............................... (0.0550) (0.0581) (0.0455) (0.0387) (0.0460)
Distributions from Net Realized
Gains................................ -0- (0.0001) (0.0001) (0.0005) (0.0001)
---------- --------- --------- --------- ---------
Total Distributions..................... (0.0550) (0.0582) (0.0456) (0.0392) (0.0461)
---------- --------- --------- --------- ---------
Net Asset Value, End of Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Total Return............................ 5.50% 5.82% 4.56% 3.92% 4.61%
Ratios and Supplemental Data:
Net Assets, End of Period (In
Thousands)........................... $903,157 $876,051 $895,596 $980,544 $868,028
Ratio to Average Net Assets:
Expenses............................ 0.57% 0.53% 0.55% 0.56% 0.61%
Net Investment Income............... 5.51% 5.79% 4.54% 3.88% 4.59%
Decrease Reflected in Above Expense
Ratio due to Expense
Reimbursements..................... -- -- -- -- --
</TABLE>
- ------------
(1) In July, 1993 the Fund's predecessor contributed all of its investable
assets to The Tax Exempt Money Market Portfolio.
(a) Less than $0.0001 per share.
(b) Less than 0.01%.
3
<PAGE>
SPECIAL INFORMATION CONCERNING HUB AND SPOKE-REGISTERED TRADEMARK-
The Trust and the Portfolio use certain proprietary rights, know-how and
financial services referred to as Hub and Spoke-Registered Trademark-. Hub and
Spoke-Registered Trademark- is a registered service mark of Signature. Signature
Broker-Dealer Services, Inc., (the Trust's and the Portfolio's Administrator and
the Trust's Distributor) is a wholly-owned subsidiary of Signature.
Unlike other mutual funds which directly acquire and manage their own portfolio
of securities, the Fund is an open-end management investment company which seeks
to achieve its investment objective by investing all of its investable assets in
the Portfolio, a separate registered investment company with the same investment
objective as the Fund. The investment objective of the Fund or Portfolio may be
changed only with the approval of the holders of the outstanding shares of the
Fund and the Portfolio. The use of Hub and Spoke-Registered Trademark- has been
approved by the shareholders of the Fund. The Hub and
Spoke-Registered Trademark- investment fund structure has been developed
relatively recently, so shareholders should carefully consider this investment
approach.
In addition to selling a beneficial interest to the Fund, the Portfolio may sell
beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Fund. Such different pricing structures may
result in differences in returns experienced by investors in other funds that
invest in the Portfolio. Such differences in returns are not uncommon and are
present in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from the Administrator at (800)
847-9487.
The Trust may withdraw the investment of the Fund from the Portfolio at any time
if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described below with respect to the Portfolio.
Certain changes in the Portfolio's investment objective, policies or
restrictions, or a failure by the Fund's shareholders to approve a change in the
Portfolio's investment objective or restrictions, may require withdrawal of the
Fund's interest in the Portfolio. Any such withdrawal could result in a
distribution in kind of portfolio securities (as opposed to a cash distribution)
from the Portfolio which may or may not be readily marketable. The distribution
in kind may result in the Fund having a less diversified portfolio of
investments or adversely affect the Fund's liquidity, and the Fund could incur
brokerage, tax or other charges in converting the securities to cash.
Notwithstanding the above, there are other means for meeting shareholder
redemption requests, such as borrowing.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, because the Portfolio would become smaller, it may become less
diversified, resulting in potentially increased portfolio risk (however, these
possibilities also exist for traditionally structured funds which have large or
institutional investors who may withdraw from a fund). Also, funds with a
greater pro rata ownership in the Portfolio could have effective voting control
of the operations of the Portfolio. Whenever the Fund is requested to vote on
matters pertaining to the Portfolio (other than a vote by the Fund to continue
the operation of the Portfolio upon the withdrawal of another investor in the
Portfolio), the Trust will hold a meeting of shareholders of the Fund and will
cast all of its votes
4
<PAGE>
proportionately as instructed by the Fund's shareholders. The Trust will vote
the shares held by Fund shareholders who do not give voting instructions in the
same proportion as the shares of Fund shareholders who do give voting
instructions. Shareholders of the Fund who do not vote will have no effect on
the outcome of such matters.
For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Additional Investment
Information and Risk Factors and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment
Restrictions.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and the Portfolio is described below,
together with the policies they employ in their efforts to achieve this
objective. Additional information about the investment policies of the Fund and
the Portfolio appears in the Statement of Additional Information under
Investment Objectives and Policies. There can be no assurance that the
investment objective of the Fund or the Portfolio will be achieved.
The Fund's investment objective is to provide a high level of current income
that is exempt from federal income tax and maintain a high level of liquidity.
The Fund is designed for investors who seek current income exempt from federal
income tax, stability of capital and liquidity. See Taxes. The Fund attempts to
achieve its objective by investing all of its investable assets in The Tax
Exempt Money Market Portfolio, a 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 the following municipal securities which earn interest exempt from
federal income tax in the opinion of bond counsel for the issuer and which have
effective maturities not greater than thirteen months and by maintaining a
dollar-weighted average portfolio maturity of not more than 90 days. During
normal market conditions, the Portfolio will invest at least 80% of its net
assets in tax exempt obligations. Interest on these securities may be subject to
state and local taxes. For more detailed information regarding tax matters,
including the applicability of the alternative minimum tax, see Taxes.
MUNICIPAL BONDS. The Portfolio may invest in bonds issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies, authorities and
instrumentalities. These obligations may be general obligation bonds secured by
the issuer's pledge of its full faith, credit and taxing power for the payment
of principal and interest, or they may be revenue bonds payable from specific
revenue sources, but not generally backed by the issuer's taxing power. These
include industrial development bonds where payment is the responsibility of the
private industrial user of the facility financed by the bonds. The Portfolio may
invest more than 25% of its assets in industrial development bonds, but may not
invest more than 25% of its assets in these bonds in projects of similar type or
in the same state.
MUNICIPAL NOTES. The Portfolio may also invest in municipal notes of various
types, including notes issued in anticipation of receipt of taxes, the proceeds
of the sale of bonds, other revenues or grant proceeds, as well as municipal
commercial paper and municipal demand obligations such as variable rate demand
notes and master demand obligations. The interest rate on variable rate demand
notes is adjustable at periodic intervals as specified in the notes. Master
demand obligations permit the investment of fluctuating amounts at periodically
adjusted interest rates. They are governed by agreements between the municipal
issuer and Morgan acting as agent, for no additional
5
<PAGE>
fee, in its capacity as Advisor to the Portfolio and as fiduciary for other
clients. Although master demand obligations are not marketable to third parties,
the Portfolio considers them to be liquid because they are payable on demand.
There is no specific percentage limitation on these investments. For more
information about municipal notes, see Investment Objectives and Policies in the
Statement of Additional Information.
QUALITY INFORMATION. The Portfolio will limit its investments to those
securities which, in accordance with guidelines adopted by the Trustees, present
minimal credit risks. In addition, the Portfolio will not purchase any municipal
obligation unless (i) it is rated with the highest rating assigned to short-term
debt securities (or, in the case of New York State municipal notes, with one of
the two highest ratings assigned to short-term debt securities) by at least two
nationally recognized statistical rating organizations such as Moody's and
Standard & Poor's, (ii) it is rated by only one agency with such rating, or
(iii) it is not rated and is determined to be of comparable quality.
Determinations of comparable quality shall be made in accordance with procedures
established by the Trustees. For a more detailed discussion of applicable
quality requirements, see Investment Objectives and Policies in the Statement of
Additional Information. These standards must be satisfied at the time an
investment is made. If the quality of the investment later declines below the
quality required for purchase, the Portfolio shall dispose of the investment,
subject in certain circumstances to a finding by the Trustees that disposing of
the investment would not be in the Portfolio's best interest. The credit quality
of variable rate demand notes and other municipal obligations is frequently
enhanced by various 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 Portfolio may also invest up to 20% of the value of its total assets in
taxable securities and may purchase municipal obligations together with puts. In
addition, the Portfolio may purchase municipal obligations on a when-issued or
delayed delivery basis, enter into repurchase and reverse repurchase agreements,
loan its portfolio securities and purchase synthetic variable rate instruments.
For a discussion of these transactions, see Additional Investment Information
and Risk Factors.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and for fixed income securities no interest
accrues to the Portfolio until settlement. At the time of settlement a
when-issued security may be valued at less than its purchase price. The
Portfolio maintains with the Custodian a separate account with a segregated
portfolio of securities in an amount at least equal to these commitments. When
entering into a when-issued or delayed delivery transaction, the Portfolio will
rely on the other party to consummate the transaction; if the other party fails
to do so, the Portfolio may be disadvantaged. It is the current policy of the
Portfolio not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions with brokers, dealers or banks that meet the credit guidelines
established by the Portfolio's Trustees. In a repurchase agreement, the
Portfolio buys a security from a seller that has agreed to repurchase it at a
mutually agreed upon date and price, reflecting the interest rate effective for
the term of the agreement. The term of these agreements is usually from
overnight to one week. A repurchase agreement may be viewed as a fully
collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities as collateral with a market value at least equal to
the purchase price plus accrued interest and this value is maintained during the
term of the agreement. If the seller
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<PAGE>
defaults and the collateral value declines, the Portfolio might incur a loss. If
bankruptcy proceedings are commenced with respect to the seller, the Portfolio's
realization upon the disposition of collateral may be delayed or limited.
Investments in certain repurchase agreements and certain other investments which
may be considered illiquid are limited. See Illiquid Investments; Privately
Placed and other Unregistered Securities below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in an amount up to 33 1/3% of
the value of the Portfolio's net assets. The Portfolio may lend its 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 Portfolio in the normal
settlement time, generally three business days after notice, or by the borrower
on one day's notice. Borrowed securities must be returned when the loan is
terminated. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the Portfolio and its
respective investors. The Portfolio may pay reasonable finders' and custodial
fees in connection with a loan. In addition, the Portfolio will consider all
facts and circumstances, including the creditworthiness of the borrowing
financial institution, and the Portfolio will not make any loans in excess of
one year. The Portfolio will not lend its securities to any officer, Trustee,
Director, employee or other affiliate of the Portfolio, the Advisor or the
Distributor, unless otherwise permitted by applicable law.
REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase it at a mutually agreed upon date and price,
reflecting the interest rate effective for the term of the agreement. For
purposes of the Investment Company Act of 1940, as amended (the "1940 Act"), it
is considered a form of borrowing by the Portfolio and, therefore, is a form of
leverage. Leverage may cause any gains or losses of the Portfolio to be
magnified. For more information, see Investment Objectives and Policies in the
Statement of Additional Information.
TAXABLE INVESTMENTS. The Portfolio attempts to invest its assets in tax exempt
municipal securities; however, the Portfolio is permitted to invest up to 20% of
the value of its total assets in securities, the interest income on which may be
subject to federal, state or local income taxes. The Portfolio may make taxable
investments pending investment of proceeds from sales of its interests or
portfolio securities, pending settlement of purchases of portfolio securities,
to maintain liquidity or when it is advisable in Morgan's opinion because of
adverse market conditions. The Portfolio will invest in taxable securities only
if there are no tax exempt securities available for purchase or if the after tax
yield from an investment in taxable securities exceeds the yield on available
tax exempt securities. The taxable investments permitted for the Portfolio
include obligations of the U.S. Government and its agencies and
instrumentalities, bank obligations, commercial paper and repurchase agreements.
PUTS. The Portfolio may purchase without limit municipal bonds or notes together
with the right to resell them at an agreed price or yield within a specified
period prior to maturity. This right to resell is known as a put. The aggregate
price paid for securities with puts may be higher than the price which otherwise
would be paid. Consistent with the investment objective of the Portfolio and
subject to the supervision of the Trustees, the purpose of this practice is to
permit the Portfolio to be fully invested in tax exempt securities while
maintaining the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large withdrawals and to purchase at a later date
securities other than those subject to the put. The principal risk of puts is
that the put writer may default on its obligation to repurchase. Morgan will
monitor each writer's ability to meet its obligations under puts.
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<PAGE>
The amortized cost method is used by the Portfolio to value all municipal
securities; no value is assigned to any puts.
SYNTHETIC VARIABLE RATE INSTRUMENTS. The Portfolio may invest in certain
synthetic variable rate instruments. Such instruments generally involve the
deposit of a long-term tax exempt bond in a custody or trust arrangement and the
creation of a mechanism to adjust the long-term interest rate on the bond to a
variable short-term rate and a right (subject to certain conditions) on the part
of the purchaser to tender it periodically to a third party at par. Morgan will
review the structure of synthetic variable rate instruments to identify credit
and liquidity risks (including the conditions under which the right to tender
the instrument would no longer be available) and will monitor those risks. In
the event that the right to tender the instrument is no longer available, the
risk to the Portfolio will be that of holding the long-term bond, which may
require the disposition of the bond which could be at a loss.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may not acquire any illiquid securities if, as a result thereof, more
than 10% of the market value of the Portfolio's net assets would be in illiquid
investments. Subject to this non-fundamental policy limitation, the Portfolio
may acquire investments that are illiquid or have limited liquidity, such as
private placements or investments that are not registered under the Securities
Act of 1933, as amended (the "1933 Act"), and cannot be offered for public sale
in the United States without first being registered under the 1933 Act. An
illiquid investment is any investment that cannot be disposed of within seven
days in the normal course of business at approximately the amount at which it is
valued by the Portfolio. The price the Portfolio pays for illiquid securities or
receives upon resale may be lower than the price paid or received for similar
securities with a more liquid market. Accordingly the valuation of these
securities will reflect any limitations on their liquidity.
The Portfolio may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's
implementation of these guidelines on a periodic basis.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio are
subject to the following fundamental limitations: (a) the Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except U.S. government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer.
The investment objective of the Fund and the Portfolio, together with the
investment restrictions described below and in the Statement of Additional
Information, except as noted, are deemed fundamental policies, i.e., they may be
changed only with the approval of the holders of a majority of the outstanding
voting securities of the Fund and the Portfolio. The Fund has the same
investment restrictions as the Portfolio, except that the Fund may invest all of
its investable assets in another open-end investment company with the same
investment objective and restrictions (such as the Portfolio). References below
to the Portfolio's investment restrictions also include the Fund's investment
restrictions.
The Portfolio may not (i) borrow money, except from banks for temporary,
extraordinary or emergency purposes and then only in amounts up to 10% of the
value of the Portfolio's total assets, taken at cost at the time of
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<PAGE>
borrowing, or purchase securities while borrowings exceed 5% of its total
assets; or mortgage, pledge or hypothecate any assets except in connection with
any such borrowings in amounts up to 10% of the value of the Portfolio's net
assets at the time of borrowing; or (ii) acquire industrial revenue bonds if as
a result more than 5% of the Portfolio's total assets would be invested in
industrial revenue bonds where payment of principal and interest is the
responsibility of companies with fewer than three years of operating history.
For a more detailed discussion of the above investment restrictions, as well as
a description of certain other investment restrictions, see Investment
Restrictions in the Statement of Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the
Portfolio, the Trustees decide upon matters of general policy and review the
actions of the Advisor and other service providers. The Trustees of the Trust
and of the Portfolio are identified below.
<TABLE>
<S> <C>
Frederick S. Addy.................................. Former Executive Vice President and Chief
Financial
Officer, Amoco Corporation
William G. Burns................................... Former Vice Chairman of the Board and Chief
Financial Officer, NYNEX Corporation
Arthur C. Eschenlauer.............................. Former Senior Vice President, Morgan Guaranty
Trust Company of New York
Matthew Healey..................................... Chairman and Chief Executive Officer;
Chairman,
Pierpont Group, Inc.
Michael P. Mallardi................................ Senior Vice President, Capital Cities/ABC,
Inc.,
President, Broadcast Group
</TABLE>
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, the Portfolio and
The JPM Institutional Funds, up to and including creating a separate board of
trustees. See Trustees and Officers in the Statement of Additional Information
for more information about the Trustees and Officers of the Fund and the
Portfolio.
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pierpont
Group, Inc. in providing these services. Pierpont Group, Inc. was organized in
1989 at the request of the Trustees of The Pierpont Family of Funds for the
purpose of providing these services at cost to these funds. See Trustees and
Officers in the Statement of Additional Information. The principal offices of
Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017.
ADVISOR. The Fund has not retained the services of an investment adviser because
the Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. The Portfolio has retained the services of
Morgan as Investment Advisor. Morgan, with principal offices at 60 Wall Street,
New York, New York 10260, is a New York trust company which conducts a general
banking and trust business. Morgan is a wholly owned subsidiary of J.P. Morgan &
Co. Incorporated ("J.P. Morgan"), a bank holding company organized under the
laws
9
<PAGE>
of Delaware. Through offices in New York City and abroad, J.P. Morgan, through
the Advisor and other subsidiaries, offers a wide range of services to
governmental, institutional, corporate and individual customers and acts as
investment adviser to individual and institutional clients with combined assets
under management of over $165 billion (of which the Advisor advises over $26
billion). Morgan provides investment advice and portfolio management services to
the Portfolio. Subject to the supervision of the Portfolio's Trustees, Morgan
makes the Portfolio's day-to-day investment decisions, arranges for the
execution of portfolio transactions and generally manages the Portfolio's
investments. See Investment Advisor in the Statement of Additional Information.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio (the inception date of
each person's responsibility for the Portfolio and her or his business
experience for the past five years is indicated parenthetically): Daniel B.
Mulvey, Vice President (since August, 1995, employed by Morgan since prior to
1991) and Elizabeth A. Augustin, Vice President (since January, 1992, employed
by Morgan since prior to 1991).
As compensation for the services rendered and related expenses borne by Morgan
under the Investment Advisory Agreement with the Portfolio, the Portfolio has
agreed to pay Morgan a fee, which is computed daily and may be paid monthly, at
the annual rate of 0.20% of the Portfolio's average daily net assets up to $1
billion, and 0.10% of average daily net assets in excess of $1 billion.
Under separate agreements, Morgan also provides financial, fund accounting and
administrative services to the Fund and the Portfolio and shareholder services
to shareholders of the Fund. See Administrative Services Agent and Shareholder
Servicing below. INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY
OTHER BANK.
ADMINISTRATOR AND DISTRIBUTOR. Under Administration Agreements with the Trust
and the Portfolio, Signature Broker-Dealer Services, Inc. ("SBDS") serves as the
Administrator for the Trust and the Portfolio. In this capacity, SBDS
administers and manages all aspects of the Fund's and the Portfolio's day-to-day
operations subject to the supervision of the Trustees, except as set forth under
Advisor, Administrative Services Agent, Custodian and Shareholder Servicing. In
connection with its responsibilities as Administrator, SBDS (i) furnishes
ordinary clerical and related services for day-to-day operations including
certain recordkeeping responsibilities; (ii) takes responsibility for compliance
with all applicable federal and state securities and other regulatory
requirements; (iii) is responsible for the registration of sufficient Fund
shares under federal and state securities laws; (iv) takes responsibility for
monitoring the Fund's status as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"); and (v) performs such
administrative and managerial oversight of the activities of the Trust's and the
Portfolio's custodian and transfer agent as the Trustees may direct from time to
time.
Under the Trust's and the Portfolio's Administration Agreements with SBDS, each
of the Fund and the Portfolio has agreed to pay SBDS a fee equal to its
proportionate share of an annual complex-wide charge. This charge is calculated
daily based on the aggregate net assets of the Portfolio and the other
portfolios (collectively the "Master Portfolios") in which series of the Trust,
The JPM Institutional Funds or The JPM Advisor Funds invest. This charge is
calculated in accordance with the following annual schedule: 0.03% on the first
$7 billion of the Master Portfolios' aggregate average daily net assets, and
0.01% of the Master Portfolios' aggregate average daily net assets in excess of
$7 billion. The portion of this charge payable by the Fund or the Portfolio is
determined by the proportionate share that its net assets bear to the total net
assets of the Trust, The JPM Institutional Funds, The JPM Advisor Funds and the
Master Portfolios.
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<PAGE>
SBDS, a registered broker-dealer, also serves as the Distributor of shares of
the Fund and exclusive placement agent for the Portfolio. SBDS is a wholly-owned
subsidiary of Signature. Signature and its affiliates currently provide
administration and distribution services for a number of registered investment
companies through offices located in Boston, New York, London, Toronto and
George Town, Grand Cayman.
ADMINISTRATIVE SERVICES AGENT. Under Administrative Services Agreements with the
Trust and the Portfolio, Morgan is responsible for certain financial, fund
accounting and administrative services provided to the Fund and the Portfolio,
including services related to Portfolio and Fund tax returns, Portfolio and Fund
financial reports, computing Fund dividends and net asset value per share and
keeping the Fund's books of account. Under these agreements, each of the Fund
and the Portfolio has agreed to pay Morgan a fee equal to its proportionate
share of an annual complex-wide charge. This charge is calculated daily based on
the aggregate net assets of the Master Portfolios in accordance with the
following annual schedule: 0.06% on the first $7 billion of the Master
Portfolios' aggregate average daily net assets, and 0.03% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion. The
portion of this charge payable by the Fund or the Portfolio is determined by the
proportionate share that its net assets bear to the total net assets of the
Trust, The JPM Institutional Funds, The JPM Advisor Funds, the Master Portfolios
and other investors in the Master Portfolios for which Morgan provides similar
services.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02101, serves as the Fund's and the Portfolio's Custodian and
Transfer and Dividend Disbursing Agent.
EXPENSES. In addition to the fees payable to Morgan, SBDS and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor,
Administrator and Distributor and Administrative Services Agent above and
Shareholder Servicing below, the Fund and the Portfolio are responsible for
usual and customary expenses associated with their respective operations. Such
expenses include organization expenses, legal fees, accounting expenses,
insurance costs, the compensation and expenses of the Trustees, registration
fees under federal securities laws, and extraordinary expenses applicable to the
Fund or the Portfolio. For the Fund, such expenses also include transfer,
registrar and dividend disbursing costs, the expenses of printing and mailing
reports, notices and proxy statements to Fund shareholders, and registration
fees under state securities laws. For the Portfolio, such expenses also include
custodian fees and brokerage expenses.
Morgan has agreed to waive fees as necessary if in any fiscal year the sum of
the Fund's expenses exceeds the limits set by applicable regulations of state
securities commissions. Such annual limits are currently 2.5% of the first $30
million of average net assets, 2% of the next $70 million of such net assets and
1.5% of such net assets in excess of $100 million for any fiscal year.
SHAREHOLDER SERVICING
The Fund has entered into a Shareholder Servicing Agreement with Morgan pursuant
to which Morgan acts as shareholder servicing agent for its customers and other
Fund investors who are customers of an eligible institution which is a customer
of Morgan (an "Eligible Institution"). The Fund has agreed to pay Morgan for
these services at an annual rate (expressed as a percentage of the average daily
net asset values of Fund shares owned by or for shareholders for whom Morgan is
acting as shareholder servicing agent) of 0.15% of the Fund's average daily net
assets up to $2 billion and 0.10% of average daily net assets in excess of $2
billion. Under the terms of the Shareholder Servicing Agreement with the Fund,
Morgan may delegate one or more of its responsibilities to other entities at
Morgan's expense.
11
<PAGE>
Shareholders should address all inquiries to J.P. Morgan Funds Services, Morgan
Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York 10036
or call (800) 521-5411.
The business days of the Fund and the Portfolio are the days the New York Stock
Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
as shareholder servicing agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Fund's
Distributor. Investors must be customers of Morgan or an Eligible Institution.
Investors may also be employer-sponsored retirement plans that have designated
the Fund as an investment option for the plans. Prospective investors who are
not already customers of Morgan may apply to become customers of Morgan for the
sole purpose of Fund transactions. There are no charges associated with becoming
a Morgan customer for this purpose. Morgan reserves the right to determine the
customers that it will accept, and the Fund reserves the right to determine the
purchase orders that it will accept.
The Fund requires a minimum initial investment of $25,000, except that the
minimum initial investment is $10,000 for shareholders of another Pierpont Fund
and, under current policy, for former shareholders of The Pierpont Family of
Funds. The minimum subsequent investment for all investors is $5,000. These
minimum investment requirements may be waived for certain retirement plans or
for accounts for the benefit of minors. For purposes of minimum investment
requirements, the Fund may aggregate investments by related shareholders.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value per share next determined after
receipt of an order. Prospective investors may purchase shares with the
assistance of an Eligible Institution that may establish its own terms,
conditions and charges.
To purchase shares in the Fund, investors should request their Morgan
representative (or a representative of their Eligible Institution) to assist
them in placing a purchase order with the Fund's Distributor and to transfer
immediately available funds to the Fund's Distributor on the same day. Any
shareholder may also call J.P. Morgan Funds Services at (800) 521-5411 for
assistance in placing an order for Fund shares. Immediately available funds must
be received by 11:00 A.M. New York time on a business day for the purchase to be
effective and dividends to be earned on the same day. The Fund does not accept
orders after the indicated time. If funds are received after 11 A.M. New York
time for any reason, including that the day is a Federal Reserve holiday, the
purchase is not effective and dividends are not earned until the next business
day.
ELIGIBLE INSTITUTIONS. The services provided by Eligible Institutions may
include establishing and maintaining shareholder accounts, processing purchase
and redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the Eligible Institution, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as Morgan or the
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<PAGE>
Eligible Institution's clients may reasonably request and agree upon with the
Eligible Institution. Eligible Institutions may separately establish their own
terms, conditions and charges for providing the aforementioned services and for
providing other services.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
Morgan or his or her Eligible Institution, as appropriate, to submit a
redemption request to the Fund or may telephone J.P. Morgan Funds Services
directly at (800) 521-5411 and give the Shareholder Service Representative a
preassigned shareholder Personal Identification Number and the amount of the
redemption. The Fund executes effective redemption requests at the next
determined net asset value per share. See Net Asset Value. See Additional
Information below for an explanation of the telephone redemption policy of The
Pierpont Funds.
A redemption request received on a business day prior to 11:00 A.M. New York
time is effective on that day. A redemption request received after that time
becomes effective on the next day. Proceeds of an effective redemption are
generally deposited the same day in immediately available funds to the
shareholder's account at Morgan or at his Eligible Institution or, in the case
of certain Morgan customers, are mailed by check or wire transferred in
accordance with the customer's instructions. If a redemption request becomes
effective on a day when the New York Stock Exchange is open but which is a
Federal Reserve holiday, the proceeds are paid the next business day. See
Further Redemption Information.
MANDATORY REDEMPTION BY THE FUND. If the value of a shareholder's holdings in
the Fund falls below $10,000 because of a redemption of shares, the
shareholder's remaining shares may be redeemed by the Fund 60 days after written
notice to the shareholder unless the account is increased to $10,000 or more.
For example, a shareholder whose initial and only investment is $10,000 may be
subject to mandatory redemption resulting from any redemption that causes his or
her investment to fall below $10,000.
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions from
the Fund may not be processed if a redemption request is not submitted in proper
form. To be in proper form, the Fund must have received the shareholder's
taxpayer identification number and address. As discussed under Taxes below, the
Fund may be required to impose "back-up" withholding of federal income tax on
dividends, distributions and redemption proceeds when non-corporate investors
have not provided a certified taxpayer identification number. In addition, if a
shareholder sends a check for the purchase of Fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days.
The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other
periods as the 1940 Act or the Securities and Exchange Commission may permit.
See Redemption of Shares in the Statement of Additional Information.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other Pierpont Fund or
JPM Institutional Fund without charge. An exchange may be made so long as after
the exchange the investor has shares, in each fund in which he or she remains an
investor, with a value of at least each of those fund's minimum investment
amounts. See Method of Purchase in the prospectuses for the other Pierpont Funds
and The JPM Institutional Funds for the
13
<PAGE>
minimum investment amount for each of those funds. Shares are exchanged on the
basis of relative net asset value per share. Exchanges are in effect redemptions
from one fund and purchases of another fund and the usual purchase and
redemption procedures and requirements are applicable to exchanges. See Purchase
of Shares and Redemption of Shares in this Prospectus and in the prospectuses
for the other Pierpont Funds and The JPM Institutional Funds. See also
Additional Information below for an explanation of the telephone exchange policy
of The Pierpont Funds.
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income tax
purposes. The Fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state
securities laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
All of the Fund's net investment income is declared as a dividend daily and paid
monthly. If an investor's shares are redeemed during a month, accrued but unpaid
dividends are paid with the redemption proceeds. The net investment income of
the Fund for dividend purposes consists of its pro rata share of the net income
of the Portfolio less the Fund's expenses. Dividends and distributions are
payable to shareholders of record at the time of declaration. The net investment
income of the Fund for each business day is determined immediately prior to the
determination of net asset value. Net investment income for other days is
determined at the time net asset value is determined on the prior business day.
Shares of the Fund earn dividends on the business day their purchase is
effective, but not on the business day their redemption is effective. See
Purchase of Shares and Redemption of Shares.
Substantially all the realized net capital gains, if any, of the Fund are
declared and paid on an annual basis, except that an additional capital gains
distribution may be made in a given year to the extent necessary to avoid the
imposition of federal excise tax on the Fund.
Dividends and capital gains distributions paid by the Fund are automatically
reinvested in additional shares of the Fund unless the shareholder has elected
to have them paid in cash. Dividends and distributions to be paid in cash are
credited to the shareholder's account at Morgan or at his Eligible Institution
or, in the case of certain Morgan customers, are mailed by check in accordance
with the customer's instructions. The Fund reserves the right to discontinue,
alter or limit the automatic reinvestment privilege at any time.
NET ASSET VALUE
Net asset value per share for the Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in the
Portfolio and other assets) the amount of its liabilities and dividing the
remainder by the number of its outstanding shares, rounded to the nearest cent.
Expenses, including the fees payable to Morgan, are accrued daily. The Portfolio
values all portfolio securities by the amortized cost method. This method
attempts to maintain for the Fund a constant net asset value per share of $1.00.
No assurances can be given that this goal can be attained. See Net Asset Value
in the Statement of Additional Information for more information on valuation of
portfolio securities for the Portfolio.
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<PAGE>
The Fund computes its net asset value once daily at 4:00 P.M. New York time on
Monday through Friday, except that the net asset value is not computed for the
Fund on a day in which no orders to purchase or redeem Fund shares have been
received or on the holidays listed under Net Asset Value in the Statement of
Additional Information.
ORGANIZATION
The Trust was organized on November 4, 1992 as an unincorporated business trust
under Massachusetts law and is an entity commonly known as a "Massachusetts
business trust". The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares ($0.001 par value) of one or more
series. To date twelve series of shares have been authorized and are available
for sale to the public. Only shares of the Fund are offered through this
Prospectus. No series of shares has any preference over any other series of
shares. See Massachusetts Trust in the Statement of Additional Information.
The Declaration of Trust for the Trust provides that no Trustee, shareholder,
officer, employee, or agent of the Fund shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the Fund, but
that the Trust property only shall be liable.
Shareholders of the Fund are entitled to one vote for each share and to the
appropriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and nonassessable by the Fund. The Trust has adopted a policy of not issuing
share certificates. The Trust does not intend 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 Declaration of
Trust. The Trustees will call a meeting of shareholders to vote on removal of a
Trustee upon the written request of the record holders of ten percent of Trust
shares and will assist shareholders in communicating with each other as
prescribed in Section 16(c) of the 1940 Act. For further organization
information, including certain shareholder rights, see Description of Shares in
the Statement of Additional Information.
The Portfolio in which all of the assets of the Fund are invested is organized
as a trust under the laws of the State of New York. The Portfolio's Declaration
of Trust provides that the Fund and other entities investing in the Portfolio
(e.g., other investment companies, insurance company separate accounts and
common and commingled trust funds) will each be liable for all obligations of
the Portfolio. However, the risk of the Fund incurring financial loss on account
of such liability is limited to circumstances in which both inadequate insurance
existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in the
Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are subject
to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to federal
taxes and with respect to the applicability of state or local taxes. See Taxes
in the Statement of Additional Information. Annual statements as to the current
federal tax status of distributions, if applicable, are mailed to shareholders
after the end of the taxable year for the Fund.
15
<PAGE>
The Trust intends to qualify the Fund as a separate regulated investment company
under Subchapter M of the Code. As a regulated investment company, the Fund
should not be subject to federal income taxes or federal excise taxes if all of
its net investment income and capital gains less any available capital loss
carryforwards are distributed to shareholders within allowable time limits. The
Portfolio intends to qualify as an association treated as a partnership for
federal income tax purposes. As such, the Portfolio should not be subject to
tax. The Fund's status as a regulated investment company is dependent on, among
other things, the Portfolio's continued qualification as a partnership for
federal income tax purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to non-corporate shareholders.
The Fund intends to qualify to pay exempt-interest dividends to its shareholders
by having, at the close of each quarter of its taxable year, at least 50% of the
value of its total assets consist of tax exempt securities. An exempt-interest
dividend is that part of dividend distributions made by the Fund which consists
of interest received by the Fund on tax exempt securities. Exempt-interest
dividends received from the Fund will be treated for federal income tax purposes
as tax exempt interest income. In view of the Fund's investment policies, it is
expected that a substantial portion of the Fund's dividends will be
exempt-interest dividends, although the Fund 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 Taxable Investments.
Interest on certain tax exempt municipal obligations issued after August 7, 1986
is a preference item for purposes of the alternative minimum tax applicable to
individuals and corporations. Under tax regulations to be issued, the portion of
an exempt-interest dividend of a regulated investment company that is allocable
to these obligations will be treated as a preference item for purposes of the
alternative minimum tax. The Fund has limited its investments to those
securities the interest on which will not be treated as preference items for
purposes of the alternative minimum tax in the opinion of bond counsel for the
issuer. The Fund currently has no intention of investing in obligations subject
to the alternative minimum tax under normal market conditions.
Corporations should, however, be aware that interest on all municipal securities
will be included in calculating (i) adjusted current earnings for purposes of
the alternative minimum tax applicable to them, (ii) the additional tax imposed
on certain corporations by the Superfund Revenue Act of 1986, and (iii) the
foreign branch profits tax imposed on effectively connected earnings and profits
of United States branches of foreign corporations. Furthermore, special tax
provisions may apply to certain financial institutions and property and casualty
insurance companies, and they should consult their tax advisors before
purchasing shares of the Fund.
Interest on indebtedness incurred or continued by a shareholder (whether a
corporation or an individual) to purchase or carry shares of the Fund is not
deductible. The Treasury has been given authority to issue regulations which
would disallow the interest deduction if incurred to purchase or carry shares of
the Fund owned by the taxpayer's spouse, minor child or entity controlled by the
taxpayer. Entities or persons who are "substantial users" (or related persons)
of facilities financed by tax exempt bonds should consult their tax advisors
before purchasing shares of the Fund.
Distributions of taxable net investment income and realized net short-term
capital gains in excess of net long-term capital losses are taxable as ordinary
income to shareholders of the Fund whether such distributions are taken in cash
or reinvested in additional shares. Distributions of this type to corporate
shareholders of the Fund are not eligible for the dividends-received deduction.
16
<PAGE>
Distributions of net long-term capital gains in excess of net short-term capital
losses are taxable to shareholders of the Fund as long-term capital gains
regardless of how long a shareholder has held shares in the Fund and regardless
of whether taken in cash or reinvested in additional shares. Long-term capital
gains distributions to corporate shareholders are not eligible for the
dividends-received deduction. The Fund does not expect to realize long-term
capital gains and thus does not contemplate paying distributions taxable to
shareholders who are subject to tax as long-term capital gains.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
such shares. In addition, any loss realized by a shareholder upon the redemption
or exchange of shares in the Fund held six months or less will be disallowed to
the extent of any exempt-interest dividends received by the shareholder with
respect to the shares. See Taxes in the Statement of Additional Information.
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The financial
statements appearing in annual reports are audited by independent accountants.
Shareholders also will be sent confirmations of each purchase and redemption and
monthly statements, reflecting all other account activity, including dividends
and any distributions reinvested in additional shares or credited as cash.
All shareholders are given the privilege to initiate transactions automatically
by telephone upon opening an account. However, an investor should be aware that
a transaction authorized by telephone and reasonably believed to be genuine by
the Fund, Morgan, his Eligible Institution or the Distributor may subject the
investor to risk of loss if such instruction is subsequently found not to be
genuine. The Fund will employ reasonable procedures, including requiring
investors to give their Personal Identification Number and tape recording of
telephone instructions, to confirm that instructions communicated from investors
by telephone are genuine; if it does not, the Fund, the Shareholder Servicing
Agent or a shareholder's Eligible Institution may be liable for any losses due
to unauthorized or fraudulent instructions.
The Fund may make historical performance information available and may compare
its performance to other investments or relevant indexes, including data from
Lipper Analytical Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson
Associates, Donoghue's Money Market and Tax Free Money Market fund averages and
other industry publications. The Fund may advertise "yield," "effective yield,"
and "tax equivalent yield". Yield refers to the net income generated by an
investment in the Fund over a stated seven-day period. This income is then
annualized--i.e., the amount of income generated by the investment during that
week is assumed to be generated each week over a 52-week period and is shown as
a percentage of the investment. Effective yield is calculated similarly to the
yield, but, when annualized, the income earned by an investment in the Fund is
assumed to be reinvested; the effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment. Tax
equivalent yield is calculated similarly to the yield for the Fund, except that
the yield is increased using a stated income tax rate to demonstrate the taxable
yield necessary to produce an after-tax equivalent to the Fund.
17
<PAGE>
The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of
operations, if less) assuming that all distributions and dividends by the Fund
were reinvested on the reinvestment dates during the period and less all
recurring fees. These methods of calculating yield and total return are required
by regulations of the Securities and Exchange Commission. Yield and total return
data similarly calculated, unless otherwise indicated, over other specified
periods of time may also be used. See Performance Data in the Statement of
Additional Information. All performance figures are based on historical earnings
and are not intended to indicate future performance. Performance information may
be obtained by calling the Fund's Distributor at (800) 847-9487.
18
<PAGE>
------------------------------------
The
Pierpont
Tax Exempt
Money Market
Fund
<TABLE>
<S> <C>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE
TRUST OR BY THE DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE TRUST
OR THE DISTRIBUTOR TO MAKE SUCH OFFER IN SUCH PROSPECTUS
JURISDICTION. DECEMBER 29, 1995
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
The Pierpont Tax Exempt Bond Fund
6 St. James Avenue
Boston, Massachusetts 02116
For information call (800) 521-5411
The Pierpont Tax Exempt Bond Fund (the "Fund") seeks to provide a high level of
current income exempt from federal income tax consistent with moderate risk of
capital and maintenance of liquidity. It is designed for investors who seek tax
exempt yields greater than those generally available from a portfolio of
short-term tax exempt obligations and who are willing to incur the greater price
fluctuation of longer-term instruments.
The Fund is a diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The Pierpont
Funds, an open-end management investment company organized as a Massachusetts
business trust (the "Trust").
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO
OF SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING
ALL OF ITS INVESTABLE ASSETS IN THE TAX EXEMPT BOND PORTFOLIO (THE "PORTFOLIO"),
A CORRESPONDING DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT COMPANY HAVING THE
SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND INVESTS IN THE PORTFOLIO THROUGH
SIGNATURE FINANCIAL GROUP, INC.'S HUB AND SPOKE-REGISTERED TRADEMARK- FINANCIAL
SERVICES METHOD. THE HUB AND SPOKE-REGISTERED TRADEMARK- INVESTMENT FUND
STRUCTURE EMPLOYS A TWO-TIER MASTER FEEDER STRUCTURE AND IS A REGISTERED SERVICE
MARK OF SIGNATURE FINANCIAL GROUP, INC. SEE SPECIAL INFORMATION CONCERNING HUB
AND SPOKE-REGISTERED TRADEMARK- ON PAGE 4.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or "Advisor").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and it should be retained
for future reference. Additional information about the Fund has been filed with
the Securities and Exchange Commission in a Statement of Additional Information
dated December 29, 1995 (as supplemented from time to time). This information is
incorporated herein by reference and is available without charge upon written
request from the Fund's Distributor, Signature Broker-Dealer Services, Inc., 6
St. James Avenue, Boston, Massachusetts 02116, Attention: The Pierpont Funds, or
by calling (800) 847-9487.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK. SHARES
OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE
HIGHER OR LOWER, THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER 29, 1995.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
Investors for Whom the Fund Is Designed................ 1
Financial Highlights................................... 3
Special Information Concerning Hub and
Spoke-Registered Trademark-............................ 4
Investment Objective and Policies...................... 5
Additional Investment Information and Risk
Factors.............................................. 7
Investment Restrictions................................ 9
Management of the Trust and Portfolio.................. 10
Shareholder Servicing.................................. 12
Page
Purchase of Shares..................................... 13
Redemption of Shares................................... 14
Exchange of Shares..................................... 15
Dividends and Distributions............................ 15
Net Asset Value........................................ 15
Organization........................................... 16
Taxes.................................................. 16
Additional Information................................. 18
Appendix............................................... 20
</TABLE>
<PAGE>
The Pierpont Tax Exempt Bond Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed for investors who seek tax exempt yields greater than those
generally available from a portfolio of short-term tax exempt obligations and
who are willing to incur the greater price fluctuation of longer-term
instruments. The Fund seeks to achieve its investment objective by investing all
of its investable assets in The Tax Exempt Bond Portfolio, a diversified
open-end management investment company having the same investment objective as
the Fund. Since the investment characteristics and experience of the Fund will
correspond directly with those of the Portfolio, the discussion in this
Prospectus focuses on the investments and investment policies of the Portfolio.
The net asset value of shares in the Fund fluctuates with changes in the value
of the investments in the Portfolio.
The Fund requires a minimum initial investment of $100,000, except that for
investors who were shareholders of a Pierpont Fund as of September 29, 1995, the
minimum initial investment is $10,000. Certain omnibus accounts require a
minimum initial investment of $250,000. See Purchase of Shares. The minimum
subsequent investment is $5,000. If a shareholder reduces his or her total
investment in shares of the Fund to less than the applicable minimum investment,
the investment will be subject to mandatory redemption. See Redemption of
Shares-- Mandatory Redemption by the Fund.
This Prospectus describes the financial history, investment objective and
policies, management and operation of the Fund to enable investors to decide if
the Fund suits their needs. The Fund operates through Signature Financial Group,
Inc.'s ("Signature") Hub and Spoke-Registered Trademark- financial services
method. The Trustees believe that the Fund may achieve economies of scale over
time by investing through the Hub and Spoke-Registered Trademark- structure.
The following table illustrates that investors in the Fund incur no shareholder
transaction expenses; their investment in the Fund is subject only to the
operating expenses set forth below for the Fund and the Portfolio, as a
percentage of average net assets of the Fund. The Trustees of the Trust believe
that the aggregate per share expenses of the Fund and the Portfolio will be
approximately equal to and may be less than the expenses that the Fund would
incur if it retained the services of an investment adviser and invested its
assets directly in portfolio securities. Fund and Portfolio expenses are
discussed below under the headings Management of the Trust and the Portfolio and
Shareholder Servicing.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases......................................... None
Sales Load Imposed on Reinvested Dividends.............................. None
Deferred Sales Load..................................................... None
Redemption Fees......................................................... None
Exchange Fees........................................................... None
</TABLE>
1
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees........................................................... 0.30%
Rule 12b-1 Fees......................................................... None
Other Expenses.......................................................... 0.40%
------
Total Operating Expenses................................................ 0.70%
</TABLE>
* Fees and expenses are expressed as a percentage of the Fund's estimated
average daily net assets for its current fiscal year and reflect the fact that
no expense reimbursement arrangements are currently applicable. For actual
historical expense information, see Financial Highlights. Also see Management of
the Trust and the Portfolio.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year.................................................................. $ 7
3 Years................................................................. $ 22
5 Years................................................................. $ 39
10 Years................................................................ $ 87
</TABLE>
The above expense table is designed to assist investors in understanding the
various direct and indirect costs and expenses that investors in the Fund bear.
The fees and expenses included in Other Expenses are the fees paid to Morgan
under the Administrative Services and the Shareholder Servicing Agreements,
organizational expenses, the fees paid to Pierpont Group, Inc. under the Fund
Services Agreements, the fees paid to SBDS under the Administration Agreements,
the fees paid to State Street Bank and Trust Company as custodian and transfer
agent, and other usual and customary expenses of the Fund and the Portfolio. For
a more detailed description of contractual fee arrangements, including expense
reimbursements, see Management of the Trust and the Portfolio and Shareholder
Servicing. In connection with the above example, please note that $1,000 is less
than the Fund's minimum investment requirement and that there are no redemption
or exchange fees of any kind. See Purchase of Shares and Redemption of Shares.
THE EXAMPLE IS HYPOTHETICAL; IT IS INCLUDED SOLELY FOR ILLUSTRATIVE PURPOSES. IT
SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE PERFORMANCE; ACTUAL EXPENSES
MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following selected data for a share outstanding for the indicated periods
have been audited by independent accountants. The Fund's annual report, which is
incorporated by reference into the Statement of Additional Information, includes
a discussion of those factors, strategies and techniques that materially
affected its performance during the period of the report, as well as certain
related information. A copy of the Fund's annual report will be made available
without charge upon request.
<TABLE>
<CAPTION>
For the fiscal year ended August 31
-----------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period............. $ 11.45 $ 12.04 $ 11.60 $ 11.19 $ 10.75 $ 10.85 $ 10.72 $ 10.84 $ 11.15 $ 10.30
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income from
Investment
Operations:
Net Investment
Income........... 0.55 0.51 0.55 0.62 0.68 0.70 0.71 0.71 0.69 0.75
Net Realized and
Unrealized Gain
(Loss) on
Investment....... 0.29 (0.35) 0.56 0.41 0.44 (0.10) 0.13 (0.12) (0.27) 0.92
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
Investment
Operations......... 0.84 0.16 1.11 1.03 1.12 0.60 0.84 0.59 0.42 1.67
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net
Investment
Income........... (0.55) (0.51) (0.55) (0.62) (0.68) (0.70) (0.71) (0.71) (0.69) (0.75)
Distributions from
Net Realized
Gains............ (0.01) (0.24) (0.12) -0- -0- -0- -0- -0- (0.04) (0.07)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
Distributions...... (0.56) (0.75) (0.67) (0.62) (0.68) (0.70) (0.71) (0.71) (0.73) (0.82)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End
of Period.......... $ 11.73 $ 11.45 $ 12.04 $ 11.60 $ 11.19 $ 10.75 $ 10.85 $ 10.72 $ 10.84 $ 11.15
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Return........ 7.63% 1.35% 9.88% 9.47% 10.67% 5.65% 8.11% 5.64% 3.43% 16.05%
Ratios and
Supplemental Data:
Net Assets, End of
Period (In
Thousands)....... $352,005 $392,460 $485,013 $360,343 $239,709 $151,755 $133,638 $118,066 $137,944 $125,475
Ratio to Average
Net Assets:
Expenses........ 0.71% 0.71% 0.74% 0.77% 0.78% 0.79% 0.80% 0.80% 0.80% 0.80%
Net Investment
Income......... 4.87% 4.39% 4.64% 5.45% 6.12% 6.43% 6.62% 6.62% 6.17% 6.94%
Decrease
Reflected in
the Above
Expense Ratio
due to Expense
Reimbursements... -- -- 0.01% 0.01% 0.02% 0.04% 0.06% 0.08% 0.05% 0.11%
Portfolio
Turnover......... -- -- 40.80%(a) 19.94% 16.39% 7.45% 10.19% 20.03% 51.77% 38.12%
</TABLE>
- ---------
(a) 1993 Portfolio Turnover reflects the period September 1, 1992 to July 11,
1993 and has not been annualized. In July, 1993, the Fund's predecessor
contributed all of its investable assets to The Tax Exempt Bond Portfolio.
3
<PAGE>
SPECIAL INFORMATION CONCERNING HUB AND SPOKE-REGISTERED TRADEMARK-
The Trust and the Portfolio use certain proprietary rights, know-how and
financial services referred to as Hub and Spoke-Registered Trademark-. Hub and
Spoke-Registered Trademark- is a registered service mark of Signature. Signature
Broker-Dealer Services, Inc. (the Trust's and the Portfolio's Administrator and
the Trust's Distributor) is a wholly owned subsidiary of Signature.
Unlike other mutual funds which directly acquire and manage their own portfolio
of securities, the Fund is an open-end management investment company which seeks
to achieve its investment objective by investing all of its investable assets in
the Portfolio, a separate registered investment company with the same investment
objective as the Fund. The investment objective of the Fund or Portfolio may be
changed only with the approval of the holders of the outstanding shares of the
Fund and the Portfolio. The use of Hub and Spoke-Registered Trademark- has been
approved by the shareholders of the Fund. The Hub and
Spoke-Registered Trademark- investment fund structure has been developed
relatively recently, so shareholders should carefully consider this investment
approach.
In addition to selling a beneficial interest to the Fund, the Portfolio may sell
beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
pay a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Fund. Such different pricing structures may
result in differences in returns experienced by investors in other funds that
invest in the Portfolio. Such differences in returns are not uncommon and are
present in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from the Administrator at (800)
847-9487.
The Trust may withdraw the investment of the Fund from the Portfolio at any time
if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described below with respect to the Portfolio.
Certain changes in the Portfolio's investment objective, policies or
restrictions, or a failure by the Fund's shareholders to approve a change in the
Portfolio's investment objective or restrictions, may require withdrawal of the
Fund's interest in the Portfolio. Any such withdrawal could result in a
distribution in kind of portfolio securities (as opposed to a cash distribution)
from the Portfolio which may or may not be readily marketable. The distribution
in kind may result in the Fund having a less diversified portfolio of
investments or adversely affect the Fund's liquidity, and the Fund could incur
brokerage, tax or other charges in converting the securities to cash.
Notwithstanding the above, there are other means for meeting shareholder
redemption requests, such as borrowing.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, because the Portfolio would become smaller, it may become less
diversified, resulting in potentially increased portfolio risk (however, these
possibilities also exist for traditionally structured funds which have large or
institutional investors who may withdraw from a fund). Also, funds with a
greater pro rata ownership in the Portfolio could have effective voting control
of the operations of the Portfolio. Whenever the Fund is requested to vote on
matters pertaining to the Portfolio (other than a vote by the Fund to continue
the operation of the Portfolio upon the withdrawal of another investor in the
Portfolio), the Trust will hold a meeting of shareholders of the Fund and will
cast all of its votes
4
<PAGE>
proportionately as instructed by the Fund's shareholders. The Trust will vote
the shares held by Fund shareholders who do not give voting instructions in the
same proportion as the shares of Fund shareholders who do give voting
instructions. Shareholders of the Fund who do not vote will have no effect on
the outcome of such matters.
For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Additional Investment
Information and Risk Factors and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment
Restrictions.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and the Portfolio is described below,
together with the policies they employ in their efforts to achieve this
objective. Additional information about the investment policies of the Fund and
the Portfolio appears in the Statement of Additional Information under
Investment Objectives and Policies. There can be no assurance that the
investment objective of the Fund or the Portfolio will be achieved.
The Fund's investment objective is to provide a high level of current income
exempt from federal income tax consistent with moderate risk of capital and
maintenance of liquidity. See Taxes. The Fund attempts to achieve its investment
objective by investing all of its investable assets in The Tax Exempt Bond
Portfolio, a diversified open-end management investment company having the same
investment objective as the Fund.
The Fund is designed for investors who seek tax exempt yields greater than those
generally available from a portfolio of short term tax exempt obligations and
who are willing to incur the greater price fluctuation of longer-term
instruments.
The Portfolio attempts to achieve its investment objective by investing
primarily in municipal securities which earn interest exempt from federal income
tax in the opinion of bond counsel for the issuer. During normal market
conditions, the Portfolio will invest at least 80% of its net assets in tax
exempt obligations. Interest on these securities may be subject to state and
local taxes. For more detailed information regarding tax matters, including the
applicability of the alternative minimum tax, see Taxes.
Morgan believes that based upon current market conditions, the Portfolio will
consist of a portfolio of securities with a duration of four to seven years. In
view of the duration of the Portfolio, under normal market conditions, the
Fund's yield can be expected to be higher and its net asset value less stable
than those of a money market fund. Duration is a measure of the weighted average
maturity of the bonds held in the Portfolio and can be used as a measure of the
sensitivity of the Portfolio's market value to changes in interest rates. The
maturities of the individual securities in the Portfolio may vary widely,
however, as Morgan adjusts the Portfolio's holdings of long-term and short-term
debt securities to reflect its assessment of prospective changes in interest
rates, which may adversely affect current income.
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. Portfolio transactions are undertaken principally to
accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates, but the Portfolio may also engage in short-term
trading consistent with its objective. To the extent the Portfolio engages in
short-term trading, it may incur increased transaction costs. See Taxes below.
5
<PAGE>
The value of Portfolio's investments will generally fluctuate inversely with
changes in prevailing interest rates. The value of the Portfolio's investments
will also be affected by changes in the creditworthiness of issuers and other
market factors. The quality criteria applied in the selection of portfolio
securities are intended to minimize adverse price changes due to credit
considerations. The value of the Portfolio's municipal securities can also be
affected by market reaction to legislative consideration of various tax reform
proposals. Although the net asset value of Portfolio fluctuates, the Portfolio
attempts to preserve the value of its investments to the extent consistent with
its objective.
MUNICIPAL BONDS. The Portfolio may invest in bonds issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies, authorities and
instrumentalities. These obligations may be general obligation bonds secured by
the issuer's pledge of its full faith, credit and taxing power for the payment
of principal and interest, or they may be revenue bonds payable from specific
revenue sources, but not generally backed by the issuer's taxing power. These
include industrial development bonds where payment is the responsibility of the
private industrial user of the facility financed by the bonds. The Portfolio may
invest more than 25% of its assets in industrial development bonds, but may not
invest more than 25% of its assets in industrial development bonds in projects
of similar type or in the same state.
MONEY MARKET INSTRUMENTS. The Portfolio may also invest in municipal notes of
various types, including notes issued in anticipation of receipt of taxes, the
proceeds of the sale of bonds, other revenues or grant proceeds, as well as
municipal commercial paper and municipal demand obligations such as variable
rate demand notes and master demand obligations. The interest rate on variable
rate demand notes is adjustable at periodic intervals as specified in the notes.
Master demand obligations permit the investment of fluctuating amounts at
periodically adjusted interest rates. They are governed by agreements between
the municipal issuer and Morgan acting as agent, for no additional fee, in its
capacity as Advisor to the Portfolio and as fiduciary for other clients.
Although master demand obligations are not marketable to third parties, the
Portfolio considers them to be liquid because they are payable on demand. For
more information about municipal notes, see Investment Objectives and Policies
in the Statement of Additional Information.
The Portfolio will invest in money market instruments that meet the quality
requirements described below except that short-term municipal obligations of New
York State issuers may be rated MIG-2 by Moody's or SP-2 by Standard & Poor's.
Under normal circumstances, the Portfolio will purchase these securities to
invest temporary cash balances or to maintain liquidity to meet withdrawals.
However, the Portfolio may also invest in money market instruments as a
temporary defensive measure taken during, or in anticipation of, adverse market
conditions.
QUALITY INFORMATION. The Portfolio will not purchase any municipal obligation
unless it is rated at least A, MIG-1 or Prime-1 by Moody's or A, SP-1 or A1 by
Standard & Poor's (except for short-term obligations of New York State issuers
as described above) or it is unrated and in Morgan's opinion it is of comparable
quality. These standards must be satisfied at the time an investment is made. If
the quality of the investment later declines, the Portfolio may continue to hold
the investment.
In certain circumstances, the Portfolio may also invest up to 20% of the value
of its total assets in taxable securities. In addition, the Portfolio may
purchase municipal obligations together with puts, municipal obligations on a
when-issued or delayed delivery basis, enter into repurchase and reverse
repurchase agreements, purchase synthetic variable rate instruments, loan its
portfolio securities and purchase certain privately placed securities. For a
discussion of these transactions, see Additional Investment Information and Risk
Factors.
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ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and for fixed income securities no interest
accrues to the Portfolio until settlement. At the time of settlement a
when-issued security may be valued at less than its purchase price. The
Portfolio maintains with the Custodian a separate account with a segregated
portfolio of securities in an amount at least equal to these commitments. When
entering into a when-issued or delayed delivery transaction, the Portfolio will
rely on the other party to consummate the transaction; if the other party fails
to do so, the Portfolio may be disadvantaged. It is the current policy of the
Portfolio not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions with brokers, dealers or banks that meet the credit guidelines
established by the Portfolio's Trustees. In a repurchase agreement, the
Portfolio buys a security from a seller that has agreed to repurchase it at a
mutually agreed upon date and price, reflecting the interest rate effective for
the term of the agreement. The term of these agreements is usually from
overnight to one week. A repurchase agreement may be viewed as a fully
collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities as collateral with a market value at least equal to
the purchase price plus accrued interest and this value is maintained during the
term of the agreement. If the seller defaults and the collateral value declines,
the Portfolio might incur a loss. If bankruptcy proceedings are commenced with
respect to the seller, the Portfolio's realization upon the disposition of
collateral may be delayed or limited. Investments in certain repurchase
agreements and certain other investments which may be considered illiquid are
limited. See Illiquid Investments; Privately Placed and other Unregistered
Securities below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in an amount up to 33 1/3% of
the value of the Portfolio's net assets. The Portfolio may lend its 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 Portfolio in the normal
settlement time, generally three business days after notice, or by the borrower
on one day's notice. Borrowed securities must be returned when the loan is
terminated. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the Portfolio and its
respective investors. The Portfolio may pay reasonable finders' and custodial
fees in connection with a loan. In addition, the Portfolio will consider all
facts and circumstances, including the creditworthiness of the borrowing
financial institution, and the Portfolio will not make any loans in excess of
one year. The Portfolio will not lend its securities to any officer, Trustee,
Director, employee or other affiliate of the Portfolio, the Advisor or the
Distributor, unless otherwise permitted by applicable law.
REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase it at a mutually agreed upon date and price,
reflecting the interest rate effective for the term of the agreement. For
purposes of the Investment Company Act of 1940, as amended (the "1940 Act"), it
is considered a form of borrowing by the Portfolio and, therefore, is a form of
leverage. Leverage may cause any gains or losses of the Portfolio to be
magnified. For more information, see Investment Objectives and Policies in the
Statement of Additional Information.
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<PAGE>
TAXABLE INVESTMENTS. The Portfolio attempts to invest its assets in tax exempt
municipal securities; however, the Portfolio is permitted to invest up to 20% of
the value of its total assets in securities, the interest income on which may be
subject to federal, state or local income taxes. The Portfolio may make taxable
investments pending investment of proceeds from sales of its interests or
portfolio securities, pending settlement of purchases of portfolio securities,
to maintain liquidity or when it is advisable in Morgan's opinion because of
adverse market conditions. The Portfolio will invest in taxable securities only
if there are no tax exempt securities available for purchase or if the expected
return from an investment in taxable securities exceeds the expected return on
available tax exempt securities. In abnormal market conditions, if, in the
judgment of Morgan, tax exempt securities satisfying the Portfolio's investment
objective may not be purchased, the Portfolio may, for defensive purposes only,
temporarily invest more than 20% of its net assets in debt securities the
interest on which is subject to federal, state or local income taxes. The
taxable investments permitted for the Portfolio include obligations of the U.S.
Government and its agencies and instrumentalities, bank obligations, commercial
paper and repurchase agreements and other debt securities which meet the
Portfolio's quality requirements. See Taxes.
PUTS. The Portfolio may purchase without limit municipal bonds or notes together
with the right to resell them at an agreed price or yield within a specified
period prior to maturity. This right to resell is known as a put. The aggregate
price paid for securities with puts may be higher than the price which otherwise
would be paid. Consistent with the investment objective of the Portfolio and
subject to the supervision of the Trustees, the purpose of this practice is to
permit the Portfolio to be fully invested in tax exempt securities while
maintaining the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large withdrawals, to purchase at a later date
securities other than those subject to the put and to facilitate Morgan's
ability to manage the portfolio actively. The principal risk of puts is that the
put writer may default on its obligation to repurchase. Morgan will monitor each
writer's ability to meet its obligations under puts.
The amortized cost method is used by the Portfolio to value all municipal
securities with maturities of less than 60 days; when these securities are
subject to puts separate from the underlying securities, no value is assigned to
the puts. The cost of any such put is carried as an unrealized loss from the
time of purchase until it is exercised or expires. See the Statement of
Additional Information for the valuation procedure if the Portfolio were to
invest in municipal securities with maturities of 60 days or more that are
subject to separate puts.
SYNTHETIC VARIABLE RATE INSTRUMENTS. The Portfolio may invest in certain
synthetic variable rate instruments. Such instruments generally involve the
deposit of a long-term tax exempt bond in a custody or trust arrangement and the
creation of a mechanism to adjust the long-term interest rate on the bond to a
variable short-term rate and a right (subject to certain conditions) on the part
of the purchaser to tender it periodically to a third party at par. Morgan will
review the structure of synthetic variable rate instruments to identify credit
and liquidity risks (including the conditions under which the right to tender
the instrument would no longer be available) and will monitor those risks. In
the event that the right to tender the instrument is no longer available, the
risk to the Portfolio will be that of holding the long-term bond.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may not acquire any illiquid securities if, as a result thereof, more
than 15% of the market value of the Portfolio's net assets would be in illiquid
investments. Subject to this non-fundamental policy limitation, the Portfolio
may acquire investments that are illiquid or have limited liquidity, such as
private placements or investments that are not registered under the Securities
Act of 1933, as amended (the "1933 Act"), and cannot be offered for public sale
in the United States without first being registered under the 1933 Act. An
illiquid investment is any investment that cannot be disposed of within seven
days in the normal course of business at approximately the amount at which it is
valued by the
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<PAGE>
Portfolio. The price the Portfolio pays for illiquid securities or receives upon
resale may be lower than the price paid or received for similar securities with
a more liquid market. Accordingly the valuation of these securities will reflect
any limitations on their liquidity.
The Portfolio may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's
implementation of these guidelines on a periodic basis.
FUTURES AND OPTIONS TRANSACTIONS. The Portfolio is permitted to enter into the
futures and options transactions described in the Appendix to this Prospectus
for hedging purposes.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio are
subject to the following fundamental limitations: (a) the Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except U.S. government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer.
The investment objective of the Fund and the Portfolio, together with the
investment restrictions described below and in the Statement of Additional
Information, except as noted, are deemed fundamental policies, i.e., they may be
changed only with the approval of the holders of a majority of the outstanding
voting securities of the Fund and the Portfolio. The Fund has the same
investment restrictions as the Portfolio, except that the Fund may invest all of
its investable assets in another open-end investment company with the same
investment objective and restrictions (such as the Portfolio). References below
to the Portfolio's investment restrictions also include the Fund's investment
restrictions.
The Portfolio may not (i) borrow money, except from banks for extraordinary or
emergency purposes and then only in amounts up to 10% of the value of the
Portfolio's total assets, taken at cost at the time of borrowing, or purchase
securities while borrowings exceed 5% of its total assets; or mortgage, pledge
or hypothecate any assets except in connection with any such borrowings in
amounts up to 10% of the value of the Portfolio's net assets at the time of
borrowing; or (ii) acquire industrial revenue bonds if as a result more than 5%
of the Portfolio's total assets would be invested in industrial revenue bonds
where payment of principal and interest is the responsibility of companies with
fewer than three years of operating history.
For a more detailed discussion of the above investment restrictions, as well as
a description of certain other investment restrictions, see Investment
Restrictions in the Statement of Additional Information.
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<PAGE>
MANAGEMENT OF THE TRUST AND PORTFOLIO
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the
Portfolio, the Trustees decide upon matters of general policy and review the
actions of the Advisor and other service providers. The Trustees of the Trust
and of the Portfolio are identified below.
<TABLE>
<S> <C>
Frederick S. Addy.................................. Former Executive Vice President and Chief
Financial Officer, Amoco Corporation
William G. Burns................................... Former Vice Chairman of the Board and Chief
Financial Officer, NYNEX Corporation
Arthur C. Eschenlauer.............................. Former Senior Vice President, Morgan Guaranty
Trust Company of New York
Matthew Healey..................................... Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi................................ Senior Vice President, Capital Cities/ABC,
Inc.,
President, Broadcast Group
</TABLE>
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, the Portfolio and
The JPM Institutional Funds, up to and including creating a separate board of
trustees. See Trustees and Officers in the Statement of Additional Information
for more information about the Trustees and Officers of the Fund and the
Portfolio.
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pierpont
Group, Inc. in providing these services. Pierpont Group, Inc. was organized in
1989 at the request of the Trustees of The Pierpont Family of Funds for the
purpose of providing these services at cost to these funds. See Trustees and
Officers in the Statement of Additional Information. The principal offices of
Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017.
ADVISOR. The Fund has not retained the services of an investment adviser because
the Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. The Portfolio has retained the services of
Morgan as Investment Advisor. Morgan, with principal offices at 60 Wall Street,
New York, New York 10260, is a New York trust company which conducts a general
banking and trust business. Morgan is a wholly owned subsidiary of J.P. Morgan &
Co. Incorporated ("J.P. Morgan"), a bank holding company organized under the
laws of Delaware. Through offices in New York City and abroad, J.P. Morgan,
through the Advisor and other subsidiaries, offers a wide range of services to
governmental, institutional, corporate and individual customers and acts as
investment adviser to individual and institutional clients with combined assets
under management of over $165 billion (of which the Advisor advises over $26
billion). Morgan provides investment advice and portfolio management services to
the Portfolio. Subject to the supervision of the Portfolio's Trustees, Morgan
makes the Portfolio's day-to-day investment decisions, arranges for the
execution of portfolio transactions and generally manages the Portfolio's
investments. See Investment Advisor in the Statement of Additional Information.
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<PAGE>
Morgan uses a sophisticated, disciplined, collaborative process for managing all
asset classes. For fixed income portfolios, this process focuses on the
systematic analysis of real interest rates, sector diversification and
quantitative and credit analysis. Morgan has managed portfolios of domestic
fixed income securities on behalf of its clients for over fifty years. The
Portfolio managers making investments in domestic fixed income securities work
in conjunction with fixed income, credit, capital market and economic research
analysts, as well as traders and administrative officers.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio and its predecessor
entity (the inception date of each person's responsibility for the Portfolio (or
its predecessor) and his or her business experience for the past five years is
indicated parenthetically): Elbridge T. Gerry, III, Vice President (since
January, 1992, employed by Morgan since prior to 1991) and Elizabeth A.
Augustin, Vice President (since January, 1992, employed by Morgan since prior to
1991).
As compensation for the services rendered and related expenses borne by Morgan
under the Investment Advisory Agreement with the Portfolio, the Portfolio has
agreed to pay Morgan a fee, which is computed daily and may be paid monthly, at
the annual rate of 0.30% of the Portfolio's average daily net assets.
Under separate agreements, Morgan also provides financial, fund accounting and
administrative services to the Fund and the Portfolio and shareholder services
to shareholders of the Fund. See Administrative Services Agent and Shareholder
Servicing below. INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY
OTHER BANK.
ADMINISTRATOR AND DISTRIBUTOR. Under Administration Agreements with the Trust
and the Portfolio, Signature Broker-Dealer Services, Inc. ("SBDS") serves as the
Administrator for the Trust and the Portfolio. In this capacity, SBDS
administers and manages all aspects of the Fund's and the Portfolio's day-to-day
operations subject to the supervision of the Trustees, except as set forth under
Advisor, Administrative Services Agent, Custodian and Shareholder Servicing. In
connection with its responsibilities as Administrator, SBDS (i) furnishes
ordinary clerical and related services for day-to-day operations including
certain recordkeeping responsibilities; (ii) takes responsibility for compliance
with all applicable federal and state securities and other regulatory
requirements; (iii) is responsible for the registration of sufficient Fund
shares under federal and state securities laws; (iv) takes responsibility for
monitoring the Fund's status as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"); and (v) performs such
administrative and managerial oversight of the activities of the Trust's and the
Portfolio's custodian and transfer agent as the Trustees may direct from time to
time.
Under the Trust's and the Portfolio's Administration Agreements with SBDS, each
of the Fund and the Portfolio has agreed to pay SBDS a fee equal to its
proportionate share of an annual complex-wide charge. This charge is calculated
daily based on the aggregate net assets of the Portfolio and the other
portfolios (collectively the "Master Portfolios") in which series of the Trust,
The JPM Institutional Funds or The JPM Advisor Funds invest. This charge is
calculated in accordance with the following annual schedule: 0.03% on the first
$7 billion of the Master Portfolios' aggregate average daily net assets, and
0.01% of the Master Portfolios' aggregate average daily net assets in excess of
$7 billion. The portion of this charge payable by the Fund or the Portfolio is
determined by the proportionate share that its net assets bear to the total net
assets of the Trust, The JPM Institutional Funds, The JPM Advisor Funds and the
Master Portfolios.
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<PAGE>
SBDS, a registered broker-dealer, also serves as the Distributor of shares of
the Fund and exclusive placement agent for the Fund. SBDS is a wholly owned
subsidiary of Signature. Signature and its affiliates currently provide
administration and distribution services for a number of registered investment
companies through offices located in Boston, New York, London, Toronto and
George Town, Grand Cayman.
ADMINISTRATIVE SERVICES AGENT. Under Administrative Services Agreements with the
Trust and the Portfolio, Morgan is responsible for certain financial, fund
accounting and administrative services provided to the Fund and the Portfolio,
including services related to Portfolio and Fund tax returns, Portfolio and Fund
financial reports, computing Fund dividends and net asset value per share and
keeping the Fund's books of account. Under these agreements, each of the Fund
and the Portfolio has agreed to pay Morgan a fee equal to its proportionate
share of an annual complex-wide charge. This charge is calculated daily based on
the aggregate net assets of the Master Portfolios in accordance with the
following annual schedule: 0.06% on the first $7 billion of the Master
Portfolios' aggregate average daily net assets, and 0.03% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion. The
portion of this charge payable by the Fund or the Portfolio is determined by the
proportionate share that its net assets bear to the total net assets of the
Trust. The JPM Institutional Funds, The JPM Advisor Funds, the Master Portfolios
and other investors in the Master Portfolios for which Morgan provides similar
services.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02101, serves as the Fund's and the Portfolio's Custodian and
Transfer and Dividend Disbursing Agent.
EXPENSES. In addition to the fees payable to Morgan, SBDS and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor,
Administrator and Distributor and Administrative Services Agent above and
Shareholder Servicing below, the Fund and the Portfolio are responsible for
usual and customary expenses associated with their respective operations. Such
expenses include organization expenses, legal fees, accounting expenses,
insurance costs, the compensation and expenses of the Trustees, registration
fees under federal securities laws, and extraordinary expenses applicable to the
Fund or the Portfolio. For the Fund, such expenses also include transfer,
registrar and dividend disbursing costs, the expenses of printing and mailing
reports, notices and proxy statements to Fund shareholders, and registration
fees under state securities laws. For the Portfolio, such expenses also include
custodian fees and brokerage expenses.
Morgan has agreed to waive fees as necessary if in any fiscal year the sum of
the Fund's expenses exceeds the limits set by applicable regulations of state
securities commissions. Such annual limits are currently 2.5% of the first $30
million of average net assets, 2% of the next $70 million of such net assets and
1.5% of such net assets in excess of $100 million for any fiscal year.
SHAREHOLDER SERVICING
The Fund has entered into a Shareholder Servicing Agreement with Morgan pursuant
to which Morgan acts as shareholder servicing agent for its customers and other
Fund investors who are customers of an eligible institution which is a customer
of Morgan (an "Eligible Institution"). The Fund has agreed to pay Morgan for
these services at an annual rate (expressed as a percentage of the average daily
net asset values of Fund shares owned by or for shareholders for whom Morgan is
acting as shareholder servicing agent) of 0.20% of the Fund's average daily net
assets. Under the terms of the Shareholder Servicing Agreement with the Fund,
Morgan may delegate one or more of its responsibilities to other entities at
Morgan's expense.
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<PAGE>
Shareholders should address all inquiries to J.P. Morgan Funds Services, Morgan
Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York 10036
or call (800) 521-5411.
The business days of the Fund and the Portfolio are the days the New York Stock
Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
as shareholder servicing agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Fund's
Distributor. Investors must be customers of Morgan or an Eligible Institution.
Investors may also be employer-sponsored retirement plans that have designated
the Fund as an investment option for the plans. Prospective investors who are
not already customers of Morgan may apply to become customers of Morgan for the
sole purpose of Fund transactions. There are no charges associated with becoming
a Morgan customer for this purpose. Morgan reserves the right to determine the
customers that it will accept, and the Fund reserves the right to determine the
purchase orders that it will accept.
The Fund requires a minimum initial investment of $100,000, except that for
investors who were shareholders of another Pierpont Fund as of September 29,
1995, the minimum initial investment in the Fund is $10,000. The minimum
subsequent investment for all investors is $5,000. These minimum investment
requirements may be waived for investors for whom the Advisor is a fiduciary or
who are employees of the Advisor, or who maintain related accounts with The
Pierpont Funds or the Advisor or maintain investments in The Pierpont Funds
(other than the money market funds) when such accounts and/or investments total
$500,000 or more.
For investors such as investment advisors, trust companies and financial
advisors who make investments for a group of clients, the minimum investment in
the Fund is (i) $100,000 per individual client or (ii) $250,000 for an
aggregated purchase order for more than one client. An employer-sponsored
retirement plan opening an account in the Fund will be required to attain a
minimum balance of $250,000 within thirteen months of opening the account.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value per share next determined after
receipt of an order. Prospective investors may purchase shares with the
assistance of an Eligible Institution that may establish its own terms,
conditions and charges.
To purchase shares in the Fund, investors should request their Morgan
representative (or a representative of their Eligible Institution) to assist
them in placing a purchase order with the Fund's Distributor. Any shareholder
may also call J.P. Morgan Funds Services at (800) 521-5411 for assistance in
placing an order for Fund shares. If the Fund receives a purchase order prior to
4:00 P.M. New York time on any business day, the purchase of Fund shares is
effective and is made at the net asset value determined that day. If the Fund
receives a purchase order after 4:00 P.M. New York time, the purchase is
effective and is made at net asset value determined on the next business day.
All purchase orders for Fund shares must be accompanied by instructions to
Morgan (or an Eligible Institution) to transfer immediately available funds to
the Fund's Distributor on settlement date. The settlement date is generally the
business day after the purchase is effective. The purchaser will begin to
receive the daily dividends on the settlement date. See Dividends and
Distributions.
ELIGIBLE INSTITUTIONS. The services provided by Eligible Institutions may
include establishing and maintaining shareholder accounts, processing purchase
and redemption transactions, arranging for bank wires, performing
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<PAGE>
shareholder subaccounting, answering client inquiries regarding the Trust,
assisting clients in changing dividend options, account designations and
addresses, providing periodic statements showing the client's account balance
and integrating these statements with those of other transactions and balances
in the client's other accounts serviced by the Eligible Institution,
transmitting proxy statements, periodic reports, updated prospectuses and other
communications to shareholders and, with respect to meetings of shareholders,
collecting, tabulating and forwarding executed proxies and obtaining such other
information and performing such other services as Morgan or the Eligible
Institution's clients may reasonably request and agree upon with the Eligible
Institution. Eligible Institutions may separately establish their own terms,
conditions and charges for providing the aforementioned services and for
providing other services.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
Morgan or his or her Eligible Institution, as appropriate, to submit a
redemption request to the Fund or may telephone J.P. Morgan Funds Services
directly at (800) 521-5411 and give the Shareholder Service Representative a
preassigned shareholder Personal Identification Number and the amount of the
redemption. The Fund executes effective redemption requests at the next
determined net asset value per share. See Net Asset Value. See Additional
Information below for an explanation of the telephone redemption policy of The
Pierpont Funds.
A redemption request received by the Fund prior to 4:15 P.M. New York time is
effective on that day. A redemption request received after that time becomes
effective on the next business day. Proceeds of an effective redemption are
deposited on settlement date in immediately available funds to the shareholder's
account at Morgan or at his Eligible Institution or, in the case of certain
Morgan customers, are mailed by check or wire transferred in accordance with the
customer's instructions. The redeemer will continue to receive dividends on
these shares through the day before the settlement date. Settlement date is
generally the next business day after a redemption is effective and, subject to
Further Redemption Information below, in any event is within seven days. See
Dividends and Distributions.
MANDATORY REDEMPTION BY THE FUND. If the value of a shareholder's holdings in
the Fund falls below the applicable minimum investment amount because of a
redemption of shares, the shareholder's remaining shares may be redeemed by the
Fund 60 days after written notice to the shareholder unless the account is
increased to the applicable minimum investment amount or more. Investors who
were shareholders of a Pierpont Fund as of September 29, 1995 are required to
maintain an investment of $10,000 in the Fund.
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions from
the Fund may not be processed if a redemption request is not submitted in proper
form. To be in proper form, the Fund must have received the shareholder's
taxpayer identification number and address. As discussed under Taxes below, the
Fund may be required to impose "back-up" withholding of federal income tax on
dividends, distributions and redemption proceeds when non-corporate investors
have not provided a certified taxpayer identification number. In addition, if a
shareholder sends a check for the purchase of Fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days.
The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other
periods as the 1940 Act or the Securities and Exchange Commission may permit.
See Redemption of Shares in the Statement of Additional Information.
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<PAGE>
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other Pierpont Fund or
JPM Institutional Fund without charge. An exchange may be made so long as after
the exchange the investor has shares, in each fund in which he or she remains an
investor, with a value of at least each of those fund's minimum investment
amounts. See Method of Purchase in the prospectuses for the other Pierpont Funds
and The JPM Institutional Funds for the minimum investment amount for each of
those funds. Shares are exchanged on the basis of relative net asset value per
share. Exchanges are in effect redemptions from one fund and purchases of
another fund and the usual purchase and redemption procedures and requirements
are applicable to exchanges. See Purchase of Shares and Redemption of Shares in
this Prospectus and in the prospectuses for the other Pierpont Funds and The JPM
Institutional Funds. See also Additional Information below for an explanation of
the telephone exchange policy of The Pierpont Funds.
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income tax
purposes. The Fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state
securities laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute substantially all of its net investment income.
The net investment income of the Fund is declared as a dividend daily
immediately prior to the determination of the net asset value of the Fund on
that day and paid monthly. If an investor's shares are redeemed during a month,
accrued but unpaid dividends are paid with the redemption proceeds. The net
investment income of the Fund for dividend purposes consists of its pro rata
share of the net income of the Portfolio less the Fund's expenses. Expenses of
the Fund and the Portfolio, including the fees payable to Morgan, are accrued
daily. Shares will accrue dividends as long as they are issued and outstanding.
Shares are issued and outstanding as of the settlement date of a purchase order
to the settlement date of a redemption order.
Substantially all the realized net capital gains, if any, of the Fund are
declared and paid on an annual basis, except that an additional capital gains
distribution may be made in a given year to the extent necessary to avoid the
imposition of federal excise tax on the Fund.
Dividends and capital gains distributions paid by the Fund are automatically
reinvested in additional shares of the Fund unless the shareholder has elected
to have them paid in cash. Dividends and distributions to be paid in cash are
credited to the shareholder's account at Morgan or at his Eligible Institution
or, in the case of certain Morgan customers, are mailed by check in accordance
with the customer's instructions. The Fund reserves the right to discontinue,
alter or limit the automatic reinvestment privilege at any time.
NET ASSET VALUE
Net asset value per share for the Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in the
Portfolio and other assets) the amount of its liabilities and dividing the
remainder by the number of its outstanding shares, rounded to the nearest cent.
Expenses, including the fees payable to Morgan, are accrued daily. See Net Asset
Value in the Statement of Additional Information for information on valuation of
portfolio securities for the Portfolio.
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The Fund computes its net asset value once daily at 4:00 P.M. New York time on
Monday through Friday, except that the net asset value is not computed for the
Fund on a day in which no orders to purchase or redeem Fund shares have been
received or on the holidays listed under Net Asset Value in the Statement of
Additional Information.
ORGANIZATION
The Trust was organized on November 4, 1992 as an unincorporated business trust
under Massachusetts law and is an entity commonly known as a "Massachusetts
business trust". The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares ($0.001 par value) of one or more
series. To date, twelve series of shares have been authorized and are available
for sale to the public. Only shares of the Fund are offered through this
Prospectus. No series of shares has any preference over any other series of
shares. See Massachusetts Trust in the Statement of Additional Information.
The Declaration of Trust for the Trust provides that no Trustee, shareholder,
officer, employee, or agent of the Fund shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the Fund, but
that the Trust property only shall be liable.
Shareholders of the Fund are entitled to one vote for each share and to the
appropriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and nonassessable by the Fund. The Trust has adopted a policy of not issuing
share certificates. The Trust does not intend 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 Declaration of
Trust. The Trustees will call a meeting of shareholders to vote on removal of a
Trustee upon the written request of the record holders of ten percent of Trust
shares and will assist shareholders in communicating with each other as
prescribed in Section 16(c) of the 1940 Act. For further organization
information, including certain shareholder rights, see Description of Shares in
the Statement of Additional Information.
The Portfolio in which all of the assets of the Fund are invested is organized
as a trust under the laws of the State of New York. The Portfolio's Declaration
of Trust provides that the Fund and other entities investing in the Portfolio
(e.g., other investment companies, insurance company separate accounts and
common and commingled trust funds) will each be liable for all obligations of
the Portfolio. However, the risk of the Fund incurring financial loss on account
of such liability is limited to circumstances in which both inadequate insurance
existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in the
Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are subject
to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to federal
taxes and with respect to the applicability of state or local taxes. See Taxes
in the Statement of Additional Information. Annual statements as to the current
federal tax status of distributions, if applicable, are mailed to shareholders
after the end of the taxable year for the Fund.
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<PAGE>
The Trust intends to qualify the Fund as a separate regulated investment company
under Subchapter M of the Code. As a regulated investment company, the Fund
should not be subject to federal income taxes or federal excise taxes if all of
its net investment income and capital gains less any available capital loss
carryforwards are distributed to shareholders within allowable time limits. The
Portfolio intends to qualify as an association treated as a partnership for
federal income tax purposes. As such, the Portfolio should not be subject to
tax. The Fund's status as a regulated investment company is dependent on, among
other things, the Portfolio's continued qualification as a partnership for
federal income tax purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to non-corporate shareholders.
The Fund intends to qualify to pay exempt-interest dividends to its shareholders
by having, at the close of each quarter of its taxable year, at least 50% of the
value of its total assets consist of tax exempt securities. An exempt-interest
dividend is that part of dividend distributions made by the Fund which consists
of interest received by the Fund on tax exempt securities. Exempt-interest
dividends received from the Fund will be treated for federal income tax purposes
as tax exempt interest income. In view of the Fund's investment policies, it is
expected that a substantial portion of the Fund's dividends will be
exempt-interest dividends, although the Fund 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 Taxable Investments.
Interest on certain tax exempt municipal obligations issued after August 7, 1986
is a preference item for purposes of the alternative minimum tax applicable to
individuals and corporations. Under tax regulations to be issued, the portion of
an exempt-interest dividend of a regulated investment company that is allocable
to these obligations will be treated as a preference item for purposes of the
alternative minimum tax. The Fund has limited its investments to those
securities the interest on which will not be treated as preference items for
purposes of the alternative minimum tax in the opinion of bond counsel for the
issuer. The Fund currently has no intention of investing in obligations subject
to the alternative minimum tax under normal market conditions.
Corporations should, however, be aware that interest on all municipal securities
will be included in calculating (i) adjusted current earnings for purposes of
the alternative minimum tax applicable to them, (ii) the additional tax imposed
on certain corporations by the Superfund Revenue Act of 1986, and (iii) the
foreign branch profits tax imposed on effectively connected earnings and profits
of United States branches of foreign corporations. Furthermore, special tax
provisions may apply to certain financial institutions and property and casualty
insurance companies, and they should consult their tax advisors before
purchasing shares of the Fund.
Interest on indebtedness incurred or continued by a shareholder (whether a
corporation or an individual) to purchase or carry shares of the Fund is not
deductible. The Treasury has been given authority to issue regulations which
would disallow the interest deduction if incurred to purchase or carry shares of
the Fund owned by the taxpayer's spouse, minor child or entity controlled by the
taxpayer. Entities or persons who are "substantial users" (or related persons)
of facilities financed by tax exempt bonds should consult their tax advisors
before purchasing shares of the Fund.
Distributions of taxable net investment income and realized net short-term
capital gains in excess of net long-term capital losses are taxable as ordinary
income to shareholders of the Fund whether such distributions are taken in cash
or reinvested in additional shares. Distributions of this type to corporate
shareholders of the Fund are not eligible for the dividends-received deduction.
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<PAGE>
Distributions of net long-term capital gains in excess of net short-term capital
losses are taxable to shareholders of the Fund as long-term capital gains
regardless of how long a shareholder has held shares in the Fund and regardless
of whether taken in cash or reinvested in additional shares. Long-term capital
gains distributions to corporate shareholders are not eligible for the
dividends-received deduction.
Any distribution of capital gains will have the effect of reducing the net asset
value of Fund shares held by a shareholder by the same amount as the
distribution. If the net asset value of the shares is reduced below a
shareholder's cost as a result of such a distribution, the distribution,
although constituting a return of capital to the shareholder, will be taxable as
described above.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
such shares. In addition, any loss realized by a shareholder upon the redemption
or exchange of shares in the Fund held six months or less will be disallowed to
the extent of any exempt-interest dividends received by the shareholder with
respect to these shares. See Taxes in the Statement of Additional Information.
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The financial
statements appearing in annual reports are audited by independent accountants.
Shareholders also will be sent confirmations of each purchase and redemption and
monthly statements, reflecting all other account activity, including dividends
and any distributions reinvested in additional shares or credited as cash.
All shareholders are given the privilege to initiate transactions automatically
by telephone upon opening an account. However, an investor should be aware that
a transaction authorized by telephone and reasonably believed to be genuine by
the Fund, Morgan, his Eligible Institution or the Distributor may subject the
investor to risk of loss if such instruction is subsequently found not to be
genuine. The Fund will employ reasonable procedures, including requiring
investors to give their Personal Identification Number and tape recording of
telephone instructions, to confirm that instructions communicated from investors
by telephone are genuine; if it does not, the Fund, the Shareholder Servicing
Agent or a shareholder's Eligible Institution may be liable for any losses due
to unauthorized or fraudulent instructions.
The Fund may make historical performance information available and may compare
its performance to other investments or relevant indexes, including data from
Lipper Analytical Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson
Associates, Standard & Poors 500 Composite Stock Price Index, the Dow Jones
Industrial Average, the Frank Russell Indexes and other industry publications.
The Fund may advertise "yield" and "tax equivalent yield". Yield refers to the
net income generated by an investment in the Fund over a stated 30-day period.
This income is then annualized--i.e., the amount of income generated by the
investment during the 30-day period is assumed to be generated each 30-day
period for twelve periods and is shown as a percentage of the investment. The
income earned on the investment is also assumed to be reinvested at the end of
the sixth 30-day period. The tax equivalent yield is calculated similarly to the
yield for the Fund, except that the yield is increased using a stated income tax
rate to demonstrate the taxable yield necessary to produce an after-tax
equivalent to the Fund.
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The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of
operations, if less) assuming that all distributions and dividends by the Fund
were reinvested on the reinvestment dates during the period and less all
recurring fees. These methods of calculating yield and total return are required
by regulations of the Securities and Exchange Commission. Yield and total return
data similarly calculated, unless otherwise indicated, over other specified
periods of time may also be used. See Performance Data in the Statement of
Additional Information. All performance figures are based on historical earnings
and are not intended to indicate future performance. Performance information may
be obtained by calling the Fund's Distributor at (800) 847-9487.
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<PAGE>
<TABLE>
<S> <C>
----------------------------------------
The
Pierpont
Tax Exempt
Bond
Fund
</TABLE>
<TABLE>
<S> <C>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE
TRUST OR BY THE DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE TRUST
OR THE DISTRIBUTOR TO MAKE SUCH OFFER IN SUCH PROSPECTUS
JURISDICTION. DECEMBER 29, 1995
</TABLE>
<PAGE>
APPENDIX
The Portfolio is permitted to enter into the futures and options transactions
described below, but it does not currently intend to do so.
The Portfolio may (a) purchase and sell exchange traded and over-the-counter
(OTC) put and call options on fixed income securities and indexes of fixed
income securities, (b) purchase and sell futures contracts on fixed income
securities and indexes of fixed income securities and (c) purchase put and call
options on futures contracts on fixed income securities and indexes of fixed
income securities.
The Portfolio may use futures contracts and options for hedging purposes. The
Portfolio may not use futures contracts and options for speculation.
The Portfolio may utilize options and futures contracts to manage its exposure
to changing interest rates and/or security prices. Some options and futures
strategies, including selling futures contracts and buying puts, tend to hedge
the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Advisor and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which involves
investment strategies and risks different from those associated with ordinary
portfolio securities transactions, and there can be no guarantee that their use
will increase the Portfolio's return. While the use of these instruments by the
Portfolio may reduce certain risks associated with owning its portfolio
securities, these techniques themselves entail certain other risks. If the
Advisor applies a strategy at an inappropriate time or judges market conditions
or trends incorrectly, options and futures strategies may lower the Portfolio's
return. Certain strategies limit the Portfolio's possibilities to realize gains
as well as limiting its exposure to losses. The Portfolio could also experience
losses if the prices of its options and futures positions were poorly correlated
with its other investments, or if it could not close out its positions because
of an illiquid secondary market. In addition, the Portfolio will incur
transaction costs, including trading commissions and option premiums, in
connection with its futures and options transactions and these transactions
could significantly increase the Portfolio's turnover rate.
The Portfolio may purchase put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts, only
if such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Portfolio's net assets, and (ii) the aggregate margin deposits required on all
such futures or options thereon held at any time do not exceed 5% of the
Portfolio's total assets.
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by
allowing it to expire or by
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<PAGE>
exercising the option. The Portfolio may also close out a put option position by
entering into an offsetting transaction, if a liquid market exists. If the
option is allowed to expire, the Portfolio will lose the entire premium it paid.
If the Portfolio exercises a put option on a security, it will sell the
instrument underlying the option at the strike price. If the Portfolio exercises
an option on an index, settlement is in cash and does not involve the actual
sale of securities. If an option is American style, it may be exercised on any
day up to its expiration date. A European style option may be exercised only on
its expiration date.
The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the instrument underlying the option at the option's strike price. A
call buyer typically attempts to participate in potential price increases of the
instrument underlying the option with risk limited to the cost of the option if
security prices fall. At the same time, the buyer can expect to suffer a loss if
security prices do not rise sufficiently to offset the cost of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put option,
it takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the instrument underlying the option if the other party to
the option chooses to exercise it. The Portfolio may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a put
option the Portfolio has written, however, the Portfolio must continue to be
prepared to pay the strike price while the option is outstanding, regardless of
price changes, and must continue to post margin as discussed below.
If the price of the underlying instrument rises, a put writer would generally
expect to profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it is likely
that the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would expect to
suffer a loss. This loss should be less than the loss from purchasing and
holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.
Writing a call option obligates the Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an index of
securities or a futures contract is required to deposit cash or securities or a
letter of credit as margin and to make mark to market payments of variation
margin as the position becomes unprofitable.
OPTIONS ON INDEXES. The Portfolio may purchase and sell (write) put and call
options on any securities index based on securities in which the Portfolio may
invest. Options on securities indexes are similar to options on securities,
except that the exercise of securities index options is settled by cash payment
and does not involve the
21
<PAGE>
actual purchase or sale of securities. In addition, these options are designed
to reflect price fluctuations in a group of securities or segment of the
securities market rather than price fluctuations in a single security. The
Portfolio, in purchasing or selling index options, is subject to the risk that
the value of its portfolio securities may not change as much as an index because
the Portfolio's investments generally will not match the composition of an
index.
For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Portfolio may incur additional
losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When the Portfolio purchases a futures contract, it agrees to purchase a
specified quantity of an underlying instrument at a specified future date or to
make a cash payment based on the value of a securities index. When the Portfolio
sells a futures contract, it agrees to sell a specified quantity of the
underlying instrument at a specified future date or to receive a cash payment
based on the value of a securities index. The price at which the purchase and
sale will take place is fixed when the Portfolio enters into the contract.
Futures can be held until their delivery dates or the position can be (and
normally is) closed out before then. There is no assurance, however, that a
liquid market will exist when the Portfolio wishes to close out a particular
position.
When the Portfolio purchases a futures contract, the value of the futures
contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase the Portfolio's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying instrument
directly. When the Portfolio sells a futures contract, by contrast, the value of
its futures position will tend to move in a direction contrary to the value of
the underlying instrument. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
The purchaser or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, when the Portfolio buys or sells a futures contract it will be
required to deposit "initial margin" with its Custodian in a segregated account
in the name of its futures broker, known as a futures commission merchant (FCM).
Initial margin deposits are typically equal to a small percentage of the
contract's value. If the value of either party's position declines, that party
will be required to make additional "variation margin" payments equal to the
change in value on a daily basis. The party that has a gain may be entitled to
receive all or a portion of this amount. The Portfolio may be obligated to make
payments of variation margin at a time when it is disadvantageous to do so.
Furthermore, it may not always be possible for the Portfolio to close out its
futures positions. Until it closes out a futures position, the Portfolio will be
obligated to continue to pay variation margin. Initial and variation margin
payments do not constitute purchasing on margin for purposes of the Portfolio's
investment restrictions. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.
The Portfolio will segregate liquid, high quality assets in connection with its
use of options and futures contracts to the extent required by the staff of the
Securities and Exchange Commission. Securities held in a segregated account
22
<PAGE>
cannot be sold while the futures contract or option is outstanding, unless they
are replaced with other suitable assets. As a result, there is a possibility
that segregation of a large percentage of the Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
For further information about the Portfolio's use of futures and options and a
more detailed discussion of associated risks, see Investment Objectives and
Policies in the Statement of Additional Information.
23
<PAGE>
PROSPECTUS
THE PIERPONT FUNDS
6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
FOR INFORMATION CALL (800) 521-5411
THE PIERPONT FUNDS ARE A FAMILY OF NO-LOAD MUTUAL FUNDS FOR WHICH THERE ARE
NO SALES CHARGES OR EXCHANGE OR REDEMPTION FEES. EACH FUND (A "FUND",
COLLECTIVELY THE "FUNDS") IS A SERIES OF THE PIERPONT FUNDS, AN OPEN-END
MANAGEMENT INVESTMENT COMPANY ORGANIZED AS A MASSACHUSETTS BUSINESS TRUST (THE
"TRUST"). WITH A BROAD RANGE OF INVESTMENT CHOICES, THE PIERPONT FUNDS PROVIDE
DISCERNING INVESTORS WITH ATTRACTIVE ALTERNATIVES FOR MEETING THEIR INVESTMENT
NEEDS.
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN
PORTFOLIO OF SECURITIES, EACH PIERPONT FUND SEEKS TO ACHIEVE ITS INVESTMENT
OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE ASSETS IN A CORRESPONDING OPEN-END
MANAGEMENT INVESTMENT COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND
(A "PORTFOLIO", COLLECTIVELY THE "PORTFOLIOS"). THE FUNDS INVEST IN THEIR
RESPECTIVE PORTFOLIOS THROUGH SIGNATURE FINANCIAL GROUP, INC.'S HUB AND
SPOKE-REGISTERED TRADEMARK- FINANCIAL SERVICES METHOD. THE HUB AND
SPOKE-REGISTERED TRADEMARK- INVESTMENT FUND STRUCTURE EMPLOYS A TWO-TIER MASTER
FEEDER STRUCTURE AND IS A REGISTERED SERVICE MARK OF SIGNATURE FINANCIAL GROUP,
INC. SEE SPECIAL INFORMATION CONCERNING HUB AND SPOKE-REGISTERED TRADEMARK- ON
PAGE 10.
THE PIERPONT MONEY MARKET FUND SEEKS TO MAXIMIZE CURRENT INCOME AND MAINTAIN
A HIGH LEVEL OF LIQUIDITY. IT IS DESIGNED FOR INVESTORS WHO SEEK TO PRESERVE
CAPITAL AND EARN CURRENT INCOME FROM A PORTFOLIO OF HIGH QUALITY MONEY MARKET
INSTRUMENTS.
THE PIERPONT TAX EXEMPT MONEY MARKET FUND SEEKS TO PROVIDE A HIGH LEVEL OF
CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX AND MAINTAIN A HIGH LEVEL OF
LIQUIDITY. IT IS DESIGNED FOR INVESTORS WHO SEEK CURRENT INCOME EXEMPT FROM
FEDERAL INCOME TAX, STABILITY OF CAPITAL AND LIQUIDITY.
THE PIERPONT TREASURY MONEY MARKET FUND SEEKS TO PROVIDE CURRENT INCOME,
MAINTAIN A HIGH LEVEL OF LIQUIDITY AND PRESERVE CAPITAL. IT IS DESIGNED FOR
INVESTORS WHO SEEK TO PRESERVE CAPITAL AND EARN CURRENT INCOME FROM A PORTFOLIO
OF DIRECT OBLIGATIONS OF THE U.S. TREASURY AND REPURCHASE AGREEMENT TRANSACTIONS
WITH RESPECT TO THOSE OBLIGATIONS.
THE PIERPONT SHORT TERM BOND FUND SEEKS TO PROVIDE A HIGH TOTAL RETURN WHILE
ATTEMPTING TO LIMIT THE LIKELIHOOD OF NEGATIVE QUARTERLY RETURNS. IT IS DESIGNED
FOR INVESTORS WHO DO NOT REQUIRE THE STABLE NET ASSET VALUE TYPICAL OF A MONEY
MARKET FUND BUT WHO SEEK LESS PRICE FLUCTUATION THAN IS TYPICAL OF A LONGER-TERM
BOND FUND.
THE PIERPONT BOND FUND SEEKS TO PROVIDE A HIGH TOTAL RETURN CONSISTENT WITH
MODERATE RISK OF CAPITAL AND MAINTENANCE OF LIQUIDITY. IT IS DESIGNED FOR
INVESTORS WHO SEEK A TOTAL RETURN OVER TIME THAT IS HIGHER THAN THAT GENERALLY
AVAILABLE FROM A PORTFOLIO OF SHORT-TERM OBLIGATIONS WHILE RECOGNIZING THE
GREATER PRICE FLUCTUATION OF LONGER-TERM INSTRUMENTS.
THE PIERPONT TAX EXEMPT BOND FUND SEEKS TO PROVIDE A HIGH LEVEL OF CURRENT
INCOME EXEMPT FROM FEDERAL INCOME TAX CONSISTENT WITH MODERATE RISK OF CAPITAL
AND MAINTENANCE OF LIQUIDITY. IT IS DESIGNED FOR INVESTORS WHO SEEK TAX EXEMPT
YIELDS GREATER THAN THOSE GENERALLY AVAILABLE FROM A PORTFOLIO OF SHORT-TERM TAX
EXEMPT OBLIGATIONS AND WHO ARE WILLING TO INCUR THE GREATER PRICE FLUCTUATION OF
LONGER-TERM INSTRUMENTS.
THE PIERPONT EQUITY FUND SEEKS TO PROVIDE A HIGH TOTAL RETURN FROM A
PORTFOLIO OF SELECTED EQUITY SECURITIES. IT IS DESIGNED FOR INVESTORS WHO WANT
AN ACTIVELY MANAGED PORTFOLIO OF SELECTED EQUITY SECURITIES THAT SEEKS TO
OUTPERFORM THE S&P 500 INDEX.
THE PIERPONT CAPITAL APPRECIATION FUND SEEKS TO PROVIDE A HIGH TOTAL RETURN
FROM A PORTFOLIO OF EQUITY SECURITIES OF SMALL COMPANIES. IT IS DESIGNED FOR
INVESTORS WHO ARE WILLING TO ASSUME THE SOMEWHAT HIGHER RISK OF INVESTING IN
SMALL COMPANIES IN ORDER TO SEEK A HIGHER TOTAL RETURN OVER TIME THAN MIGHT BE
EXPECTED FROM A PORTFOLIO OF STOCKS OF LARGE COMPANIES.
THE PIERPONT INTERNATIONAL EQUITY FUND SEEKS TO PROVIDE A HIGH TOTAL RETURN
FROM A PORTFOLIO OF EQUITY SECURITIES OF FOREIGN CORPORATIONS. IT IS DESIGNED
FOR INVESTORS WITH A LONG-TERM INVESTMENT HORIZON WHO WANT TO DIVERSIFY THEIR
INVESTMENTS BY INVESTING IN AN ACTIVELY MANAGED PORTFOLIO OF NON-U.S. SECURITIES
THAT SEEKS TO OUTPERFORM THE MORGAN STANLEY EUROPE, AUSTRALIA AND FAR EAST
INDEX.
THE PIERPONT EMERGING MARKETS EQUITY FUND SEEKS TO PROVIDE A HIGH TOTAL
RETURN FROM A PORTFOLIO OF EQUITY SECURITIES OF COMPANIES IN EMERGING MARKETS.
IT IS DESIGNED FOR LONG-TERM INVESTORS WHO WANT TO DIVERSIFY THEIR INVESTMENTS
BY ADDING EXPOSURE TO THE RAPIDLY GROWING EMERGING MARKETS.
THE PIERPONT DIVERSIFIED FUND SEEKS TO PROVIDE A HIGH TOTAL RETURN FROM A
DIVERSIFIED PORTFOLIO OF EQUITY AND FIXED INCOME SECURITIES. IT IS DESIGNED FOR
INVESTORS WHO WISH TO INVEST FOR LONG-TERM OBJECTIVES SUCH AS RETIREMENT AND WHO
SEEK OVER TIME TO ATTAIN REAL APPRECIATION IN THEIR INVESTMENTS, BUT WITH
SOMEWHAT LESS PRICE FLUCTUATION THAN A PORTFOLIO CONSISTING SOLELY OF EQUITY
SECURITIES.
EACH PORTFOLIO IS ADVISED BY MORGAN GUARANTY TRUST COMPANY OF NEW YORK
("MORGAN GUARANTY" OR "ADVISOR").
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT EACH PIERPONT
FUND INCLUDED IN THIS PROSPECTUS THAT A PROSPECTIVE INVESTOR OUGHT TO KNOW
BEFORE INVESTING AND SHOULD BE RETAINED FOR FUTURE REFERENCE. AN ADDITIONAL
FUND, THE PIERPONT NEW YORK TOTAL RETURN BOND FUND, IS COVERED IN A SEPARATE
PROSPECTUS. ADDITIONAL INFORMATION ABOUT EACH FUND HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IN A STATEMENT OF ADDITIONAL INFORMATION
DATED THE DATE OF THIS PROSPECTUS (AS SUPPLEMENTED FROM TIME TO TIME). THIS
INFORMATION IS INCORPORATED HEREIN BY REFERENCE AND IS AVAILABLE WITHOUT CHARGE
UPON WRITTEN REQUEST FROM THE FUNDS' DISTRIBUTOR, SIGNATURE BROKER-DEALER
SERVICES, INC., 6 ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116, ATTENTION: THE
PIERPONT FUNDS, OR BY CALLING (800) 847-9487.
INVESTMENTS IN THE PIERPONT FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY
OTHER BANK. SHARES OF THE PIERPONT FUNDS ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENTAL AGENCY. AN INVESTMENT IN ANY OF THE FUNDS IS SUBJECT TO RISK THAT
MAY CAUSE THE VALUE OF THE INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS
REDEEMED, THE VALUE MAY BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED
BY THE INVESTOR. ALTHOUGH THE PIERPONT MONEY MARKET FUND, THE PIERPONT TAX
EXEMPT MONEY MARKET FUND AND THE PIERPONT TREASURY MONEY MARKET FUND SEEK TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, THERE CAN BE NO ASSURANCE
THAT THEY WILL BE ABLE TO CONTINUE TO DO SO.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COM-
MISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PRO-
SPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER 29, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
---------
Investors for Whom the Funds Are Designed... 1
Financial Highlights........................ 4
Special Information Concerning Hub and
Spoke-Registered Trademark-................ 10
Investment Objectives and Policies.......... 11
Additional Investment Information and Risk
Factors.................................... 22
Investment Restrictions..................... 27
Management of the Trust and the
Portfolios.................................. 29
Shareholder Servicing....................... 32
PAGE
---------
Purchase of Shares.......................... 33
Redemption of Shares........................ 34
Exchange of Shares.......................... 36
Dividends and Distributions................. 36
Net Asset Value............................. 37
Organization................................ 37
Taxes....................................... 38
Additional Information...................... 40
Appendix.................................... 42
</TABLE>
<PAGE>
THE PIERPONT FUNDS
INVESTORS FOR WHOM THE FUNDS ARE DESIGNED
The Pierpont Funds offer investors the advantages of no-load mutual funds and
are designed to meet a broad range of investment objectives. Each of the Funds
seeks to achieve its investment objective by investing all of its investable
assets in its corresponding Portfolio, which has the same investment objective
as the Fund. Since the investment characteristics and experience of each Fund
will correspond directly with those of its corresponding Portfolio, the
discussion in this Prospectus focuses on the various investments and investment
policies of each Portfolio.
For investors interested in current income, preserving capital and
maintaining liquidity, there are The Pierpont Money Market Fund, The Pierpont
Tax Exempt Money Market Fund, and The Pierpont Treasury Money Market Fund. For
investors seeking higher current income in exchange for some risk of capital,
The Pierpont Short Term Bond Fund, The Pierpont Bond Fund and The Pierpont Tax
Exempt Bond Fund and The Pierpont New York Total Return Bond Fund are available.
(The Pierpont New York Total Return Bond Fund is described in, and its shares
are offered pursuant to, a separate prospectus.) For those investors who wish to
participate primarily in the U.S. equity markets, The Pierpont Equity Fund and
The Pierpont Capital Appreciation Fund are attractive alternatives. The Pierpont
International Equity Fund and The Pierpont Emerging Markets Equity Fund are
available for investors who seek to diversify their investments by adding
international equities. For investors interested in a diversified portfolio of
equity and fixed income securities, The Pierpont Diversified Fund is available.
The Pierpont Money Market Fund, The Pierpont Tax Exempt Money Market Fund and
The Pierpont Treasury Money Market Fund each seek to maintain a stable net asset
value of $1.00 per share; there can be no assurance that they will be able to
continue to do so. The net asset value of shares in the other Pierpont Funds
fluctuates with changes in the value of the investments in their corresponding
Portfolios. In view of the capitalization of the companies in which The Pierpont
Capital Appreciation Fund invests, the risks of investment in this Fund and the
volatility of the value of its shares may be greater than the general equity
markets. In addition, The Pierpont International Equity Fund's and The Pierpont
Emerging Markets Equity Fund's investments in securities of foreign issuers,
including issuers in emerging markets, involve foreign investment risks and may
be more volatile and less liquid than domestic securities. Each of these Funds
may make various types of investments in seeking its objectives. Among the
permissible investments and investment techniques for certain Funds are futures
contracts, options, forward contracts on foreign currencies and certain
privately placed securities. For further information about these investments and
investment techniques, and the Funds which may use them, see Investment
Objectives and Policies discussed below.
The required minimum initial investment in each of The Pierpont Funds is
$100,000, except that the minimum initial investment in The Pierpont Money
Market Fund, The Pierpont Tax Exempt Money Market Fund, and The Pierpont
Treasury Money Market Fund is $25,000. The minimum subsequent investment is
$5,000. For information about investments in additional Funds or maintenance of
a Fund account, see Purchase of Shares and Redemption of Shares.
This Prospectus describes the financial history, investment objectives and
policies, management and operation of each of The Pierpont Funds to enable
investors to select the Funds which best suit their needs. The Pierpont Funds
operate through Signature Financial Group, Inc.'s ("Signature") Hub and
Spoke-Registered Trademark- financial services method. Formerly, The Pierpont
Money Market Fund, The Pierpont Tax Exempt Money Market Fund, The Pierpont Bond
Fund, The Pierpont Tax Exempt Bond Fund, The Pierpont Equity Fund, The Pierpont
Capital Appreciation Fund and The Pierpont International Equity Fund operated as
free-standing mutual funds not through Hub and Spoke-Registered Trademark-. The
Trustees believe that each Fund may achieve economies of scale over time by
investing through the Hub and Spoke structure. Where indicated in this
Prospectus, historical information for these Funds includes information for
their respective predecessor entities.
1
<PAGE>
The following table illustrates that investors in The Pierpont Funds incur no
shareholder transaction expenses; their investment in the Funds is subject only
to the operating expenses set forth below for each Fund and its corresponding
Portfolio, as a percentage of average net assets of the Fund. The Trustees of
the Trust believe that the aggregate per share expenses of each Fund and its
corresponding Portfolio will be approximately equal to and may be less than the
expenses that each Fund would incur if it retained the services of an investment
adviser and invested its assets directly in portfolio securities. Fund and
Portfolio expenses are discussed below under the headings Management of the
Trust and the Portfolios and Shareholder Servicing.
THE PIERPONT FUNDS
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases NONE
Sales Load Imposed on Reinvested Dividends NONE
Deferred Sales Load NONE
Redemption Fees NONE
Exchange Fees NONE
</TABLE>
EXPENSE TABLE
<TABLE>
<CAPTION>
TAX EXEMPT TREASURY CAPITAL
ANNUAL OPERATING MONEY MONEY MONEY MARKET SHORT TERM TAX EXEMPT EQUITY APPRECIATION
EXPENSES* MARKET FUND MARKET FUND FUND BOND FUND BOND FUND BOND FUND FUND FUND
- ----------------------- ----------- ----------- ------------ ---------- ---------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advisory Fee........... 0.12% 0.17% 0.20% 0.25% 0.30% 0.30% 0.40% 0.60%
Rule 12b-1 Fees........ None None None None None None None None
Other Expenses After
Applicable Expense
Reimbursements........ 0.29% 0.31% 0.20% 0.42% 0.43% 0.40% 0.44% 0.30%
----------- ----------- ------ ---------- ---------- ----------- ---------- ------
Total Operating
Expenses After
Applicable Expense
Reimbursements........ 0.41% 0.48% 0.40% 0.67% 0.73% 0.70% 0.84% 0.90%
<CAPTION>
EMERGING
ANNUAL OPERATING INTERNATIONAL MARKETS DIVERSIFIED
EXPENSES* EQUITY FUND EQUITY FUND FUND
- ----------------------- --------------- ------------ -------------
<S> <C> <C> <C>
Advisory Fee........... 0.60% 1.00% 0.55%
Rule 12b-1 Fees........ None None None
Other Expenses After
Applicable Expense
Reimbursements........ 0.60% 0.79% 0.43%
------ ------ ------
Total Operating
Expenses After
Applicable Expense
Reimbursements........ 1.20% 1.79% 0.98%
<FN>
* For each of The Pierpont Treasury Money Market, Short Term Bond, Capital
Appreciation and Diversified Funds, fees and expenses expressed as a
percentage of the Fund's average daily net assets for its most recent fiscal
year, after any expense reimbursements. If the above expense table reflected
these expenses without current reimbursements, Total Operating Expenses would
be as follows: The Pierpont Treasury Money Market Fund, 0.57%; The Pierpont
Short Term Bond Fund, 1.45%; The Pierpont Capital Appreciation Fund, 1.06%;
and The Pierpont Diversified Fund, 1.32%. For each of The Pierpont Money
Market, Tax Exempt Money Market, Bond, Tax Exempt Bond, Equity, International
Equity and Emerging Markets Equity Funds, fees and expenses are expressed as a
percentage of the Fund's estimated average daily net assets for its current
fiscal year and reflect the fact that no expense reimbursement arrangements
are currently applicable. For actual historical expense information for the
Funds, see Financial Highlights below. See also Management of the Trust and
the Portfolios.
</TABLE>
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
TAX EXEMPT TREASURY
MONEY MONEY MARKET MONEY MARKET SHORT TERM TAX EXEMPT
MARKET FUND FUND FUND BOND FUND BOND FUND BOND FUND EQUITY FUND
----------- ------------- ------------- ----------- ----- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year............... $ 4 $ 5 $ 4 $ 7 $ 7 $ 7 $ 9
3 Years.............. $ 13 $ 15 $ 13 $ 21 $ 23 $ 22 $ 27
5 Years.............. $ 23 $ 27 $ 22 $ 37 $ 41 $ 39 $ 47
10 Years............. $ 52 $ 60 $ 51 $ 83 $ 91 $ 87 $ 104
<CAPTION>
EMERGING
CAPITAL INTERNATIONAL MARKETS DIVERSIFIED
APPRECIATION FUND EQUITY FUND EQUITY FUND FUND
----------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C>
1 Year............... $ 9 $ 12 $ 18 $ 10
3 Years.............. $ 29 $ 38 $ 56 $ 31
5 Years.............. $ 50 $ 66 $ 97 $ 54
10 Years............. $ 111 $ 145 $ 211 $ 120
</TABLE>
2
<PAGE>
The above expense table is designed to assist investors in understanding the
various direct and indirect costs and expenses that investors in each Fund bear.
The fees and expenses included in Other Expenses are the fees paid to Morgan
Guaranty under the Administrative Services and the Shareholder Servicing
Agreements, the fees paid to Pierpont Group, Inc. under the Fund Services
Agreements, the fee paid to SBDS under the Administration Agreements,
organizational expenses, the fees paid to State Street Bank and Trust Company as
custodian and transfer agent, and other usual and customary expenses of the Fund
and Portfolio. For a more detailed description of contractual fee arrangements,
including expense reimbursements, see Management of the Trust and Portfolios and
Shareholder Servicing. In connection with the above Example, please note that
$1,000 is less than the Funds' minimum investment requirement and that there are
no redemption or exchange fees of any kind. See Purchase of Shares and
Redemption of Shares. THE EXAMPLE IS HYPOTHETICAL; IT IS SOLELY FOR ILLUSTRATIVE
PURPOSES. IT SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE PERFORMANCE;
ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following selected data for a share outstanding of each of the Funds for
the indicated periods should be read in conjunction with the financial
statements and related notes which are contained in the annual report for each
Fund and are incorporated by reference into the Statement of Additional
Information. The following selected data have been audited by independent
accountants except as noted below. Each annual report includes a discussion of
those factors, strategies and techniques that materially affected their
performance during the period of the report, as well as certain related
information. A copy of any annual report will be made available without charge
upon request.
<TABLE>
<CAPTION>
THE PIERPONT MONEY MARKET FUND
FOR THE FOR THE FISCAL YEAR ENDED NOVEMBER 30
SIX MONTHS ENDED ---------------------------------------------------
MAY 31, 1995 1994 1993(1) 1992 1991
---------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------------ ----------- ----------- -----------
Income From Investment
Operations:
Net Investment Income 0.0278 0.0367 0.0281 0.0371 0.0612
Net Realized Gain
(Loss) on Investment 0.0000(a) (0.0000)(a) 0.0003 0.0006 0.0002
-------- ------------ ----------- ----------- -----------
Total From Investment
Operations 0.0278 0.0367 0.0284 0.0377 0.0614
-------- ------------ ----------- ----------- -----------
Less Distributions to
Shareholders From:
Net Investment Income (0.0278) (0.0367) (0.0281) (0.0371) (0.0612)
Net Realized Gain -0- -0- (0.0003) (0.0006) (0.0002)
-------- ------------ ----------- ----------- -----------
Total Distributions to
Shareholders (0.0278) (0.0367) (0.0284) (0.0377) (0.0614)
-------- ------------ ----------- ----------- -----------
Net Asset Value, End of
Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------------ ----------- ----------- -----------
-------- ------------ ----------- ----------- -----------
Total Return 2.82% (c) 3.73% 2.89% (b) 3.83% (b) 6.31% (b)
Ratios and Supplemental
Data:
Net Assets at End of
Period (In Thousands) $2,102,885 $2,003,690 $2,562,713 $2,700,392 $3,058,559
Ratios to Average Net
Assets:
Expenses 0.42% (d) 0.43% 0.43% 0.43% 0.43%
Net Investment Income 5.58% (d) 3.64% 2.82% 3.74% 6.10%
Decrease Reflected in
the Above Expense
Ratio due to Expense
Reimbursements 0.00% (d)(e) 0.01% 0.01% 0.01% 0.01%
<CAPTION>
1990 1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- ----------- -----------
Income From Investment
Operations:
Net Investment Income 0.0780 0.0877 0.0705 0.0606 0.0652 0.0781
Net Realized Gain
(Loss) on Investment -0- -0- -0- -0- 0.0002 0.0001
----------- ----------- ----------- ----------- ----------- -----------
Total From Investment
Operations 0.0780 0.0877 0.0705 0.0606 0.0654 0.0782
----------- ----------- ----------- ----------- ----------- -----------
Less Distributions to
Shareholders From:
Net Investment Income (0.0780) (0.0877) (0.0705) (0.0606) (0.0652) (0.0781)
Net Realized Gain -0- -0- -0- -0- (0.0002) (0.0001)
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions to
Shareholders (0.0780) (0.0877) (0.0705) (0.0606) (0.0654) (0.0782)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of
Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Total Return 8.09% (b) 9.15% (b) 7.25% (b) 6.23% (b) 6.73% (b) 8.15% (b)
Ratios and Supplemental
Data:
Net Assets at End of
Period (In Thousands) $2,355,980 $2,156,326 $1,897,513 $1,239,022 $1,229,640 $811,831
Ratios to Average Net
Assets:
Expenses 0.47% 0.46% 0.49% 0.54% 0.58% 0.61%
Net Investment Income 7.80% 8.77% 7.05% 6.06% 6.52% 7.81%
Decrease Reflected in
the Above Expense
Ratio due to Expense
Reimbursements -- -- -- -- -- --
<FN>
(1) In July, 1993 the Fund's predecessor contributed all of its investable
assets to The Money Market Portfolio.
(a) Less than $0.0001 per share.
(b) Total return has been restated to reflect dividend reinvestment.
(c) Not Annualized.
(d) Annualized.
(e) Less than 0.01%.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
THE PIERPONT TAX EXEMPT MONEY MARKET FUND
FOR THE FISCAL YEAR ENDED AUGUST 31
------------------------------------------------------------
1995 1994 1993(1) 1992 1991
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ---------- --------- ---------
Income From Investment
Operations:
Net Investment Income 0.0336 0.0212 0.0214 0.0317 0.0460
Net Realized Gain
(Loss) on Investment (0.0002) (0.0000)(a) 0.0001 0.0002 (0.0000)(a)
------------ ------------ ---------- --------- ---------
Total From Investment
Operations 0.0334 0.0212 0.0215 0.0319 0.0460
------------ ------------ ---------- --------- ---------
Less Distributions to
Shareholders From:
Net Investment Income (0.0336) (0.0212) (0.0214) (0.0317) (0.0460)
Net Realized Gain -- (0.0000)(a) (0.0002) -0- -0-
------------ ------------ ---------- --------- ---------
Total Distributions to
Shareholders (0.0336) (0.0212) (0.0216) (0.0317) (0.0460)
------------ ------------ ---------- --------- ---------
Net Asset Value, End of
Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ---------- --------- ---------
------------ ------------ ---------- --------- ---------
Total Return 3.41% 2.14% 2.15% 3.19% 4.60%
Ratios and Supplemental Data:
Net Assets, End of
Period (In Thousands) $985,069 $973,599 $1,007,330 $922,358 $877,422
Ratios to Average Net
Assets:
Expenses 0.51% 0.52% 0.52% 0.53% 0.55%
Net Investment Income 3.35% 2.10% 2.14% 3.16% 4.60%
Decrease Reflected in
Above Expense Ratio
due to Expense
Reimbursements 0.00% (b) 0.01% 0.01% 0.01% 0.01%
<CAPTION>
1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
Income From Investment
Operations:
Net Investment Income 0.0550 0.0581 0.0455 0.0387 0.0460
Net Realized Gain
(Loss) on Investment -0- 0.0001 0.0001 0.0005 0.0001
--------- --------- --------- --------- ---------
Total From Investment
Operations 0.0550 0.0582 0.0456 0.0392 0.0461
--------- --------- --------- --------- ---------
Less Distributions to
Shareholders From:
Net Investment Income (0.0550) (0.0581) (0.0455) (0.0387) (0.0460)
Net Realized Gain -0- (0.0001) (0.0001) (0.0005) (0.0001)
--------- --------- --------- --------- ---------
Total Distributions to
Shareholders (0.0550) (0.0582) (0.0456) (0.0392) (0.0461)
--------- --------- --------- --------- ---------
Net Asset Value, End of
Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total Return 5.50% 5.82% 4.56% 3.92% 4.61%
Ratios and Supplemental D
Net Assets, End of
Period (In Thousands) $903,157 $876,051 $895,596 $980,544 $868,028
Ratios to Average Net
Assets:
Expenses 0.57% 0.53% 0.55% 0.56% 0.61%
Net Investment Income 5.51% 5.79% 4.54% 3.88% 4.59%
Decrease Reflected in
Above Expense Ratio
due to Expense
Reimbursements -- -- -- -- --
<FN>
(1) In July, 1993 the Fund's predecessor contributed all of its investable
assets to The Tax Exempt Money Market Portfolio.
(a) Less than $0.0001 per share.
(b) Less than 0.01%.
</TABLE>
<TABLE>
<CAPTION>
THE PIERPONT TREASURY MONEY MARKET FUND
<S> <C> <C> <C>
FOR THE PERIOD
FOR THE FOR THE FISCAL JANUARY 4, 1993
SIX MONTHS ENDED YEAR ENDED TO OCTOBER 31,
APRIL 30, 1995 OCTOBER 31, 1994 1993(1)
-----------------------------------------------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00
------- ------- -------
Income From Investment Operations:
Net Investment Income 0.0263 0.0333 0.0208
Net Realized Gain (Loss) on Investment 0.0000(a) (0.0000)(a) 0.0002
------- ------- -------
Total from Investment Operations 0.0263 0.0333 0.0210
------- ------- -------
Less Distributions to Shareholders From:
Net Investment Income (0.0263) (0.0333) (0.0208)
Net Realized Gain 0.0000 (0.0002) (0.0000)(a)
------- ------- -------
Total Distributions to Shareholders (0.0263) (0.0335) (0.0208)
------- ------- -------
Net Asset Value, End of Period $1.00 $1.00 $1.00
------- ------- -------
------- ------- -------
Total Return 2.66%(b) 3.41% 2.10%(b)
Ratios and Supplemental Data:
Net Assets at End of Period (In Thousands) $155,126 $118,631 $83,097
Ratios to Average Net Assets:
Expenses 0.40%(c) 0.40% 0.48%(c)
Net Investment Income 5.31%(c) 3.40% 2.53%(c)
Decrease Reflected in Above Expense Ratio due
to Expense Reimbursements 0.20%(c) 0.22% 0.26%(c)
<FN>
(1) Commencement of Operations January 4, 1993.
(a) Less than $0.0001 per share.
(b) Not annualized.
(c) Annualized.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
THE PIERPONT SHORT TERM BOND FUND
<S> <C> <C> <C>
FOR THE PERIOD
FOR THE FOR THE FISCAL JULY 8, 1993
SIX MONTHS ENDED YEAR ENDED TO OCTOBER 31,
APRIL 30, 1995 OCTOBER 31, 1994 1993(1)
------------------------------------------------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.60 $ 9.99 $10.00
------ ------ ------
Income From Investment Operations:
Net Investment Income 0.29 0.45 0.10
Net Realized and Unrealized Loss on Investment 0.08 (0.39) (0.01)
------ ------ ------
Total from Investment Operations 0.37 0.06 0.09
------ ------ ------
Less Distributions to Shareholders From:
Net Investment Income (0.29) (0.45) (0.10)
------ ------ ------
Net Asset Value, End of Period $ 9.68 $ 9.60 $ 9.99
------ ------ ------
------ ------ ------
Total Return 3.88%(a) 0.61% 0.94%(a)
Ratios and Supplemental Data:
Net Assets at End of Period (In Thousands) $8,737 $6,008 $6,842
Ratios to Average Net Assets:
Expenses 0.67%(b) 0.69% 0.67%(b)
Net Investment Income 6.05%(b) 4.49% 3.44%(b)
Decrease Reflected in Above Expense Ratio due
to Expense Reimbursements 1.11%(b) 1.36% 2.80%(b)
<FN>
(1) Commencement of Operations July 8, 1993.
(a) Not Annualized.
(b) Annualized.
</TABLE>
<TABLE>
<CAPTION>
THE PIERPONT BOND FUND
<S> <C> <C> <C> <C>
FOR THE FOR THE FISCAL YEAR ENDED OCTOBER 31
SIX MONTHS ENDED ------------------------------------
APRIL 30, 1995 1994 1993 1992
<CAPTION>
-------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.64 $11.00 $10.52 $10.32
------- ---------- ------------ --------
Income From Investment Operations:
Net Investment Income 0.32 0.55 0.54 0.66
Net Realized and Unrealized Gain
(Loss) on Investment 0.28 (0.91) 0.67 0.28
------- ---------- ------------ --------
Total From Investment Operations 0.60 (0.36) 1.21 0.94
------- ---------- ------------ --------
Less Distributions to Shareholders From:
Net Investment Income (0.32) (0.55) (0.54) (0.66)
Net Realized Gain -0- (0.45) (0.19) (0.08)
------- ---------- ------------ --------
Total Distributions to Shareholders (0.32) (1.00) (0.73) (0.74)
------- ---------- ------------ --------
Net Asset Value, End of Period $9.92 $9.64 $11.00 $10.52
------- ---------- ------------ --------
------- ---------- ------------ --------
Total Return 6.34%(a) (3.50)% 11.97% 9.35%
Ratios and Supplemental Data:
Net Assets at End of Period (In
Thousands) $118,893 $112,049 $103,572 $75,822
Ratios to Average Net Assets:
Expenses 0.74%(b) 0.78% 0.81% 0.81%
Net Investment Income 6.69%(b) 5.43% 5.01% 6.26%
Decrease Reflected in Above Expense
Ratio due to Expense Reimbursements 0.01%(b) 0.01% 0.08% 0.20%
Portfolio Turnover -- -- 236.39%(c) 267.04%
<CAPTION>
<S> <C> <C> <C> <C>
1991 1990 1989 1988(1)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.93 $9.84 $9.84 $10.00
-------- -------- ------- ----------
Income From Investment Operations:
Net Investment Income 0.70 0.74 0.78 0.46
Net Realized and Unrealized Gain
(Loss) on Investment 0.41 0.09 -0- (0.16)
-------- -------- ------- ----------
Total From Investment Operations 1.11 0.83 0.78 0.30
-------- -------- ------- ----------
Less Distributions to Shareholders From:
Net Investment Income (0.70) (0.74) (0.78) (0.46)
Net Realized Gain (0.02) -0- -0- -0-
-------- -------- ------- ----------
Total Distributions to Shareholders (0.72) (0.74) (0.78) (0.46)
-------- -------- ------- ----------
Net Asset Value, End of Period $10.32 $9.93 $9.84 $9.84
-------- -------- ------- ----------
-------- -------- ------- ----------
Total Return 11.55% 8.78% 8.27% 3.12%(a)
Ratios and Supplemental Data:
Net Assets at End of Period (In
Thousands) $41,616 $12,306 $8,449 $4,847
Ratios to Average Net Assets:
Expenses 0.81% 0.83% 0.84% 0.85%(b)
Net Investment Income 6.84% 7.58% 7.92% 7.40%(b)
Decrease Reflected in Above Expense
Ratio due to Expense Reimbursements 0.58% 1.26% 2.40% 3.13%(b)
Portfolio Turnover 166.78% 68.55% 81.92% 143.67%
<FN>
(1) Commencement of Operations March 11, 1988.
(a) Not annualized.
(b) Annualized.
(c) 1993 Portfolio Turnover reflects the period November 1, 1992 to July 11,
1993 and has not been annualized. In July, 1993, the Fund's predecessor
contributed all of its investable assets to The U.S. Fixed Income Portfolio.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
THE PIERPONT TAX EXEMPT BOND FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE FOR THE FISCAL YEAR ENDED AUGUST 31
SIX MONTHS ENDED ---------------------------------------------------------------------------------
FEBRUARY 28, 1995 1994 1993 1992 1991 1990 1989 1988 1987
<CAPTION>
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period $ 11.45 $12.04 $11.60 $11.19 $10.75 $10.85 $10.72 $10.84 $11.15
------ ------ ------ -------- -------- -------- -------- -------- --------
Income From
Investment
Operations:
Net Investment
Income 0.28 0.51 0.55 0.62 0.68 0.70 0.71 0.71 0.69
Net Realized and
Unrealized Gain
(Loss) on
Investment (0.03) (0.35 ) 0.56 0.41 0.44 (0.10) 0.13 (0.12) (0.27)
------ ------ ------ -------- -------- -------- -------- -------- --------
Total From
Investment
Operations 0.25 0.16 1.11 1.03 1.12 0.60 0.84 0.59 0.42
------ ------ ------ -------- -------- -------- -------- -------- --------
Less Distributions
to Shareholders
From:
Net Investment
Income (0.28) (0.51 ) (0.55 ) (0.62) (0.68) (0.70) (0.71) (0.71) (0.69)
Net Realized
Gain (0.01) (0.24 ) (0.12 ) -0- -0- -0- -0- -0- (0.04)
------ ------ ------ -------- -------- -------- -------- -------- --------
Total
Distributions to
Shareholders (0.29) (0.75 ) (0.67 ) (0.62) (0.68) (0.70) (0.71) (0.71) (0.73)
------ ------ ------ -------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $ 11.41 $11.45 $12.04 $11.60 $11.19 $10.75 $10.85 $10.72 $10.84
------ ------ ------ -------- -------- -------- -------- -------- --------
------ ------ ------ -------- -------- -------- -------- -------- --------
Total Return 2.22%(a) 1.35% 9.88% 9.47% 10.67% 5.65% 8.11% 5.64% 3.43%
Ratios and
Supplemental
Data:
Net Assets, End
of Period (In
Thousands) $355,885 $392,460 $485,013 $360,343 $239,709 $151,755 $133,638 $118,066 $137,944
Ratios to
Average Net
Assets:
Expenses 0.72%(b) 0.71% 0.74% 0.77% 0.78% 0.79% 0.80% 0.80% 0.80%
Net Investment
Income 4.98%(b) 4.39% 4.64% 5.45% 6.12% 6.43% 6.62% 6.62% 6.17%
Decrease
Reflected in
the Above
Expense Ratio
due to
Expense
Reimbursements -- -- 0.01% 0.01% 0.02% 0.04% 0.06% 0.08% 0.05%
Portfolio
Turnover -- -- 40.80%(a) 19.94% 16.39% 7.45% 10.19% 20.03% 51.77%
<CAPTION>
<S> <C>
1986
<S> <C>
Net Asset Value,
Beginning of
Period $10.30
--------
Income From
Investment
Operations:
Net Investment
Income 0.75
Net Realized and
Unrealized Gain
(Loss) on
Investment 0.92
--------
Total From
Investment
Operations 1.67
--------
Less Distributions
to Shareholders
From:
Net Investment
Income (0.75)
Net Realized
Gain (0.07)
--------
Total
Distributions to
Shareholders (0.82)
--------
Net Asset Value,
End of Period $11.15
--------
--------
Total Return 16.05%
Ratios and
Supplemental
Data:
Net Assets, End
of Period (In
Thousands) $125,475
Ratios to
Average Net
Assets:
Expenses 0.80%
Net Investment
Income 6.94%
Decrease
Reflected in
the Above
Expense Ratio
due to
Expense
Reimbursements 0.11%
Portfolio
Turnover 38.12%
<FN>
(1) Commencement of Operations October 3, 1984.
(a) 1993 Portfolio Turnover reflects the period September 1, 1992 to July 11,
1993 and has not been annualized. In July, 1993, the Fund's predecessor
contributed all of its investable assets to The Tax Exempt Bond Portfolio.
</TABLE>
<TABLE>
<CAPTION>
THE PIERPONT EQUITY FUND
FOR THE FISCAL YEAR ENDED MAY 31
------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of
Period $19.38 $19.30 $19.02 $ 18.21 $16.51 $14.54 $12.04 $14.23 $12.86 $10.00
------- ---------- -------- -------- ------- ------- ------- ------- ------- ----------
Income From
Investment
Operations:
Net Investment
Income 0.32 0.27 0.38 0.37 0.44 0.44 0.46 0.42 0.43 0.22
Net Realized and
Unrealized Gain
(Loss) From
Portfolio 2.17 1.32 1.35 2.13 1.90 2.20 2.49 (1.53) 1.55 2.84
------- ---------- -------- -------- ------- ------- ------- ------- ------- ----------
Total From
Investment
Operations 2.49 1.59 1.73 2.50 2.34 2.64 2.95 (1.11) 1.98 3.06
------- ---------- -------- -------- ------- ------- ------- ------- ------- ----------
Less Distributions
to Shareholders
From:
Net Investment
Income (0.28) (0.29) (0.36) (0.40) (0.45) (0.44) (0.45) (0.41) (0.39) (0.20)
Net Capital Gains (2.17) (1.22) (1.09) (1.29) (0.19) (0.23) -0- (0.67) (0.22) -0-
------- ---------- -------- -------- ------- ------- ------- ------- ------- ----------
Total Distributions
to Shareholders (2.45) (1.51) (1.45) (1.69) (0.64) (0.67) (0.45) (1.08) (0.61) (0.20)
------- ---------- -------- -------- ------- ------- ------- ------- ------- ----------
Net Asset Value,
End of Period $19.42 $19.38 $19.30 $ 19.02 $18.21 $16.51 $14.54 $12.04 $14.23 $12.86
------- ---------- -------- -------- ------- ------- ------- ------- ------- ----------
------- ---------- -------- -------- ------- ------- ------- ------- ------- ----------
Total Return 15.11% 8.54% 10.02% 14.60% 14.81% 18.75% 25.12% (8.08)% 16.03% 30.96%(a)
Ratios and
Supplemental
Data:
Net Assets, End
of Period (In
Thousands) $259,338 $231,306 $202,474 $109,246 $55,144 $40,032 $27,677 $24,970 $30,268 $13,628
Ratios to Average
Net Assets:
Expenses 0.90% 0.90% 0.90% 0.90% 0.91% 0.93% 1.00% 1.00% 0.99% 0.99%(b)
Net Investment
Income 1.74 1.43% 2.20% 2.16% 2.81% 2.97% 3.52% 3.26% 3.26% 3.90%(b)
Decrease
Reflected in
the Above
Expense Ratio
due to Expense
Reimbursements 0.01% 0.03% 0.08% 0.19% 0.38% 0.41% 0.45% 0.34% 0.57% 2.14%(b)
Portfolio
Turnover -- 10.00%(c) 59.61% 99.20% 43.26% 23.20% 17.76% 29.46% 32.31% 51.68%
<FN>
(1) Commencement of Operations June 27, 1985.
(a) Not annualized.
(b) Annualized.
(c) Portfolio Turnover reflects the period June 1, 1993 to July 18, 1993 and has
not been annualized. In July, 1993, the Fund's predecessor contributed all
of its investable assets to The Selected U.S. Equity Portfolio.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
THE PIERPONT CAPITAL APPRECIATION FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE FISCAL YEAR ENDED MAY 31
--------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986(1)
<CAPTION>
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period $ 21.40 $ 25.12 $ 20.03 $ 17.98 $ 18.68 $ 16.83 $12.91 $15.71 $14.34 $10.00
--------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Income From
Investment
Operations:
Net Investment
Income (Loss)(a) 0.22 0.20 (0.01) (0.04) (0.02) (0.03) (0.03) (0.02) -0- 0.04
Net Realized and
Unrealized Gain
(Loss) on
Investment 2.13 0.19 5.10 2.09 (0.33) 1.88 3.95 (2.13) 1.56 4.33
--------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total From
Investment
Operations 2.35 0.39 5.09 2.05 (0.35) 1.85 3.92 (2.15) 1.56 4.37
--------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Less Distributions
to Shareholders
From:
Net Investment
Income (0.21) (0.09) -0- -0- -0- -0- -0- -0- (0.02) (0.03)
Net Realized Gain (1.52) (4.02) -0- -0- (0.35) -0- -0- (0.65) (0.17) -0-
--------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total Distributions
to Shareholders (1.73) (4.11) -0- -0- (0.35) -0- -0- (0.65) (0.19) (0.03)
--------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Net Asset Value, End
of Period $ 22.02 $ 21.40 $ 25.12 $ 20.03 $ 17.98 $ 18.68 $ 16.83 $ 12.91 $ 15.71 $14.34
--------- -------- -------- -------- -------- -------- -------- -------- -------- -------
--------- -------- -------- -------- -------- -------- -------- -------- -------- -------
Total Return 12.28% 1.14% 25.41% 11.40% (1.90)% 10.99% 30.36% (14.25)% 10.83% 43.86%(b)
Ratios and
Supplemental Data:
Net Assets, End of
Period (In
Thousands) $179,130 $204,445 $186,887 $97,548 $58,859 $47,921 $42,403 $30,866 $42,780 $21,207
Ratios to Average
Net Assets:
Expenses 0.90% 0.90% 0.90% 0.90% 0.91% 0.93% 1.00% 1.00% 1.00% 0.99%(c)
Net Investment
Income (Loss) 1.02% 0.75% (0.06)% (0.25)% (0.15)% (0.18)% (0.23)% (0.15)% (0.01)% 0.74%(c)
Decrease
Reflected in
the Above
Expense Ratio
due to Expense
Reimbursements 0.22% 0.20% 0.05% 0.13% 0.31% 0.32% 0.36% 0.31% 0.38% 1.54%(c)
Portfolio Turnover -- 13.58%(d) 49.50% 58.33% 55.65% 65.77% 38.30% 77.99% 78.70% 47.69%
<FN>
(1) Commencement of Operations June 27, 1985.
(a) Based on shares outstanding at the beginning and end of each period except
for the fiscal year ended May 31, 1991, where average shares outstanding
were used.
(b) Not annualized.
(c) Annualized.
(d) Portfolio Turnover reflects the period June 1, 1993, to July 18, 1993 and
has not been annualized. In July, 1993, the Fund's predecessor contributed
all of its investable assets to The U.S. Small Company Portfolio.
</TABLE>
<TABLE>
<CAPTION>
THE PIERPONT INTERNATIONAL EQUITY FUND
<S> <C> <C> <C> <C> <C> <C>
FOR THE
SIX MONTHS
ENDED FOR THE FISCAL YEAR ENDED OCTOBER 31
APRIL 30, --------------------------------------------------------
1995 1994 1993 1992 1991 1990(1)
<CAPTION>
----------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $11.50 $11.15 $8.58 $9.69 $9.33 $10.00
----------- --------- --------- --------- -------- ---------
Income From Investment Operations:
Net Investment Income 0.02 0.05 0.01 0.04 0.11 0.05
Net Realized and Unrealized Gain (Loss) on
Investment and Foreign Currency (0.18) 0.57 2.64 (1.11) 0.42 (0.72)
----------- --------- --------- --------- -------- ---------
Total From Investment Operations (0.16) 0.62 2.65 (1.07) 0.53 (0.67)
----------- --------- --------- --------- -------- ---------
Less Distributions to Shareholders From:
Net Investment Income -0- (0.04) (0.08) (0.04) (0.05) -0-
Net Realized Gain (0.49) (0.23) -0- -0- (0.12) -0-
----------- --------- --------- --------- -------- ---------
Total Distributions to Shareholders (0.49) (0.27) (0.08) (0.04) (0.17) -0-
----------- --------- --------- --------- -------- ---------
Net Asset Value, End of Period $10.85 $11.50 $11.15 $8.58 $9.69 $9.33
----------- --------- --------- --------- -------- ---------
----------- --------- --------- --------- -------- ---------
Total Return (1.16)%(a) 5.73% 31.18% (11.08)% 5.89% (6.70)%(a)
Ratios and Supplemental Data:
Net Assets at End of Period (In Thousands) $194,595 $210,435 $182,822 $41,484 $27,426 $19,358
Ratios to Average Net Assets:
Expenses 1.36%(b) 1.38% 1.38% 1.38% 1.38% 1.36%(b)
Net Investment Income 0.44%(b) 0.46% 0.79% 1.03% 1.34% 1.49%(b)
Decrease Reflected in the Above Expense Ratio
due to Expense Reimbursements 0.00%(b) 0.07% 0.13% 0.45% 0.66% 1.52%(b)
Portfolio Turnover -- -- 34.15%(c) 30.12% 18.84% 0.00%
<FN>
(1) Commencement of Operations June 1, 1990.
(a) Not annualized.
(b) Annualized.
(c) 1993 Portfolio Turnover reflects the period November 1, 1992 to October 3,
1993 and has not been annualized. In October, 1993, the Fund's predecessor
contributed all of its investable assets to The Non-U.S. Equity Portfolio.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
THE PIERPONT EMERGING MARKETS
EQUITY FUND
<S> <C> <C>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED NOVEMBER 15, 1993 TO
APRIL 30, 1995 OCTOBER 31, 1994(1)
<CAPTION>
------------------------------------------
(UNAUDITED)
<S> <C> <C>
Net Asset Value, Beginning of Period $12.43 $10.00
------------ ------------
Income From Investment Operations:
Net Investment Income 0.01 0.02
Net Realized and Unrealized Gain (Loss) on
Investment and Foreign Currency (2.60) 2.41
------------ ------------
Net Increase (Decrease) Resulting from
Operations (2.59) 2.43
------------ ------------
Less Distributions to Shareholders from
Net Investment Income (0.03) --
Net Realized Gain (0.14) --
------------ ------------
Total Distributions to Shareholders (0.17) --
------------ ------------
Net Asset Value, End of Period $9.67 $12.43
------------ ------------
------------ ------------
Total Return -20.99%(a) 24.30%(a)
Ratios and Supplemental Data:
Net Assets at end of Period (in thousands) $47,112 $53,431
Ratios to Average Net Assets (annualized):
Expenses 1.82% 1.84%
Net Investment Income 0.28% 0.25%
Decrease Reflected in above Expense Ratio due
to Expense Reimbursement 0.08% 0.12%
<FN>
(1) Commencement of Operations November 15, 1993.
(a) Not annualized.
</TABLE>
<TABLE>
<CAPTION>
THE PIERPONT DIVERSIFIED FUND
<S> <C> <C>
FOR THE FISCAL FOR THE PERIOD
YEAR ENDED DECEMBER 15, 1993 TO
JUNE 30, 1995 JUNE 30, 1994(1)
<CAPTION>
-------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $9.81 $10.00
--------- ------------
Income From Investment Operations:
Net Investment Income 0.28 0.09
Net Realized and Unrealized Gain (Loss) on
Investments, Foreign Currency and Futures 1.37 (0.27)
--------- ------------
Total From Investment Operations 1.65 (0.18)
--------- ------------
Less Dividends to Shareholders From:
Net Investment Income (0.20) (0.01)
Net Realized Gain on Investment, Foreign
Currency and Futures (0.06) --
--------- ------------
Total Distributions (0.26) (0.01)
Net Asset Value, End of Period $11.20 $9.81
--------- ------------
--------- ------------
Total Return 17.08% (1.82%)(a)
Ratios and Supplemental Data:
Net Assets at End of Period (In Thousands) $22,396 $7,023
Ratios to Average Net Assets:
Expenses 0.98% 0.98%(b)
Net Investment Income 3.39% 2.80%(b)
Decrease Reflected in the Above Expense Ratio
due to Fee Waivers and Expense Reimbursements 0.91% 1.52%(b)
<FN>
(1) Commencement of Operations December 15, 1993.
(a) Not annualized.
(b) Annualized.
</TABLE>
9
<PAGE>
SPECIAL INFORMATION CONCERNING HUB AND SPOKE-REGISTERED TRADEMARK-
The Trust and the Portfolios use certain proprietary rights, know-how and
financial services referred to as Hub and Spoke-Registered Trademark-. Hub and
Spoke is a registered service mark of Signature. Signature Broker-Dealer
Services, Inc. (the Trust's and the Portfolios' Administrator and the Trust's
Distributor) is a wholly owned subsidiary of Signature.
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each of the Funds is an open-end management investment
company which seeks to achieve its investment objective by investing all of its
investable assets in its corresponding Portfolio, a separate registered
investment company with the same investment objective as its corresponding Fund.
The investment objective of a Fund or a Portfolio may be changed only with the
approval of the holders of the outstanding shares of each Fund and its
corresponding Portfolio. The use of Hub and Spoke-Registered Trademark- has been
approved by the shareholders of each Fund or the shareholders of its respective
predecessor entity. The Hub and Spoke-Registered Trademark- investment fund
structure has been developed relatively recently, so shareholders should
carefully consider this investment approach.
In addition to selling a beneficial interest to a Fund, the corresponding
Portfolio may sell beneficial interests to other mutual funds or institutional
investors. Such investors will invest in the Portfolio on the same terms and
conditions and will bear a proportionate share of the Portfolio's expenses.
However, the other investors investing in the Portfolio may sell shares of their
own fund using a different pricing structure than the Fund. Such different
pricing structures may result in differences in returns experienced by investors
in other funds that invest in the same Portfolio. Such differences in returns
are not uncommon and are present in other mutual fund structures. Information
concerning other holders of interests in each Portfolio is available from the
Administrator at (800) 847-9487.
The Trust may withdraw the investment of any Fund from its corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interests of a Fund to do so. Upon any such withdrawal, the Board
of Trustees would consider what action might be taken, including the investment
of all the assets of the Fund in another pooled investment entity having the
same investment objective and restrictions as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described below with respect to its corresponding Portfolio.
Certain changes in a Portfolio's investment objective, policies or
restrictions, or a failure by a Fund's shareholders to approve a change in the
corresponding Portfolio's investment objective or restrictions, may require
withdrawal of that Fund's interest in that Portfolio. Any such withdrawal could
result in a distribution in kind of portfolio securities (as opposed to a cash
distribution) from that Portfolio which may or may not be readily marketable.
The distribution in kind may result in that Fund having a less diversified
portfolio of investments or adversely affect the Fund's liquidity, and that Fund
could incur brokerage, tax or other charges in converting the securities to
cash. Notwithstanding the above, there are other means for meeting shareholder
redemption requests, such as borrowing.
Smaller funds investing in a Portfolio may be materially affected by the
actions of larger funds investing in that Portfolio. For example, if a large
fund withdraws from a Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, because that Portfolio would become smaller, it may become less
diversified, resulting in potentially increased portfolio risk (however, these
possibilities also exist for traditionally structured funds which have large or
institutional investors who may withdraw from a fund). Also, funds with a
greater pro rata ownership in a Portfolio could have effective voting control of
the operations of a Portfolio. Whenever a Fund is requested to vote on matters
pertaining to its corresponding Portfolio (other than a vote by a Fund to
continue the operation of its corresponding Portfolio upon the withdrawal of
another investor in the Portfolio), the Trust will hold a meeting of
shareholders of the Fund and will cast all of its votes proportionately as
instructed by the Fund's shareholders. The Trust will vote the shares held by
Fund shareholders who do not give voting instructions in the same proportion as
the shares of Fund shareholders who do give voting instructions. Shareholders of
the Fund who do not vote will have no effect on the outcome of such matters.
For more information about a Portfolio's investment objective, policies and
restrictions, see Investment Objectives and Policies, Additional Investment
Information and Risk Factors and Investment Restrictions. For more information
about a Portfolio's management and expenses, see Management of the Trust and the
Portfolios. For more information about changing the investment objective,
policies and restrictions of a Fund or Portfolio, see Investment Restrictions.
10
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each of the Funds included in this Prospectus is
described below, together with the policies it employs in its efforts to achieve
this objective. As noted above, each of the Funds seeks to achieve its
investment objective by investing all of its investable assets in its
corresponding Portfolio, which has the same investment objective as its
corresponding Fund. Since the investment characteristics of each Fund will
correspond directly with those of its Portfolio, the following is a discussion
of the various investments and investment policies of each Portfolio. Additional
information about the investment policies of each Portfolio appears in the
Statement of Additional Information under Investment Objectives and Policies.
There can be no assurance that the investment objective of each Fund or its
corresponding Portfolio will be achieved.
THE PIERPONT MONEY MARKET FUND
The Pierpont Money Market Fund's investment objective is to maximize current
income and maintain a high level of liquidity. The Fund is designed for
investors who seek to preserve capital and earn current income from a portfolio
of high quality money market instruments. The Fund attempts to achieve its
objective by investing all of its investable assets in The Money Market
Portfolio, a diversified open-end management investment company having the same
investment objective as the Fund.
The Portfolio seeks to achieve its investment objective by maintaining a
dollar-weighted average portfolio maturity of not more than 90 days and by
investing in the following high quality U.S. dollar-denominated securities which
have effective maturities of not more than thirteen months. The Portfolio's
ability to achieve maximum current income is affected by its high quality
standards (discussed below).
U. S. GOVERNMENT OBLIGATIONS. The Portfolio may invest in obligations issued
or guaranteed by the U.S. Government and backed by the full faith and credit of
the United States. These securities include Treasury securities, obligations of
the Government National Mortgage Association, the Farmers Home Administration
and the Export Import Bank. The Portfolio may also invest in obligations issued
or guaranteed by U.S. Government agencies or instrumentalities where the
Portfolio must look principally to the issuing or guaranteeing agency for
ultimate repayment; some examples of agencies or instrumentalities issuing these
obligations are the Federal Farm Credit System, the Federal Home Loan Banks and
the Federal National Mortgage Association.
BANK OBLIGATIONS. The Portfolio may invest in high quality U.S.
dollar-denominated 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 and are organized under
U.S. federal or state law, (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 Portfolio 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). These obligations may be supported by appropriated but
unpaid commitments of their member countries, and there is no assurance these
commitments will be undertaken or met in the future.
COMMERCIAL PAPER; BONDS. The Portfolio may invest in high quality commercial
paper and corporate bonds issued by U.S. corporations. The Portfolio may also
invest in bonds and commercial paper of foreign issuers if the obligation is
U.S. dollar-denominated and is not subject to foreign withholding tax.
ASSET-BACKED SECURITIES. The Portfolio may also invest in securities
generally referred to as asset-backed securities, which directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets such as motor vehicle or
credit card receivables. Asset-backed securities provide periodic payments that
generally consist of both interest and principal payments. Consequently, the
life of an asset-backed security varies with the prepayment experience of the
underlying debt instruments.
QUALITY INFORMATION. The Portfolio will limit its investments to those
securities which, in accordance with guidelines adopted by the Trustees, present
minimal credit risks. In addition, the Portfolio will not purchase any security
(other than a U.S. Government security) unless (i) it is rated with the highest
rating assigned to short-term debt securities by at least two nationally
recognized statistical rating organizations such as Moody's Investors Service,
Inc. ("Moody's") and Standard & Poor's Corporation ("Standard & Poor's"), (ii)
it is rated by only one
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agency with the highest such rating, or (iii) it is not rated and is determined
to be of comparable quality. Determinations of comparable quality shall be made
in accordance with procedures established by the Trustees. For a more detailed
discussion of applicable quality requirements, see Investment Objectives and
Policies in the Statement of Additional Information. These standards must be
satisfied at the time an investment is made. If the quality of the investment
later declines below the quality required for purchase, the Portfolio shall
dispose of the investment, subject in certain circumstances to a finding by the
Trustees that disposing of the investment would not be in the Portfolio's best
interest.
The Portfolio may also invest in securities on a when-issued or delayed
delivery basis and in certain privately placed securities. The Portfolio may
also enter into repurchase and reverse repurchase agreements and loan its
portfolio securities. For a discussion of these investments and for more
information on foreign investments, see Additional Investment Information and
Risk Factors.
THE PIERPONT TAX EXEMPT
MONEY MARKET FUND
The Pierpont Tax Exempt Money Market Fund's investment objective is to
provide a high level of current income that is exempt from federal income tax
and maintain a high level of liquidity. The Fund is designed for investors who
seek current income exempt from federal income tax, stability of capital and
liquidity. See Taxes. The Fund attempts to achieve its objective by investing
all of its investable assets in The Tax Exempt Money Market Portfolio, a
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 the following municipal securities which earn interest exempt from
federal income tax in the opinion of bond counsel for the issuer and which have
effective maturities not greater than thirteen months and by maintaining a
dollar-weighted average portfolio maturity of not more than 90 days. During
normal market conditions, the Portfolio will invest at least 80% of its net
assets in tax exempt obligations. Interest on these securities may be subject to
state and local taxes. For more detailed information regarding tax matters,
including the applicability of the alternative minimum tax, see Taxes.
MUNICIPAL BONDS. The Portfolio may invest in bonds issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies, authorities and
instrumentalities. These obligations may be general obligation bonds secured by
the issuer's pledge of its full faith, credit and taxing power for the payment
of principal and interest, or they may be revenue bonds payable from specific
revenue sources, but not generally backed by the issuer's taxing power. These
include industrial development bonds where payment is the responsibility of the
private industrial user of the facility financed by the bonds. The Portfolio may
invest more than 25% of its assets in industrial development bonds, but may not
invest more than 25% of its assets in these bonds in projects of similar type or
in the same state.
MUNICIPAL NOTES. The Portfolio may also invest in municipal notes of various
types, including notes issued in anticipation of receipt of taxes, the proceeds
of the sale of bonds, other revenues or grant proceeds, as well as municipal
commercial paper and municipal demand obligations such as variable rate demand
notes and master demand obligations. The interest rate on variable rate demand
notes is adjustable at periodic intervals as specified in the notes. Master
demand obligations permit the investment of fluctuating amounts at periodically
adjusted interest rates. They are governed by agreements between the municipal
issuer and Morgan Guaranty acting as agent, for no additional fee, in its
capacity as Advisor to the Portfolio and as fiduciary for other clients.
Although master demand obligations are not marketable to third parties, the
Portfolio considers them to be liquid because they are payable on demand. There
is no specific percentage limitation on these investments. For more information
about municipal notes, see Investment Objectives and Policies in the Statement
of Additional Information.
QUALITY INFORMATION. The Portfolio will limit its investments to those
securities which, in accordance with guidelines adopted by the Trustees, present
minimal credit risks. In addition, the Portfolio will not purchase any municipal
obligation unless (i) it is rated with the highest rating assigned to short-term
debt securities (or, in the case of New York State municipal notes, with one of
the two highest ratings assigned to short-term debt securities) by at least two
nationally recognized statistical rating organizations such as Moody's and
Standard & Poor's, (ii) it is rated by only one agency with such rating, or
(iii) it is not rated and is determined to be of comparable quality.
Determinations of comparable quality shall be made in accordance with procedures
established by the Trustees. For a more detailed discussion of applicable
quality requirements, see Investment Objectives and Policies in the Statement of
Additional Information. These standards must be satisfied
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at the time an investment is made. If the quality of the investment later
declines below the quality required for purchase, the Portfolio shall dispose of
the investment, subject in certain circumstances to a finding by the Trustees
that disposing of the investment would not be in the Portfolio's best interest.
The credit quality of variable rate demand notes and other municipal obligations
is frequently enhanced by various 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 Portfolio may also invest up to 20% of the value of its total assets in
taxable securities and may purchase municipal obligations together with puts. In
addition, the Portfolio may purchase municipal obligations on a when-issued or
delayed delivery basis, enter into repurchase and reverse repurchase agreements,
loan its portfolio securities and purchase synthetic variable rate instruments.
For a discussion of these transactions, see Additional Investment Information
and Risk Factors.
THE PIERPONT TREASURY
MONEY MARKET FUND
The Pierpont Treasury Money Market Fund's investment objective is to provide
current income, maintain a high level of liquidity, and preserve capital. The
Fund attempts to achieve its investment objective by investing all of its
investable assets in The Treasury Money Market Portfolio, a diversified open-end
management investment company having the same investment objective as the Fund.
The Portfolio seeks to achieve its investment objective by investing in
direct obligations of the U.S. Treasury and engaging in repurchase agreement
transactions with respect to those obligations. The Portfolio maintains a
dollar-weighted average portfolio maturity of not more than 90 days and invests
in the following securities which have effective maturities of not more than
thirteen months.
TREASURY SECURITIES. The Portfolio will invest in Treasury Bills, Notes, and
Bonds, all of which are backed as to principal and interest payments by the full
faith and credit of the United States ("Treasury Securities"). Each such
obligation must have a remaining maturity of thirteen months or less at the time
of purchase by the Portfolio. Treasury Bills have initial maturities of one year
or less; Treasury Notes have initial maturities of one to ten years; and
Treasury Bonds generally have initial maturities of greater than ten years. The
Portfolio will not invest in U.S. Government agency obligations.
Obligations of the U.S. Treasury are guaranteed by the U.S. Government as to
the timely payment of principal and interest, but the market value of such
obligations is not guaranteed and may rise and fall in response to changes in
interest rates. Neither the shares of the Fund nor the interests in the
Portfolio are guaranteed or insured by the U.S. Government.
The Portfolio also may purchase Treasury Securities on a when-issued or
delayed delivery basis and may engage in repurchase and reverse repurchase
agreement transactions involving Treasury Securities. For a discussion of these
transactions, see Additional Investment Information and Risk Factors.
THE PIERPONT SHORT TERM BOND FUND
The Pierpont Short Term Bond Fund's investment objective is to provide a high
total return while attempting to limit the likelihood of negative quarterly
returns. Total return will consist of income plus realized and unrealized
capital gains and losses. The Fund seeks to achieve this high total return to
the extent consistent with modest risk of capital and the maintenance of
liquidity. The Fund attempts to achieve its investment objective by investing
all of its investable assets in The Short Term Bond Portfolio, a diversified
open-end management investment company having the same investment objective as
the Fund.
The Pierpont 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 and other very low risk investment vehicles. It
is appropriate for investors who do not require the stable net asset value
typical of a money market fund but do want less price fluctuation than is
typical of a longer-term bond fund.
The Advisor actively manages the Portfolio's duration, the allocation of
securities across market sectors and the selection of securities within sectors.
Based on fundamental, economic and capital markets research, the Advisor adjusts
the duration of the Portfolio in accordance with the Advisor's outlook for
interest rates. The Advisor also actively allocates the Portfolio's assets among
the broad sectors of the fixed income market including, but not limited to, U.S.
Government and agency securities, corporate securities, private placements,
asset-backed and mortgage-related securities. Specific securities which the
Advisor believes are undervalued are selected for purchase within the sectors
using advanced quantitative tools, analysis of credit risk, the expertise of a
dedicated trading desk, and the judgment of fixed income portfolio managers and
analysts.
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The Advisor also seeks to limit the likelihood of negative quarterly returns
by balancing the Portfo-
lio's level of income with the possibility of capital losses. This balancing
effort helps determine the Portfolio's duration.
Duration is a measure of the weighted average maturity of the bonds held in
the Portfolio and can be used as a measure of the sensitivity of the Portfolio's
market value to changes in interest rates. Under normal market conditions, the
Portfolio's duration will range between one and three years. The maturities of
the individual securities in the Portfolio may vary widely, however.
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. Portfolio transactions are undertaken principally to
accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates, but the Portfolio may also engage in short-term
trading consistent with its objective. To the extent the Portfolio engages in
short-term trading, it may incur increased transaction costs. See Taxes below.
CORPORATE BONDS, ETC. The Portfolio may invest in a broad range of debt
securities of domestic and foreign issuers. These include debt securities of
various types and maturities, e.g., debentures, notes, mortgage securities,
equipment trust certificates and other collateralized securities and zero coupon
securities. Collateralized securities are backed by a pool of assets such as
loans or receivables which generate cash flow to cover the payments due on the
securities. Collateralized securities are subject to certain risks, including a
decline in the value of the collateral backing the security, failure of the
collateral to generate the anticipated cash flow or in certain cases more rapid
prepayment because of events affecting the collateral, such as accelerated
prepayment of mortgages or other loans backing these securities or destruction
of equipment subject to equipment trust certificates. In the event of any such
prepayment the Portfolio will be required to reinvest the proceeds of
prepayments at interest rates prevailing at the time of reinvestment, which may
be lower. In addition, the value of zero coupon securities which do not pay
interest is more volatile than that of interest bearing debt securities with the
same maturity. The Portfolio does not intend to invest in common stock but may
invest to a limited extent in convertible debt or preferred stock. The Portfolio
does not expect to invest more than 25% of its assets in securities of foreign
issuers. If the Portfolio invests in non-U.S. dollar-denominated securities, it
hedges the foreign currency exposure into the U.S. dollar. See Additional
Investment Information and Risk Factors for further information on foreign
investments and convertible securities.
GOVERNMENT OBLIGATIONS, ETC. The Portfolio may invest in obligations issued
or guaranteed by the U.S. Government and backed by the full faith and credit of
the United States. These securities include Treasury securities, obligations of
the Government National Mortgage Association ("GNMA Certificates"), the Farmers
Home Administration and the Export Import Bank. GNMA Certificates are
mortgage-backed securities which evidence an undivided interest in mortgage
pools. These securities are subject to more rapid repayment than their stated
maturity would indicate because prepayments of principal on mortgages in the
pool are passed through to the holder of the securities. During periods of
declining interest rates, prepayments of mortgages in the pool can be expected
to increase. The pass-through of these prepayments would have the effect of
reducing the Portfolio's positions in these securities and requiring the
Portfolio to reinvest the prepayments at interest rates prevailing at the time
of reinvestment. The Portfolio may also invest in obligations issued or
guaranteed by U.S. Government agencies or instrumentalities where the Portfolio
must look principally to the issuing or guaranteeing agency for ultimate
repayment; some examples of agencies or instrumentalities issuing these
obligations are the Federal Farm Credit System, the Federal Home Loan Banks and
the Federal National Mortgage Association. Although these governmental issuers
are responsible for payments on their obligations, they do not guarantee their
market value. The Portfolio may also invest in municipal obligations which may
be general obligations of the issuer or payable only from specific revenue
sources. However, the Portfolio will invest only in municipal obligations that
have been issued on a taxable basis or have an attractive yield excluding tax
considerations. In addition, the Portfolio may invest in debt securities of
foreign governments and governmental entities. See Additional Investment
Information and Risk Factors for further information on foreign investments.
MONEY MARKET INVESTMENTS. The Portfolio may invest in the types of money
market instruments in which The Pierpont Money Market Fund may invest, subject
to the quality requirements of The Pierpont Short Term Bond Fund. See Quality
Information below and Money Market Instruments in the Statement of Additional
Information. Under normal circumstances, the Portfolio will purchase these
securities to invest temporary cash balances or to maintain liquidity to meet
withdrawals. However, the Portfolio may also invest in money market instruments
as a temporary defensive measure taken during, or in anticipation of, adverse
market conditions.
QUALITY INFORMATION. Under normal market circumstances at least 80% of the
Portfolio's total assets will consist of debt securities that are rated at
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least A by Moody's or Standard & Poor's or that are unrated and in the Advisor's
opinion are of comparable quality. In the case of the remaining 20% of the
Portfolio's investments, the Portfolio may purchase debt securities that are
rated Baa or better by Moody's or BBB or better by Standard & Poor's or are
unrated and in the Advisor's opinion are of comparable quality. Securities that
are rated Baa by Moody's or BBB by Standard & Poor's are considered investment
grade, but have some speculative characteristics. These standards must be
satisfied at the time an investment is made. If the quality of the investment
later declines, the Portfolio may continue to hold the investment. See Appendix
A in the Statement of Additional Information for more detailed information on
these ratings.
The Portfolio may also purchase obligations on a when-issued or delayed
delivery basis, enter into repurchase and reverse repurchase agreements, loan
its portfolio securities, purchase certain privately placed securities and enter
into certain hedging transactions that may involve options on securities and
securities indexes, futures contracts and options on futures contracts. For a
discussion of these investments and investment techniques, see Additional
Investment Information and Risk Factors.
THE PIERPONT BOND FUND
The Pierpont Bond Fund's investment objective is to provide a high total
return consistent with moderate risk of capital and maintenance of liquidity.
Total return will consist of income plus realized and unrealized capital gains
and losses. Although the net asset value of the Fund will fluctuate, the Fund
attempts to preserve the value of its investments to the extent consistent with
its objective. The Fund attempts to achieve its objective by investing all of
its investable assets in The U.S. Fixed Income Portfolio, a diversified open-end
management investment company having the same investment objective as the Fund.
The Pierpont Bond Fund is designed for investors who seek a total return over
time that is higher than that generally available from a portfolio of
shorter-term obligations while recognizing the greater price fluctuation of
longer-term instruments. It may also be a convenient way to add fixed income
exposure to diversify an existing portfolio.
The Advisor actively manages the Portfolio's duration, the allocation of
securities across market sectors, and the selection of specific securities
within sectors. Based on fundamental, economic and capital markets research, the
Advisor adjusts the duration of the Portfolio in light of market conditions and
the Advisor's interest rate outlook. For example, if interest rates are expected
to fall, the duration may be lengthened to take advantage of the expected
associated increase in bond prices. The Advisor also actively allocates the
Portfolio's assets among the broad sectors of the fixed income market including,
but not limited to, U.S. Government and agency securities, corporate securities,
private placements, asset-backed and mortgage-related securities. Specific
securities which the Advisor believes are undervalued are selected for purchase
within the sectors using advanced quantitative tools, analysis of credit risk,
the expertise of a dedicated trading desk, and the judgment of fixed income
portfolio managers and analysts. Under normal circumstances, the Advisor intends
to keep the Portfolio essentially fully invested with at least 65% of the
Portfolio's assets invested in bonds.
Duration is a measure of the weighted average maturity of the bonds held in
the Portfolio and can be used as a measure of the sensitivity of the Portfolio's
market value to changes in interest rates. Under normal market conditions the
Portfolio's duration will range between one year shorter and one year longer
than the duration of the U.S. investment grade fixed income universe, as
represented by the Salomon Brothers Broad Investment Grade Bond Index, the
Portfolio's benchmark. Currently, the benchmark's duration is approximately 5
years. The maturities of the individual securities in the Portfolio may vary
widely, however.
Since the Portfolio has a longer duration than that of The Pierpont Short
Term Bond Fund, over the long term its total return generally can be expected to
be higher and its net asset value less stable than that of The Pierpont Short
Term Bond Fund.
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. Portfolio transactions are undertaken principally to
accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates, but the Portfolio may also engage in short-term
trading consistent with its objective. See Financial Highlights for historical
portfolio turnover information on the Fund's predecessor. To the extent the
Portfolio engages in short-term trading, it may incur increased transaction
costs. See Taxes below.
CORPORATE BONDS, ETC. The Portfolio may invest in the corporate debt
obligations permitted for The Pierpont Short Term Bond Fund.
GOVERNMENT OBLIGATIONS, ETC. The Portfolio may invest in the government debt
obligations permitted for The Pierpont Short Term Bond Fund.
MONEY MARKET INSTRUMENTS. The Portfolio may invest in the types of money
market instruments in which The Pierpont Money Market Fund may invest, subject
to the quality requirements of The
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Pierpont Bond Fund. See Quality Information below and Money Market Instruments
in the Statement of Additional Information. Under normal circumstances, the
Portfolio will purchase these securities to invest temporary cash balances or to
maintain liquidity to meet withdrawals. However, the Portfolio may also invest
in money market instruments as a temporary defensive measure taken during, or in
anticipation of, adverse market conditions.
QUALITY INFORMATION. It is a current policy of the Portfolio that under
normal circumstances at least 65% of its total assets will consist of securities
that are rated at least A by Moody's or Standard & Poor's or that are unrated
and in the Advisor's opinion are of comparable quality. In the case of 30% of
the Portfolio's investments, the Portfolio may purchase debt securities that are
rated Baa or better by Moody's or BBB or better by Standard & Poor's or are
unrated and in the Advisor's opinion are of comparable quality. The remaining 5%
of the Portfolio's assets may be invested in debt securities that are rated Ba
or better by Moody's or BB or better by Standard & Poor's or are unrated and in
the Advisor's opinion are of comparable quality. Securities rated Baa by Moody's
or BBB by Standard & Poor's are considered investment grade, but have some
speculative characteristics. Securities rated Ba by Moody's or BB by Standard &
Poor's are below investment grade and considered to be speculative with regard
to payment of interest and principal. These standards must be satisfied at the
time an investment is made. If the quality of the investment later declines, the
Portfolio may continue to hold the investment. See Appendix A in the Statement
of Additional Information for more detailed information on these ratings.
The Portfolio may also purchase obligations on a when-issued or delayed
delivery basis, enter into repurchase and reverse repurchase agreements, loan
its portfolio securities, purchase certain privately placed securities and enter
into certain hedging transactions that may involve options on securities and
securities indexes, futures contracts and options on futures contracts. For a
discussion of these investments and investment techniques, see Additional
Investment Information and Risk Factors.
THE PIERPONT TAX EXEMPT BOND FUND
The Pierpont 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, a diversified open-end management investment
company having the same investment objective as the Fund.
The Fund is designed for investors who seek tax exempt yields greater than
those generally available from a portfolio of short term tax exempt obligations
and who are willing to incur the greater price fluctuation of longer-term
instruments.
The Portfolio attempts to achieve its investment objective by investing
primarily in municipal securities of the types permitted for The Pierpont Tax
Exempt Money Market Fund which earn interest exempt from federal income tax in
the opinion of bond counsel for the issuer. During normal market conditions, the
Portfolio will invest at least 80% of its net assets in tax exempt obligations.
Interest on these securities may be subject to state and local taxes. For more
detailed information regarding tax matters, including the applicability of the
alternative minimum tax, see Taxes.
The Advisor believes that based upon current market conditions, the Portfolio
will consist of a portfolio of securities with a duration of four to seven
years. In view of the duration of the Portfolio, under normal market conditions,
the Fund's yield can be expected to be higher and its net asset value less
stable than those of The Pierpont Tax Exempt Money Market Fund. Duration is a
measure of the weighted average maturity of the bonds held in the Portfolio and
can be used as a measure of the sensitivity of the Portfolio's market value to
changes in interest rates. The maturities of the individual securities in the
Portfolio may vary widely, however, as the Advisor adjusts the Portfolio's
holdings of long-term and short-term debt securities to reflect its assessment
of prospective changes in interest rates, which may adversely affect current
income.
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. See Financial Highlights for historical portfolio turnover
information on the Fund's predecessor. Portfolio transactions are undertaken
principally to accomplish the Portfolio's objective in relation to expected
movements in the general level of interest rates, but the Portfolio may also
engage in short-term trading consistent with its objective. To the extent the
Portfolio engages in short-term trading, it may incur increased transaction
costs. See Taxes below.
The value of Portfolio's investments will generally fluctuate inversely with
changes in prevailing interest rates. The value of the Portfolio's investments
will also be affected by changes in the creditworthiness of issuers and other
market factors. The quality criteria applied in the selection of portfolio
securities are intended to minimize adverse price changes due to credit
considerations. The value of the Portfolio's municipal securities can also be
affected by market reaction to legislative consideration of various tax reform
proposals. Although the net
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asset value of Portfolio fluctuates, the Portfolio attempts to preserve the
value of its investments to the extent consistent with its objective.
MUNICIPAL BONDS. The municipal securities in which the Portfolio may invest
include municipal bonds of the types permitted for The Pierpont Tax Exempt Money
Market Fund. The Portfolio may invest more than 25% of its assets in industrial
development bonds, but may not invest more than 25% of its assets in industrial
development bonds in projects of similar type or in the same state.
MONEY MARKET INSTRUMENTS. The Portfolio may invest in the types of short term
municipal obligations in which The Pierpont Tax Exempt Money Market Fund may
invest. These obligations will meet the quality requirements described below
except that short-term municipal obligations of New York State issuers may be
rated MIG-2 by Moody's or SP-2 by Standard & Poor's. Under normal circumstances,
the Portfolio will purchase these securities to invest temporary cash balances
or to maintain liquidity to meet withdrawals. However, the Portfolio may also
invest in money market instruments as a temporary defensive measure taken
during, or in anticipation of, adverse market conditions.
QUALITY INFORMATION. The Portfolio will not purchase any municipal obligation
unless it is rated at least A, MIG-1 or Prime-1 by Moody's or A, SP-1 or A1 by
Standard & Poor's (except for short-term obligations of New York State issuers
as described above) or it is unrated and in the Advisor's opinion it is of
comparable quality. These standards must be satisfied at the time an investment
is made. If the quality of the investment later declines, the Portfolio may
continue to hold the investment.
In certain circumstances, the Portfolio may also invest up to 20% of the
value of its total assets in taxable securities. In addition, the Portfolio may
purchase municipal obligations together with puts, securities on a when-issued
or delayed delivery basis, enter into repurchase and reverse repurchase
agreements, purchase synthetic variable rate instruments, loan its portfolio
securities, purchase certain privately placed securities and enter into certain
hedging transactions that may involve options on securities and securities
indexes, futures contracts and options on futures contracts. For a discussion of
these transactions, see Additional Investment Information and Risk Factors.
THE PIERPONT EQUITY FUND
The Pierpont Equity Fund's investment objective is to provide a high total
return from a portfolio of selected equity securities. Total return will consist
of realized and unrealized capital gains and losses plus income. The Fund
attempts to achieve its investment objective by investing all of its investable
assets in The Selected U.S. Equity Portfolio, a diversified open-end management
investment company having the same investment objective as the Fund. The
Portfolio invests primarily in the common stock of large and medium sized U.S.
corporations.
The Pierpont 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 Advisor seeks to enhance the Portfolio's total return relative to that of
the universe of large and medium sized U.S. companies, typically represented by
the S&P 500 Index, through fundamental analysis, systematic stock valuation and
disciplined portfolio construction. Based on internal fundamental research, the
Advisor uses a dividend discount model to rank companies within economic sectors
according to their relative value. From the universe of securities this model
shows as undervalued, the Advisor selects stocks for the Portfolio based on a
variety of criteria including the company's managerial strength, prospects for
growth and competitive position. The Advisor may modestly under or over-weight
selected economic sectors against the S&P 500 Index's sector weightings to seek
to enhance the Portfolio's total return or reduce the fluctuation in its market
value relative to the Index.
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. The Portfolio does not intend to respond to short-term
market fluctuations or to acquire securities for the purpose of short-term
trading; however, it may take advantage of short-term trading opportunities that
are consistent with its objective. See Financial Highlights for historical
portfolio turnover information on the Fund's predecessor. To the extent the
Portfolio engages in short-term trading, it may incur increased transaction
costs. See Taxes below.
EQUITY INVESTMENTS. During ordinary market conditions, the Advisor intends to
keep the Portfolio essentially fully invested with at least 65% of the
Portfolio's net assets invested in equity securities consisting of common stocks
and other securities with equity characteristics such as preferred stocks,
warrants, rights and convertible securities. The Portfolio's primary equity
investments are the common stocks of large and medium sized U.S. corporations
and, to a limited extent, similar securities of foreign corporations. The common
stock in which the Portfolio may invest includes the common stock of any class
or series or any similar equity interest, such as trust or limited partnership
interests. These equity investments may or may not pay dividends and may or may
not carry voting rights. The Portfolio invests
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in securities listed on a securities exchange or traded in an over-the-counter
market, and may invest in certain restricted or unlisted securities.
FOREIGN INVESTMENTS. The Portfolio may invest in equity securities of foreign
corporations included in the S&P 500 Index or listed on a national securities
exchange. However, the Portfolio does not expect to invest more than 5% of its
assets at the time of purchase in securities of foreign issuers. For further
information on foreign investments and foreign currency exchange transactions,
see Additional Investment Information and Risk Factors.
The Portfolio may also invest in securities on a when-issued or delayed
delivery basis, enter into repurchase and reverse repurchase agreements, loan
its portfolio securities, purchase certain privately placed securities and money
market instruments, and enter into certain hedging transactions that may involve
options on securities and securities indexes, futures contracts and options on
futures contracts. For a discussion of these investments and investment
techniques, see Additional Investment Information and Risk Factors.
THE PIERPONT CAPITAL APPRECIATION FUND
The Pierpont Capital Appreciation Fund's investment objective is to provide a
high total return from a portfolio of equity securities of small companies.
Total return will consist of realized and unrealized capital gains and losses
plus income. The Fund attempts to achieve its investment objective by investing
all of its investable assets in The U.S. Small Company Portfolio, a diversified
open-end management investment company having the same investment objective as
the Fund. The Portfolio invests primarily in the common stock of small U.S.
companies. The small company holdings of the Portfolio are primarily companies
included in the Russell 2500 Index.
The Pierpont Capital Appreciation 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 Fund may also serve as an efficient vehicle to
diversify an existing portfolio by adding the equities of smaller U.S.
companies.
The Advisor seeks to enhance the Portfolio's total return relative to that of
the U.S. small company universe. To do so, the Advisor uses fundamental
research, systematic stock valuation and a disciplined portfolio construction
process. The Advisor continually screens the universe of small capitalization
companies to identify for further analysis those companies which exhibit
favorable characteristics such as significant and predictable cash flow and high
quality management. Based on fundamental research and using a dividend discount
model, the Advisor ranks these companies within economic sectors according to
their relative value. The Advisor then selects for purchase the most attractive
companies within each economic sector.
The Advisor uses a disciplined portfolio construction process to seek to
enhance returns and reduce volatility in the market value of the Portfolio
relative to that of the U.S. small company universe. The Advisor believes that
under normal market conditions, the Portfolio will have sector weightings
comparable to that of the U.S. small company universe, although it may
moderately under or over-weight selected economic sectors. In addition, as a
company moves out of the market capitalization range of the small company
universe, it generally becomes a candidate for sale by the Portfolio.
The Portfolio intends to manage its investments actively in pursuit of its
investment objective. See Financial Highlights for historical portfolio turnover
information on the Fund's predecessor. Since the Portfolio has a long-term
investment perspective, it does not intend to respond to short-term market
fluctuations or to acquire securities for the purpose of short-term trading;
however, it may take advantage of short-term trading opportunities that are
consistent with its objective. To the extent the Portfolio engages in short-term
trading, it may incur increased transaction costs. See Taxes below.
PERMISSIBLE INVESTMENTS. The Portfolio may invest in the same types of
securities and use the same investment techniques, subject to the same
limitations, as permitted for The Pierpont Equity Fund except that its foreign
investments are limited to equity securities of foreign issuers that are listed
on a national securities exchange or denominated or principally traded in U.S.
dollars.
THE PIERPONT INTERNATIONAL EQUITY FUND
The Pierpont International Equity Fund's investment objective is to provide a
high total return from a portfolio of equity securities of foreign corporations.
Total return will consist of realized and unrealized capital gains and losses
plus income. The Fund attempts to achieve its investment objective by investing
all of its investable assets in The Non-U.S. Equity Portfolio, a diversified
open-end management investment company having the same investment objective as
the Fund.
The Pierpont 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-
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U.S. securities that seeks to outperform the Morgan Stanley Europe, Australia
and Far East Index (the "EAFE Index").
The Portfolio seeks to achieve its investment objective through country
allocation, stock selection and management of currency exposure. The Advisor
uses a disciplined portfolio construction process to seek to enhance returns and
reduce volatility in the market value of the Portfolio relative to that of the
EAFE Index.
Based on fundamental research, quantitative valuation techniques, and
experienced judgment, the Advisor uses a structured decision-making process to
allocate the Portfolio primarily across the developed countries of the world
outside the United States by under- or overweighting selected countries in the
EAFE Index. Currently, Japan has the heaviest weighting in the EAFE Index and in
the Portfolio. At November 30, 1995, the approximate Japan weighting was 41% in
the EAFE Index and 45% in the Portfolio.
Using a dividend discount model and based on analysts' industry expertise,
securities within each country are ranked within economic sectors according to
their relative value. Based on this valuation, the Advisor selects the
securities which appear the most attractive for the Portfolio. The Advisor
believes that under normal market conditions, economic sector weightings
generally will be similar to those of the relevant equity index.
Finally, the Advisor actively manages currency exposure, in conjunction with
country and stock allocation, in an attempt to protect and possibly enhance the
Portfolio's market value. Through the use of forward foreign currency exchange
contracts, the Advisor will adjust the Portfolio's foreign currency weightings
to reduce its exposure to currencies deemed unattractive, and, in certain
circumstances, increase exposure to currencies deemed attractive, as market
conditions warrant, based on fundamental research, technical factors, and the
judgment of a team of experienced currency managers. For further information on
foreign currency exchange transactions, see Additional Investment Information
and Risk Factors.
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. See Financial Highlights for historical portfolio turnover
information on the Fund's predecessor. The Portfolio does not expect to trade in
securities for short-term profits; however, when circumstances warrant,
securities may be sold without regard to the length of time held. To the extent
the Portfolio engages in short-term trading, it may incur increased transaction
costs. See Taxes below.
EQUITY INVESTMENTS. In normal circumstances, the Advisor intends to keep the
Portfolio essentially fully invested with at least 65% of the value of its total
assets in equity securities of foreign issuers, consisting of common stocks and
other securities with equity characteristics such as preferred stock, warrants,
rights and convertible securities. The Portfolio's primary equity investments
are the common stock of established companies based in developed countries
outside the United States. Such investments will be made in at least three
foreign countries. The common stock in which the Portfolio may invest includes
the common stock of any class or series or any similar equity interest such as
trust or limited partnership interests. The Portfolio may also invest in
securities of issuers located in developing countries. See Additional Investment
Information and Risk Factors. The Portfolio invests in securities listed on
foreign or domestic securities exchanges and securities traded in foreign or
domestic over-the-counter markets, and may invest in certain restricted or
unlisted securities.
The Portfolio may also invest in money market instruments denominated in U.S.
dollars and other currencies, securities on a when-issued or delayed delivery
basis, enter into repurchase and reverse repurchase agreements, loan its
portfolio securities, purchase certain privately placed securities, enter into
forward contracts on foreign currencies and enter into certain hedging
transactions that may involve options on securities and securities indexes,
futures contracts and options on futures contracts. For a discussion of these
investments and investment techniques, see Additional Investment Information and
Risk Factors.
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<PAGE>
THE PIERPONT EMERGING
MARKETS EQUITY FUND
The Pierpont Emerging Markets Equity Fund's investment objective is to
achieve a high total return from a portfolio of equity securities of companies
in emerging markets. Total return will consist of realized and unrealized
capital gains and losses plus income. The Fund attempts to achieve its
investment objective by investing all its investable assets in The Emerging
Markets Equity Portfolio, a diversified open-end management investment company
having the same investment objective as the Fund.
The Pierpont Emerging Markets Equity Fund is designed for long-term investors
who want exposure to the rapidly growing emerging markets. THE FUND DOES NOT
REPRESENT A COMPLETE INVESTMENT PROGRAM NOR IS THE FUND SUITABLE FOR ALL
INVESTORS. Many investments in emerging markets can be considered speculative,
and therefore may offer higher potential for gains and losses and may be more
volatile than investments in the developed markets of the world. See Additional
Investment Information and Risk Factors.
As used in this Prospectus, "emerging markets" include any country which is
generally considered to be an emerging or developing country by the World Bank,
the International Finance Corporation, the United Nations or its authorities.
These countries generally include every country in the world except Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy,
Japan, Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, United
Kingdom and United States. The Portfolio will focus its investments in those
emerging markets countries which it believes have strongly developing economies
and in which the markets are becoming more sophisticated.
A company in an emerging market is one that: (i) has its principal securities
trading market in an emerging market country; (ii) is organized under the laws
of, and with a principal office in, an emerging market; or (iii) (alone or on a
consolidated basis) derives 50% or more of its total revenue from either goods
produced, sales made or services performed in emerging markets.
The Advisor seeks to achieve the Portfolio's investment objective by a
disciplined process of country allocation and company selection. Based on
fundamental research, quantitative analysis, and experienced judgment, the
Advisor identifies those countries where economic and political factors,
including currency movements, are likely to produce above-average returns. Based
on their relative value, the Advisor then selects those companies in each
country's major industry sectors which it believes are best positioned and
managed to take advantage of these economic and political factors.
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. The Portfolio does not expect to trade in securities for
short-term profits; however, when circumstances warrant, securities may be sold
without regard to the length of time held. To the extent the Portfolio engages
in short-term trading, it may incur increased transaction costs. See Taxes
below.
EQUITY INVESTMENTS. In normal circumstances, the Advisor intends to keep the
Portfolio essentially fully invested with at least 65% of the value of its total
assets in equity securities of emerging markets issuers, consisting of common
stocks and other securities with equity characteristics such as preferred stock,
warrants, rights and convertible securities. The Portfolio's primary equity
investments are the common stock of established companies in the emerging
markets countries the Advisor has identified as attractive. The assets of the
Portfolio ordinarily will be invested in the securities of issuers in at least
three different emerging markets countries. The common stock in which the
Portfolio may invest includes the common stock of any class or series or any
similar equity interest such as trust or limited partnership interests. The
Portfolio invests in securities listed on securities exchanges, traded in
over-the-counter markets, and may invest in certain restricted or unlisted
securities.
Certain emerging markets are closed in whole or in part to equity investments
by foreigners except through specifically authorized investment funds.
Securities of other investment companies may be acquired by the Portfolio to the
extent permitted under the 1940 Act -- that is, the Portfolio may invest up to
10% of its total assets in securities of other investment companies so long as
not more than 3% of the outstanding voting stock of any one investment company
is held by the Portfolio. In addition, not more than 5% of the Portfolio's total
assets may be invested in the securities of any one investment company. As a
shareholder in an investment fund, the Portfolio would bear its share of that
investment fund's expenses, including its advisory and administration fees. At
the same time the Portfolio and the Fund would continue to pay their own
operating expenses.
The Portfolio may also invest in money market instruments denominated in U.S.
dollars and other currencies, securities on a when-issued or delayed
de-
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livery basis, enter into repurchase and reverse repurchase agreements, loan its
portfolio securities, purchase certain privately placed securities and enter
into forward foreign currency exchange contracts. In addition the Portfolio may
use options on securities and securities indexes, futures contracts and options
on futures contracts for hedging and risk management purposes. For a discussion
of these investments and investment techniques, see Additional Investment
Information and Risk Factors.
THE PIERPONT DIVERSIFIED FUND
The Pierpont Diversified Fund's investment objective is to provide a high
total return from a diversified portfolio of equity and fixed income securities.
Total return will consist of income plus realized and unrealized capital gains
and losses. The Fund attempts to achieve its investment objective by investing
all of its investable assets in The Diversified Portfolio, a diversified
open-end management investment company having the same investment objective as
the Fund.
The Portfolio seeks to provide a total return that approaches that of the
universe of equity securities of large and medium sized U.S. companies and that
exceeds the return typical of a portfolio of fixed income securities. The
Portfolio attempts to achieve this return by investing in equity and fixed
income instruments, as described below.
The Pierpont Diversified Fund is designed primarily for investors who wish to
invest for long term objectives such as retirement. It is appropriate for
investors who seek to attain real appreciation in the market value of their
investments over the long term, but with somewhat less price fluctuation than a
portfolio consisting only of equity securities. The Fund may be an attractive
option for investors who want a professional investment adviser to decide how
their investments should be allocated between equity and fixed income
securities.
Under normal circumstances, the Portfolio will be invested approximately 65%
in equities and 35% in fixed income securities. The equity portion of the
Portfolio will be invested primarily in large and medium sized U.S. companies
with market capitalizations above $1.5 billion, with the balance in small U.S.
companies primarily included in the Russell 2000 Index and in foreign issuers
primarily in developed countries. Under normal circumstances, the Advisor
expects that approximately 52% of the Portfolio will be in equity securities of
large and medium sized companies, 3% in small companies and 10% in foreign
issuers. However, the Advisor may allocate the Portfolio's investments among
these asset classes in a manner consistent with the Portfolio's investment
objective and current market conditions. Using a variety of analytical tools,
the Advisor assesses the relative attractiveness of each asset class and
determines an optimal allocation among them. The Advisor then selects securities
within each asset class based on fundamental research and quantitative analysis.
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. Since the Portfolio has a long-term investment
perspective, it does not intend to respond to short-term market fluctuations or
to acquire securities for the purpose of short-term trading; however, it may
take advantage of short-term trading opportunities that are consistent with its
objective. To the extent the Portfolio engages in short-term trading, it may
incur increased transaction costs. See Taxes below.
EQUITY INVESTMENTS. For the equity portion of the Portfolio, Morgan Guaranty
seeks to achieve a high total return through fundamental analysis, systematic
stock valuation and disciplined portfolio construction. For domestic equities,
based on internal fundamental research, the Advisor uses a dividend discount
model to value equity securities and rank a universe of large and medium
capitalization companies or small companies within economic sectors according to
their relative value. The Advisor then buys and sells securities within each
economic sector based on this valuation process to seek to enhance the
Portfolio's return. For foreign equities, the Portfolio's investment process
involves country allocation, stock selection and management of currency
exposure. The Advisor allocates this portion of the Portfolio by under- or
overweighting selected countries in the EAFE Index. Using a dividend discount
model and based on analysts' industry expertise, securities within each country
are ranked within economic sectors according to their relative value and those
which appear the most attractive are selected. Currency exposure is also
actively managed to protect and possibly enhance the market value of the
Portfolio. In addition, the Advisor uses this disciplined portfolio construction
process to seek to reduce the volatility of the large and medium capitalization
equity portion of the Portfolio relative to that of the S&P 500 Index, of the
small company portion of the Portfolio relative to that of the Russell 2000 and
of the foreign equity portion of the Portfolio relative to that of the EAFE
Index.
The Portfolio's equity investments will include common stock of any class or
series or any similar equity interest, such as trust or limited partnership
interests. The Portfolio's equity investments may also include preferred stock,
warrants, rights and
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convertible securities. The Portfolio's equity securities may or may not pay
dividends and may or may not carry voting rights.
FIXED INCOME INVESTMENTS. For the fixed income portion of the Portfolio, the
Advisor seeks to provide a high total return by actively managing the duration
of the Portfolio's fixed income securities, the allocation of securities across
market sectors, and the selection of securities within sectors. Based on
fundamental, economic and capital markets research, the Advisor adjusts the
duration of the Portfolio's fixed income investments in light of market
conditions. The Advisor also actively allocates the Portfolio's fixed income
investments among the broad sectors of the fixed income market. Securities which
the Advisor believes are undervalued are selected for purchase from the sectors
using advanced quantitative tools, analysis of credit risk, the expertise of a
dedicated trading desk, and the judgment of fixed income portfolio managers and
analysts.
Duration is a measure of the weighted average maturity of the fixed income
securities held in the Portfolio and can be used as a measure of the sensitivity
of the Portfolio's market value to changes in interest rates. Under normal
market conditions the duration of the fixed income portion of the Portfolio will
range between one year shorter and one year longer than the duration of the U.S.
investment grade fixed income universe, as represented by the Salomon Brothers
Broad Investment Grade Bond Index. Currently, the Index's duration is
approximately 5 years. The maturities of the individual fixed income securities
in the Portfolio may vary widely, however.
The Portfolio may invest in a broad range of debt securities of domestic and
foreign issuers. These include corporate bonds, debentures, notes, mortgage-
related securities, and asset-backed securities; U.S. Government and agency
securities; and private placements. See The Pierpont Short Term Bond Fund for
more detailed information on fixed income securities.
QUALITY INFORMATION. It is a current policy of the Portfolio that under
normal circumstances at least 65% of that portion of the Portfolio invested in
fixed income securities will consist of securities that are rated at least A by
Moody's or Standard & Poor's or that are unrated and in Morgan Guaranty's
opinion are of comparable quality. In the case of 30% of the Portfolio's fixed
income investments, the Portfolio may purchase debt securities that are rated
Baa or better by Moody's or BBB or better by Standard & Poor's or are unrated
and in Morgan Guaranty's opinion are of comparable quality. The remaining 5% of
the Portfolio's fixed income investments may be debt securities that are rated
Ba or better by Moody's or BB or better by Standard & Poor's or are unrated and
in Morgan Guaranty's opinion are of comparable quality. Securities rated Baa by
Moody's or BBB by Standard & Poor's are considered investment grade, but have
some speculative characteristics. Securities rated Ba by Moody's or BB by
Standard & Poor's are below investment grade and considered to be speculative
with regard to payment of interest and principal. These standards must be
satisfied at the time an investment is made. If the quality of the investment
later declines, the Portfolio may continue to hold the investment. See Appendix
A in the Statement of Additional Information for more detailed information on
these ratings.
FOREIGN INVESTMENTS. The Portfolio may invest in common stocks and
convertible securities of foreign corporations as well as fixed income
securities of foreign government and corporate issuers. However, the Portfolio
does not expect to invest more than 30% of its assets at the time of purchase in
securities of foreign issuers. For further information on foreign investments
and foreign currency exchange transactions, see Additional Investment
Information and Risk Factors.
In addition, the Portfolio may invest in securities on a when-issued or
delayed delivery basis, enter into repurchase and reverse repurchase agreements,
loan its portfolio securities, purchase certain privately placed securities and
money market instruments and enter into forward contracts on foreign currencies.
The Portfolio may use options on securities and indexes of securities, futures
contracts and options on futures contracts for hedging and risk management
purposes. For a discussion of these investments and investment techniques, see
Additional Investment Information and Risk Factors.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
CONVERTIBLE SECURITIES. The Portfolios for The Pierpont Short Term Bond Fund,
The Pierpont Bond Fund, The Pierpont Equity Fund, The Pierpont Capital
Appreciation Fund, The Pierpont International Equity Fund, The Pierpont Emerging
Markets Equity Fund and The Pierpont Diversified Fund may invest in convertible
securities of domestic and, subject to each Portfolio's restrictions, foreign
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issuers. The convertible securities in which the Portfolios may invest include
any debt securities or preferred stock which may be converted into common stock
or which carry the right to purchase common stock. Convertible securities
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.
WARRANTS. The Portfolios for The Pierpont Equity Fund, The Pierpont Capital
Appreciation Fund, The Pierpont International Equity Fund, The Pierpont Emerging
Markets Equity Fund and The Pierpont Diversified Fund may invest in warrants,
which entitle the holder to buy common stock from the issuer at a specific price
(the strike price) for a specific period of time. The strike price of warrants
sometimes is much lower than the current market price of the underlying
securities, yet warrants are subject to similar price fluctuations. As a result,
warrants may be more volatile investments than the underlying securities.
Warrants do not entitle the holder to dividends or voting rights with respect
to the underlying securities and do not represent any rights in the assets of
the issuing company. Also, the value of the warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to the expiration date.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each of the Portfolios may
purchase securities on a when-issued or delayed delivery basis. Delivery of and
payment for these securities may take as long as a month or more after the date
of the purchase commitment. The value of these securities is subject to market
fluctuation during this period and for fixed income investments no interest
accrues to the Portfolio until settlement. At the time of settlement a
when-issued security may be valued at less than its purchase price. Each
Portfolio maintains with the Custodian a separate account with a segregated
portfolio of securities in an amount at least equal to these commitments. When
entering into a when-issued or delayed delivery transaction, the Portfolio
relies on the other party to consummate the transaction; if the other party
fails to do so, the Portfolio may be disadvantaged. It is the current policy of
each Portfolio not to enter into when-issued commitments exceeding in the
aggregate 15% of the market value of the Portfolio's total assets less
liabilities other than the obligations created by these commitments.
REPURCHASE AGREEMENTS. Each of the Portfolios may engage in repurchase
agreement transactions with brokers, dealers or banks that meet the credit
guidelines established by the Portfolio's Trustees. In a repurchase agreement,
the Portfolio buys a security from a seller that has agreed to repurchase it at
a mutually agreed upon date and price, reflecting the interest rate effective
for the term of the agreement. The Portfolio for The Pierpont Treasury Money
Market Fund only enters into repurchase agreements involving U.S. Treasury
securities. The term of these agreements is usually from overnight to one week.
A repurchase agreement may be viewed as a fully collateralized loan of money by
the Portfolio to the seller. The Portfolio always receives securities as
collateral with a market value at least equal to the purchase price plus accrued
interest and this value is maintained during the term of the agreement. If the
seller defaults and the collateral value declines, the Portfolio might incur a
loss. If bankruptcy proceedings are commenced with respect to the seller, the
Portfolio's realization upon the disposition of collateral may be delayed or
limited. Investments in certain repurchase agreements and certain other
investments which may be considered illiquid are limited. See Illiquid
Investments; Privately Placed and other Unregistered Securities below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
each of the Portfolios is permitted to lend its securities in an amount up to
33 1/3% of the value of the Portfolio's net assets. Each of the Portfolios may
lend its securities if such loans are secured continuously by cash or 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
Portfolio in the normal settlement time, generally three business days after
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to a
Portfolio and its respective investors. The Portfolios may pay reasonable
finders' and custodial fees in connection with a loan. In addition, the
Portfolios will consider all facts and circumstances, including the
creditworthiness of the borrowing financial institution, and the Portfolios will
not make any loans in excess of one year. The Portfolios will not lend their
securities to any officer, Trustee, Director, employee or other affiliate of the
Portfolios, the Advisor, or the Distributor, unless otherwise permitted by
applicable law.
REVERSE REPURCHASE AGREEMENTS. Each of the Portfolios is permitted to enter
into reverse repurchase agreements. In a reverse repurchase
agree-
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ment, the Portfolio sells a security and agrees to repurchase it at a mutually
agreed upon date and price, reflecting the interest rate effective for the term
of the agreement. For purposes of the Investment Company Act of 1940 (the "1940
Act"), it is considered a form of borrowing by the Portfolio and, therefore, is
a form of leverage. Leverage may cause any gains or losses of the Portfolio to
be magnified. For more information, see Investment Objectives and Policies in
the Statement of Additional Information.
FOREIGN INVESTMENT INFORMATION. The Portfolios for The Pierpont Money Market
Fund, The Pierpont Short Term Bond Fund, The Pierpont Bond Fund, The Pierpont
Equity Fund, The Pierpont Capital Appreciation Fund and The Pierpont Diversified
Fund may invest in certain foreign securities. The Portfolios for The Pierpont
International Equity Fund and The Pierpont Emerging Markets Equity Fund invest
primarily in foreign securities. Investment in securities of foreign issuers and
in obligations of foreign branches of domestic banks involves somewhat different
investment risks from those affecting securities of U.S. domestic issuers. There
may be limited publicly available information with respect to foreign issuers,
and foreign issuers are not generally subject to uniform accounting, auditing
and financial standards and requirements comparable to those applicable to
domestic companies. Dividends and interest paid by foreign issuers may be
subject to withholding and other foreign taxes which may decrease the net return
on foreign investments as compared to dividends and interest paid to these
Portfolios by domestic companies.
Investors should realize that the value of each Portfolio's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Portfolio's operations. Furthermore, the economies of individual foreign
nations may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Portfolios must be made in
compliance with U.S. and foreign currency restrictions and tax laws restricting
the amounts and types of foreign investments.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, a Portfolio's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In buying and selling
securities on foreign exchanges, purchasers normally pay fixed commissions that
are generally higher than the negotiated commissions charged in the United
States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.
Although the Portfolio for The Pierpont International Equity Fund invests
primarily in securities of established issuers based in developed foreign
countries, it may also invest in securities of issuers in emerging markets
countries. The Portfolio for The Pierpont Emerging Markets Equity Fund invests
primarily in equity securities of companies in emerging markets countries.
Investments in securities of issuers in emerging markets countries may involve a
high degree of risk and many may be considered speculative. These investments
carry all of the risks of investing in securities of foreign issuers outlined in
this section to a heightened degree. These heightened risks include (i) greater
risks of expropriation, confiscatory taxation, nationalization, and less social,
political and economic stability; (ii) the small current size of the markets for
securities of emerging markets issuers and the currently low or non-existent
volume of trading, resulting in lack of liquidity and in price volatility; (iii)
certain national policies which may restrict the Portfolios' investment
opportunities including restrictions on investing in issuers or industries
deemed sensitive to relevant national interests; and (iv) the absence of
developed legal structures governing private or foreign investment and private
property.
Each of the Portfolios may invest in securities of foreign issuers directly
or in the form of American Depository Receipts ("ADRs"), European Depository
Receipts ("EDRs") or other similar securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities they represent. ADRs are receipts typically issued by a U.S. bank or
trust company evidencing ownership of the underlying foreign securities. Certain
such institutions issuing ADRs may not be sponsored by the issuer of the
underlying foreign securities. A non-sponsored depository may not provide the
same shareholder information that a sponsored depository is required to provide
under its
contrac-
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tual arrangements with the issuer of the underlying foreign securities. EDRs are
receipts issued by a European financial institution evidencing a similar
arrangement. Generally, ADRs, in registered form, are designed for use in the
U.S. securities markets, and EDRs, in bearer form, are designed for use in
European securities markets.
In the case of the Portfolios for The Pierpont Short Term Bond Fund, The
Pierpont Bond Fund, The Pierpont Equity Fund, The Pierpont Capital Appreciation
Fund, The Pierpont International Equity Fund, The Pierpont Emerging Markets
Equity Fund and The Pierpont Diversified Fund, since investments in foreign
securities involve foreign currencies, the value of their assets as measured in
U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and in exchange control regulations, including currency blockage. See
Foreign Currency Exchange Transactions.
For a discussion of investment risks associated with the general economic and
political conditions in Japan, see Investment Objectives and Policies in the
Statement of Additional Information.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolios for The
Pierpont Short Term Bond Fund, The Pierpont Bond Fund, The Pierpont Equity Fund,
The Pierpont Capital Appreciation Fund, The Pierpont International Equity Fund,
The Pierpont Emerging Markets Equity Fund and The Pierpont Diversified Fund buy
and sell securities and receive interest and dividends in currencies other than
the U.S. dollar, the Portfolios for the Funds may enter from time to time into
foreign currency exchange transactions. The Portfolios either enter into these
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or use forward contracts to purchase or sell
foreign currencies. The cost of a Portfolio's spot currency exchange
transactions is generally the difference between the bid and offer spot rate of
the currency being purchased or sold.
A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying the contract. These contracts are entered into in
the interbank market directly between currency traders (usually large commercial
banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement and is traded at a net price without
commission. The Portfolios will not enter into forward contracts for speculative
purposes. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of the Portfolio's securities or
in foreign exchange rates, or prevent loss if the prices of these securities
should decline.
Each of these Portfolios may enter into foreign currency exchange
transactions in an attempt to pro-
tect against changes in foreign currency exchange rates between the trade and
settlement dates of specific securities transactions or anticipated securities
transactions. The Portfolios may also enter into forward contracts to hedge
against a change in foreign currency exchange rates that would cause a decline
in the value of existing investments denominated or principally traded in a
foreign currency. To do this, a Portfolio would enter into a forward contract to
sell the foreign currency in which the investment is denominated or principally
traded in exchange for U.S. dollars or in exchange for another foreign currency.
A Portfolio will only enter into forward contracts to sell a foreign currency in
exchange for another foreign currency if the Advisor expects the foreign
currency purchased to appreciate against the U.S. dollar.
Although these transactions are intended to minimize the risk of loss due to
a decline in the value of the hedged currency, at the same time they limit any
potential gain that might be realized should the value of the hedged currency
increase. In addition, forward contracts that convert a foreign currency into
another foreign currency will cause the Portfolio to assume the risk of
fluctuations in the value of the currency purchased vis-a-vis the hedged
currency and the U.S. dollar. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
TAXABLE INVESTMENTS FOR THE PIERPONT TAX EXEMPT FUNDS. The Portfolios for The
Pierpont Tax Exempt Money Market Fund and The Pierpont Tax Exempt Bond Fund each
attempt to invest its assets in tax exempt municipal securities; however, these
Portfolios are each permitted to invest up to 20% of the value of their
respective total assets in securities, the interest income on which may be
subject to federal, state or local income taxes. These Portfolios may make
taxable investments pending investment of proceeds from sales of their interests
or portfolio securities, pending settlement of purchases of portfolio
securities, to maintain liquidity or when it is advisable in the Advisor's
opinion because of adverse
25
<PAGE>
market conditions. The Portfolios will invest in taxable securities only if
there are no tax exempt securities available for purchase or if the after tax
yield, in the case of the Portfolio for The Pierpont Money Market Fund, or the
expected return, in the case of the Portfolio for The Pierpont Tax Exempt Bond
Fund, from an investment in taxable securities exceeds the yield or expected
return, as the case may be, on available tax exempt securities. In abnormal
market conditions, if, in the judgment of the Advisor, tax exempt securities
satisfying The Pierpont Tax Exempt Bond Fund's investment objective may not be
purchased, its corresponding Portfolio may, for defensive purposes only,
temporarily invest more than 20% of its net assets in debt securities the
interest on which is subject to federal, state or local income taxes. The
taxable investments permitted for these Portfolios include obligations of the
U.S. Government and its agencies and instrumentalities, bank obligations,
commercial paper and repurchase agreements and, in the case of The Pierpont Tax
Exempt Bond Fund, other debt securities which meet the Fund's quality
requirements. See Taxes.
PUTS FOR THE PIERPONT TAX EXEMPT FUNDS. The Portfolios for The Pierpont Tax
Exempt Money Market Fund and The Pierpont Tax Exempt Bond Fund may purchase
without limit municipal bonds or notes together with the right to resell them at
an agreed price or yield within a specified period prior to maturity. This right
to resell is known as a put. The aggregate price paid for securities with puts
may be higher than the price which otherwise would be paid. Consistent with the
investment objectives of these Portfolios and subject to the supervision of the
Trustees, the purpose of this practice is to permit the Portfolios to be fully
invested in tax exempt securities while maintaining the necessary liquidity to
purchase securities on a when-issued basis, to meet unusually large withdrawals,
to purchase at a later date securities other than those subject to the put and,
in the case of The Pierpont Tax Exempt Bond Fund, to facilitate the Advisor's
ability to manage the portfolio actively. The principal risk of puts is that the
put writer may default on its obligation to repurchase. The Advisor will monitor
each writer's ability to meet its obligations under puts.
The amortized cost method is used by the Portfolio for The Pierpont Tax
Exempt Money Market Fund to value all municipal securities; no value is assigned
to any puts. This method is also used by the Portfolio for The Pierpont Tax
Exempt Bond Fund to value municipal securities with maturities of less than 60
days; when these securities are subject to puts separate from the underlying
securities, no value is assigned to the puts. The cost of any such put is
carried as an unrealized loss from the time of purchase until it is exercised or
expires. See the Statement of Additional Information for the valuation procedure
if the Portfolio for The Pierpont Tax Exempt Bond Fund were to invest in
municipal securities with maturities of 60 days or more that are subject to
separate puts.
SYNTHETIC VARIABLE RATE INSTRUMENTS FOR THE PIERPONT TAX EXEMPT FUNDS. The
Portfolios for The Pierpont Tax Exempt Funds may invest in certain synthetic
variable rate instruments. Such instruments generally involve the deposit of a
long-term tax exempt bond in a custody or trust arrangement and the creation of
a mechanism to adjust the long-term interest rate on the bond to a variable
short-term rate and a right (subject to certain condi-
tions) on the part of the purchaser to tender it periodically to a third party
at par. The Advisor will review the structure of synthetic variable rate
instruments to identify credit and liquidity risks (including the conditions
under which the right to tender the instrument would no longer be available) and
will monitor those risks. In the event that the right to tender the instrument
is no longer available, the risk to the Portfolios will be that of holding the
long-term bond, which in the case of the Portfolio for The Pierpont Tax Exempt
Money Market Fund may require the disposition of the bond which could be at a
loss.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES.
Subject to the limitations described below, each of the Portfolios for The
Pierpont Funds may acquire investments that are illiquid or have limited
liquidity, such as private placements or investments that are not registered
under the Securities Act of 1933, as amended (the "1933 Act"), and cannot be
offered for public sale in the United States without first being registered
under the 1933 Act. An illiquid investment is any investment that cannot be
disposed of within seven days in the normal course of business at approximately
the amount at which it is valued by the Portfolio. The price the Portfolio pays
for illiquid securities or receives upon resale may be lower than the price paid
or received for similar securities with a more liquid market. Accordingly the
valuation of these securities will reflect any limitations on their liquidity.
Acquisition of illiquid investments by the Portfolio for The Pierpont Money
Market Fund is subject to the 10% fundamental policy limitation described below
under Investment Restrictions. Ac-
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<PAGE>
quisitions of illiquid investments by the Portfolios for the other Pierpont
Funds is subject to the following non-fundamental policies. The Portfolio for
each of The Pierpont Tax Exempt Money Market Fund and The Pierpont Treasury
Money Market Fund may not acquire any illiquid securities if, as a result
thereof, more than 10% of the market value of the Portfolio's total assets would
be in illiquid investments. The Portfolio for each of The Pierpont Short Term
Bond, Bond, Tax Exempt Bond, Equity, Capital Appreciation, International Equity,
Emerging Markets Equity and Diversified Funds may not invest in additional
illiquid securities if, as a result, more than 15% of the market value of its
total assets would be invested in illiquid securities. In addition, the
Portfolio for The Pierpont International Equity Fund will not invest more than
5% of the market value of its total assets in restricted securities that cannot
be offered for public sale in the United States without first being registered
under the 1933 Act. Each of the Portfolios may also purchase Rule 144A
securities sold to institutional investors without registration under the 1933
Act. These securities may be determined to be liquid in accordance with
guidelines established by the Advisor and approved by the Trustees. The Trustees
will monitor the Advisor's implementation of these guidelines on a periodic
basis.
FUTURES AND OPTIONS TRANSACTIONS. The Portfolio for each of The Pierpont
Short Term Bond Fund, The Pierpont Bond Fund, The Pierpont Tax Exempt Bond Fund,
The Pierpont Equity Fund, The Pierpont Capital Appreciation Fund and The
Pierpont International Equity Fund is permitted to enter into the futures and
options transactions described in the Appendix to this Prospectus for hedging
purposes. The Portfolio for each of The Pierpont Emerging Markets Equity Fund
and The Pierpont Diversified Fund is permitted to enter into the futures and
options transactions described in the Appendix to this Prospectus for both
hedging and risk management purposes. For more detailed information about these
transactions, see the Appendix and Risk Management in the Statement of
Additional Information.
MONEY MARKET INSTRUMENTS. The Portfolios for The Pierpont Equity Fund, The
Pierpont Capital Appreciation Fund, The Pierpont International Equity Fund, The
Pierpont Emerging Markets Equity Fund and The Pierpont Diversified Fund are
permitted to invest in money market instruments, although each of these
Portfolios intends to stay invested in equity securities (or, in the case of The
Pierpont Diversified Fund, equity and longer-term fixed income securities) to
the extent practical in light of its objective and long-term investment
perspective. These Portfolios may make money market investments pending other
investment or settlement, for liquidity or in adverse market conditions as
described above under Taxable Investments for The Pierpont Tax Exempt Funds. The
money market investments permitted for these Portfolios include obligations of
the U.S. Government and its agencies and instrumentalities, other debt
securities, commercial paper, bank obligations and repurchase agreements. The
Portfolios for The Pierpont International Equity and Emerging Markets Equity
Funds may also invest in short-term obligations of sovereign foreign
governments, their agencies, instrumentalities and political subdivisions. For
more detailed information about these money market investments, see Investment
Objectives and Policies in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
As diversified investment companies, 75% of the assets of each of the
Portfolios are subject to the following fundamental limitations: (a) the
Portfolio may not invest more than 5% of its total assets in the securities of
any one issuer, except U.S. government securities, and (b) the Portfolio may not
own more than 10% of the outstanding voting securities of any one issuer. The
Money Market and Treasury Money Market Portfolios are subject to additional
non-fundamental requirements governing non-tax exempt money market funds. These
non-fundamental requirements generally prohibit the Money Market and Treasury
Money Market Portfolios from investing more than 5% of their respective total
assets in the securities of any single issuer, except obligations of the U.S.
Government and its agencies and instrumentalities.
The investment objective of each Fund and its corresponding Portfolio,
together with the investment restrictions described below and in the Statement
of Additional Information, except as noted, are deemed fundamental policies,
i.e., they may be changed only with the approval of the holders of a majority of
the outstanding voting securities of a
27
<PAGE>
Fund and its corresponding Portfolio. Each Fund has the same investment
restrictions as its corresponding Portfolio, except that each Fund may invest
all of its investable assets in another open-end investment company with the
same investment objective and restrictions (such as its corresponding
Portfolio). References below to a Portfolio's investment restrictions also
include the corresponding Fund's investment restrictions.
The Portfolio for The Pierpont Money Market Fund may not (i) acquire any
illiquid securities if as a result more than 10% of the market value of its
total assets would be in investments which are illiquid, (ii) enter into reverse
repurchase agreements exceeding one-third of the market value of its total
assets, less certain liabilities, (iii) borrow money, except from banks for
extraordinary or emergency purposes and then only in amounts up to 10% of the
value of the Portfolio's total assets, taken at cost at the time of borrowing,
or purchase securities while borrowings exceed 5% of its total assets; or
mortgage, pledge or hypothecate any assets except in connection with any such
borrowings in amounts up to 10% of the value of the Portfolio's net assets at
the time of borrowing (the "10% Emergency Borrowing Restriction"), or (iv)
invest more than 25% of its assets in any one industry, except there is no
percentage limitation with respect to investments in U.S. Government securities,
negotiable certificates of deposit, time deposits, and bankers' acceptances of
U.S. branches of U.S. banks.
The Portfolio for The Pierpont Treasury Money Market Fund may not (i) enter
into reverse repurchase agreements which together with any other borrowings
exceed one-third of the market value of its total assets, less certain
liabilities, or (ii) 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 its total assets, taken at cost at the
time of borrowing (and provided that such borrowings and reverse repurchase
agreements do not exceed in the aggregate one-third of the market value of the
Portfolio's total assets less liabilities other than the obligations represented
by the bank borrowings and reverse repurchase agreements), or purchase
securities while borrowings exceed 5% of its total assets; or mortgage, pledge
or hypothecate any assets except in connection with any such borrowings in
amounts up to 10% of the value of the Portfolio's net assets at the time of
borrowing, or (iii) make loans, except through purchasing or holding debt
obligations, repurchase agreements, or loans of portfolio securities in
accordance with the Portfolio's investment objective and policies.
The Portfolios for The Pierpont Tax Exempt Money Market and Tax Exempt Bond
Funds are subject to the 10% Emergency Borrowing Restriction, except that
borrowings may be for temporary as well as extraordinary or emergency purposes
in the case of the Portfolio for The Tax Exempt Money Market Fund, and may not
acquire industrial revenue bonds if as a result more than 5% of total Portfolio
assets would be invested in industrial revenue bonds where payment of principal
and interest is the responsibility of companies with fewer than three years of
operating history.
Each of the Portfolios for The Pierpont Short Term Bond and Diversified Funds
may not (i) purchase securities or other obligations of issuers conducting their
principal business activity in the same industry if the value of its investments
in such industry would exceed 25% of the value of the Portfolio's total assets,
except this limitation shall not apply to investments in U.S. Government
securities (the "Industry Concentration Restriction"); (ii) 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 its total assets, taken at cost at the time of borrowing (and provided
that such borrowings and reverse repurchase agreements do not exceed in the
aggregate one-third of the market value of the Portfolio's total assets less
liabilities other than the obligations represented by the bank borrowings and
reverse repurchase agreements), or purchase securities while borrowings exceed
5% of its total assets; or mortgage, pledge or hypothecate any assets except in
connection with any such borrowing in amounts not to exceed 30% of the value of
the Portfolio's net assets at the time of borrowing; or (iii) enter into reverse
repurchase agreements and other permitted borrowings which constitute senior
securities under the 1940 Act, exceeding in the aggregate one-third of the
market value of the Portfolio's total assets, less certain liabilities (the
"Senior Securities Restriction").
The Portfolio for The Pierpont Bond Fund is subject to the Industry
Concentration Restriction and the Senior Securities Restriction and may not
borrow money, except from banks for extraordinary or emergency purposes and then
only in amounts up to 30% of the value of the Portfolio's total assets taken at
cost at the time of borrowing and except in connection with reverse repurchase
agreements or purchase securities while borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; or mortgage, pledge or hypothecate
any assets
28
<PAGE>
except in connection with any such borrowing in amounts up to 30% of the value
of the Portfolio's net assets at the time of borrowing.
The Portfolios for The Pierpont Equity and Capital Appreciation Funds are
subject to the 10% Emergency Borrowing Restriction, the Industry Concentration
Restriction and may not purchase securities of any issuer if, as a result of the
purchase, more than 5% of total Portfolio assets would be invested in securities
of companies with fewer than three years of operating history (including
predecessors).
The Portfolio for The Pierpont International Equity Fund is subject to the
Industry Concentration Restriction and the Senior Securities Restriction. In
addition, the Portfolio may not borrow money, except from banks for
extraordinary or emergency purposes and then only in amounts up to 30% of the
value of the Portfolio's net assets at the time of borrowing, and except in
connection with reverse repurchase agreements and then only in amounts up to
33 1/3% of the value of the Portfolio's net assets; or purchase securities while
borrowings, including reverse repurchase agreements, exceed 5% of its total
assets; or mortgage, pledge or hypothecate any assets except in connection with
any such borrowing and in amounts not to exceed 30% of the value of the
Portfolio's net assets at the time of such borrowing.
The Portfolio for The Pierpont Emerging Markets Equity Fund is subject to the
Industry Concentration Restriction and may not (i) borrow money except that the
Portfolio may (a) borrow money from banks for temporary or emergency purposes
(not for leveraging purposes) and (b) enter into reverse repurchase agreements
for any purpose, provided that (a) and (b) in total do not exceed one-third of
the Portfolio's total assets less liabilities (other than borrowings), or (ii)
issue senior securities except as permitted by the 1940 Act or any rule, order
or interpretation thereunder.
For a more detailed discussion of the above investment restrictions, as well
as a description of certain other investment restrictions, see Investment
Restrictions and Additional Information in the Statement of Additional
Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIOS
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for each
Portfolio, the Trustees decide upon matters of general policy and review the
actions of the Advisor and other service providers. The Trustees of the Trust
and of each Portfolio are identified below.
<TABLE>
<S> <C>
Frederick S. Addy Former Executive Vice
President and Chief
Financial Officer,
Amoco Corporation
William G. Burns Former Vice Chairman
of the Board and
Chief Financial
Officer, NYNEX
Corporation
Arthur C. Former Senior Vice
Eschenlauer President, Morgan
Guaranty Trust
Company of New York
Matthew Healey Chairman and Chief
Executive Officer;
Chairman, Pierpont
Group, Inc.
Michael P. Mallardi Senior Vice President,
Capital Cities/ABC,
Inc., President,
Broadcast Group
</TABLE>
A majority of the disinterested Trustees have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are trustees of the Trust, each Portfolio and
The JPM Institutional Funds, up to and including creating a separate board of
trustees. See Trustees and Officers in the Statement of Additional Information
for more information about the Trustees and Officers of the Funds and the
Portfolios.
Each of the Portfolios and the Trust have entered into a Fund Services
Agreement with Pierpont Group, Inc. to assist the Trustees in exercising their
overall supervisory responsibilities for the Portfolios' and the Trust's
affairs. The fees to be paid under the agreements approximate the reasonable
cost of Pierpont Group, Inc. in providing these services. Pierpont Group, Inc.
was organized in 1989 at the request of the Trustees of The Pierpont Family of
Funds for the purpose of providing these services at cost to these funds. See
Trustees and Officers in the Statement of Additional Information. The principal
offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New
York 10017.
ADVISOR. None of the Funds has retained the services of an investment adviser
because each Fund seeks to achieve its investment objective by investing all of
its investable assets in its corresponding Portfolio. Each Portfolio has
retained the services of Morgan Guaranty as Investment Advisor. Morgan Guaranty,
with principal offices at 60 Wall Street,
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<PAGE>
New York, New York 10260, is a New York trust company which conducts a general
banking and trust business. It is a wholly owned subsidiary of J.P. Morgan & Co.
Incorporated ("J.P. Morgan"), a bank holding company organized under the laws of
Delaware. Through offices in New York City and abroad, J.P. Morgan, through the
Advisor and other subsidiaries, offers a wide range of services to governmental,
institutional, corporate and individual customers and acts as investment adviser
to individual and institutional clients with combined assets under management of
over $165 billion (of which the Advisor advises over $26 billion). Morgan
Guaranty provides investment advice and portfolio management services to each
Portfolio. Subject to the supervision of each Portfolio's Trustees, Morgan
Guaranty makes each Portfolio's day-to-day investment decisions, arranges for
the execution of portfolio transactions and generally manages each Portfolio's
investments. See Investment Advisor in the Statement of Additional Information.
Morgan Guaranty also provides certain accounting and operations services to the
Funds and the Portfolios, including services related to Portfolio and Fund tax
returns, Portfolio and Fund financial reports, computing Fund dividends and net
asset value per share and keeping the Funds' books of account. Morgan Guaranty
also provides shareholder services to shareholders of the Funds. See Shareholder
Servicing below.
Morgan Guaranty uses a sophisticated, disciplined, collaborative process for
managing all asset classes. For fixed income portfolios, this process focuses on
the systematic analysis of real interest rates, sector diversification,
quantitative and credit analysis, and, for foreign fixed income securities,
country selection. Morgan Guaranty has managed portfolios of domestic fixed
income securities on behalf of its clients for over 60 years. The portfolio
managers making investments in income securities work in conjunction with fixed
income, credit, capital market and economic research analysts, as well as
traders and administrative officers.
For equity portfolios, this process utilizes research, systematic stock
selection, disciplined portfolio construction and, in the case of foreign
equities, country exposure and currency management. Morgan Guaranty has managed
portfolios of U.S. equity securities on behalf of its clients for over 40 years,
equity securities of small U.S. companies since the 1960s, international equity
securities since 1974 and emerging markets equity securities since 1990. The
portfolio managers making investments in domestic, international or emerging
markets equity securities work in conjunction with Morgan's Guaranty equity
analysts, as well as capital market, credit and economic research analysts,
traders and administrative officers, its offices around the globe. The U.S.
equity analysts each cover a different industry, following both the small and
large companies in their respective industries and currently monitor universes
of 700 predominately large and medium-sized and 300 small companies. The
international equity analysts, located in London, Tokyo, Singapore and
Melbourne, each cover a different industry, monitoring a universe of nearly
1,000 non-U.S. companies. The emerging markets research analysts, located in New
York, London and Singapore, each cover a different industry, monitoring a
universe of approximately 900 companies in emerging markets countries.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan Guaranty's process for the respective Portfolios or
their predecessor entities (the inception date of each person's responsibility
for a Portfolio (or its predecessor) and his or her business experience for the
past five years is indicated parenthetically): The Pierpont Money Market Fund:
Robert R. Johnson, Vice President (since June, 1988, employed by Morgan Guaranty
since prior to 1991) and Daniel B. Mulvey, Vice President (since January, 1995,
employed by Morgan Guaranty since September, 1991, previously securities trader,
Equitable Life Insurance Co.); The Pierpont Tax Exempt Money Market Fund: Daniel
B. Mulvey, Vice President (since August, 1995, employed by Morgan Guaranty since
September, 1991) and Elizabeth A. Augustin, Vice President (since January, 1992,
employed by Morgan Guaranty since prior to 1991); The Pierpont Treasury Money
Market Fund: James A. Hayes, Vice President (since January, 1993, employed by
Morgan Guaranty since prior to 1991) and Robert R. Johnson, Vice President
(since January, 1993, employed by Morgan Guaranty since prior to 1991); The
Pierpont Short Term Bond Fund: Connie J. Plaehn, Vice President (since July,
1993, employed by Morgan Guaranty since prior to 1991) and William G. Tennille,
Vice President (since January, 1994, employed by Morgan Guaranty since March,
1992, previously Managing Director, Manufacturers Hanover Trust Company); The
Pierpont Bond Fund: William G. Tennille, Vice President (since January, 1994,
employed by Morgan Guaranty since March, 1992, previously Managing Director,
Manufacturers Hanover Trust Company) and Connie J. Plaehn, Vice President (since
January, 1994, employed by Morgan Guaranty since prior to 1991); The Pierpont
Tax Exempt Bond Fund: Elbridge T. Gerry, III, Vice President (since February,
1992, employed by Morgan Guaranty since prior to 1991) and Elizabeth A.
Augustin, Vice President (since January, 1992, employed by Morgan Guaranty since
prior to 1991); The Pierpont Equity Fund: William B. Petersen, Managing Director
(since February, 1993, employed by Morgan Guaranty since prior to 1991) and
Wil-
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<PAGE>
liam M. Riegel, Jr., Vice President (since February, 1993, employed by Morgan
Guaranty since prior to 1991); The Pierpont Capital Appreciation Fund: James B.
Otness, Managing Director (since February, 1993, employed by Morgan Guaranty
since prior to 1991) and Fred W. Kittler, Vice President (since February, 1993,
employed by Morgan Guaranty since prior to 1991); The Pierpont International
Equity Fund: Paul A. Quinsee, Vice President (since April, 1993, employed by
Morgan Guaranty since February, 1992, previously Vice President, Citibank) and
Thomas P. Madsen, Managing Director (since April, 1993, employed by Morgan
Guaranty since prior to 1991); The Pierpont Emerging Markets Equity Fund:
Douglas J. Dooley, Managing Director (since November, 1993, employed by Morgan
Guaranty since prior to 1991) and Satyen Mehta, Vice President (since November,
1993, employed by Morgan Guaranty since prior to 1991); and The Pierpont
Diversified Fund: Gerald H. Osterberg, Vice President (since July, 1993,
employed by Morgan Guaranty since prior to 1991), and John M. Devlin, Vice
President (since December, 1993, employed by Morgan Guaranty since prior to
1991).
As compensation for the services rendered and related expenses borne by
Morgan Guaranty under the Investment Advisory Agreement with each Portfolio, the
Portfolios have agreed to pay Morgan Guaranty a fee, which is computed daily and
may be paid monthly, equal to the following annual rates of each Portfolio's
average daily net assets: the Portfolios for The Pierpont Money Market, The
Pierpont Tax Exempt Money Market, and The Pierpont Treasury Money Market Funds,
0.20% of net assets up to $1 billion, and 0.10% of net assets in excess of $1
billion; the Portfolio for The Pierpont Short Term Bond Fund, 0.25%; the
Portfolio for The Pierpont Bond and The Pierpont Tax Exempt Bond Funds, 0.30%;
the Portfolio for The Pierpont Equity Fund, 0.40%; the Portfolios for The
Pierpont Capital Appreciation and The Pierpont International Equity Funds,
0.60%; the Portfolio for The Pierpont Emerging Markets Equity Fund, 1.00%; and
the Portfolio for The Pierpont Diversified Fund, 0.55%. While the advisory fee
for the Portfolio for The Pierpont Emerging Markets Equity Fund is higher than
that of most investment companies, it is similar to the advisory fees of other
emerging markets funds.
Under separate agreements, Morgan Guaranty also provides financial, fund
accounting and administrative services to the Trust and each Portfolio and
shareholder services to shareholders of the Funds. See Administrative Services
Agent and Shareholder Servicing below. INVESTMENTS IN THE PIERPONT FUNDS ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, MORGAN GUARANTY TRUST
COMPANY OF NEW YORK OR ANY OTHER BANK.
ADMINISTRATOR AND DISTRIBUTOR. Under Administration Agreements with the Trust
and each Portfolio, Signature Broker-Dealer Services, Inc. ("SBDS") serves as
the Administrator for the Trust and the Portfolios. In this capacity, SBDS
administers and manages all aspects of the Funds' and the Portfolios' day-to-day
operations subject to the supervision of the Trustees, except as set forth under
Advisor, Administrative Services Agent, Custodian and Shareholder Servicing. In
connection with its responsibilities as Administrator, SBDS (i) furnishes
ordinary clerical and related services for day-to-day operations including
certain recordkeeping responsibilities; (ii) takes responsibility for compliance
with all applicable federal and state securities and other regulatory
requirements; (iii) is responsible for the registration of sufficient Fund
shares under federal and state securities laws; (iv) takes responsibility for
monitoring each Fund's status as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"); and (v) performs such
administrative and managerial oversight of the activities of the Trust's and the
Portfolios' custodian and transfer agent as the Trustees may direct from time to
time.
Under the Trust's and the Portfolios' Administration Agreements with SBDS,
each Fund and Portfolio has agreed to pay SBDS a fee equal to its proportionate
share of an annual complex-wide charge. This charge is calculated daily based on
the aggregate net assets of the Portfolios and the other portfolios
(collectively the "Master Portfolios") in which series of the Trust, The JPM
Institutional Funds or The JPM Advisor Funds invest. This charge is calculated
in accordance with the following annual schedule: 0.03% on the first $7 billion
of the Master Portfolios' aggregate average daily net assets, and 0.01% of the
Master Portfolios' aggregate average daily net assets in excess of $7 billion.
The portion of this charge payable by each Fund or 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 JPM Advisor Funds and the Master
Portfolios.
SBDS, a registered broker-dealer, also serves as the Distributor of shares of
the Funds and the exclusive placement agent for the Portfolios. SBDS is a wholly
owned subsidiary of Signature. Signature and its affiliates currently provide
administration and distribution services for a number of registered investment
companies through offices located in Boston, New York, London, Toronto and
George Town, Grand Cayman.
ADMINISTRATIVE SERVICES AGENT. Under Administrative Services Agreements with
the Trust and each Portfolio, Morgan Guaranty is responsible for certain
financial, fund accounting and administrative services provided to the Trust and
each Portfolio, including services related to Portfolio and Fund tax returns,
Portfolio and Fund financial reports, computing Fund dividends and net asset
value per share and keeping the Trust's books of account. Under
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<PAGE>
these agreements, each Fund and Portfolio has agreed to pay Morgan Guaranty a
fee equal to its proportionate share of an annual complex-wide charge. This
charge is calculated daily based on the aggregate net assets of the Master
Portfolios in accordance with the following annual schedule: 0.06% on the first
$7 billion of the Master Portfolios' aggregate average daily net assets, and
0.03% of the Master Portfolios' aggregate average daily net assets in excess of
$7 billion. The portion of this charge payable by each Fund or 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 JPM Advisor Funds, the
Master Portfolios and other investors in the Master Portfolios for which Morgan
Guaranty provides similar services.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02101, serves as the Funds' and the Portfolios' Custodian and
Transfer and Dividend Disbursing Agent.
EXPENSES. In addition to the fees payable to Morgan Guaranty, SBDS and
Pierpont Group, Inc. under the various agreements discussed under Trustees,
Advisor, Administrator and Distributor and Administrative Services Agent above
and Shareholder Servicing below, the Funds and the Portfolios are responsible
for usual and customary expenses associated with their respective operations.
Such expenses include organization expenses, legal fees, accounting expenses,
insurance costs, the compensation and expenses of the Trustees, registration
fees under federal securities laws, and extraordinary expenses applicable to a
Fund or Portfolio. For each Fund, such expenses also include transfer, registrar
and dividend disbursing costs, the expenses of printing and mailing reports,
notices and proxy statements to Fund shareholders, and registration fees under
state securities laws. For each Portfolio, such expenses also include applicable
registration fees under foreign securities laws, custodian fees and brokerage
expenses.
Morgan Guaranty has agreed that it will reimburse each of the following Funds
through at least the indicated date to the extent necessary to maintain such
Fund's total operating expenses (which includes expenses of the Fund and its
corresponding Portfolio) at the following percentage of such Fund's average
daily net assets:
<TABLE>
<CAPTION>
EXPENSE
FUND CAP DATE
- ----------------- ----------- -------------------
<S> <C> <C>
The Pierpont
Treasury Money
Market Fund..... 0.40% February 28, 1997
The Pierpont
Short Term Bond
Fund............ 0.67% February 28, 1997
The Pierpont
Capital
Appreciation
Fund............ 0.90% September 30, 1996
The Pierpont
Emerging Markets
Equity Fund..... 1.88% February 29, 1996
The Pierpont
Diversified
Fund............ 0.98% October 31, 1996
</TABLE>
These limits on certain expenses do not cover extraordinary increases in
these expenses during the period and no longer apply in the event of a
precipitous decline in assets due to unforeseen circumstances. There is no
assurance that Morgan Guaranty will continue waivers beyond the specified
periods, except as required by the following sentence. Morgan Guaranty has
agreed to waive fees as necessary if in any fiscal year the sum of any Fund's
expenses exceeds the limits set by applicable regulations of state securities
commissions. Such annual limits are currently 2.5% of the first $30 million of
average net assets, 2% of the next $70 million of such net assets and 1.5% of
such net assets in excess of $100 million for any fiscal year.
SHAREHOLDER SERVICING
Each Fund has entered into a Shareholder Servicing Agreement with Morgan
Guaranty pursuant to which Morgan Guaranty acts as shareholder servicing agent
for its customers and other Fund investors who are customers of an eligible
institution which is a customer of Morgan Guaranty (an "Eligible Institution").
Each Fund has agreed to pay Morgan Guaranty for these services at the
following annual rates (expressed as a percentage of the average daily net asset
32
<PAGE>
value of Fund shares owned by or for shareholders for whom Morgan Guaranty is
acting as shareholder servicing agent):
<TABLE>
<CAPTION>
FUND FEE
- ------------------------ ------------------------
<S> <C>
Money Market, 0.15% of average daily
Treasury Money Market, net assets up to $2
and Tax Exempt Money billion; 0.10%
Market thereafter
Short Term Bond, 0.20% of average daily
Bond, and net assets
Tax Exempt Bond
Equity, 0.25% of average daily
Capital Appreciation, net assets
International Equity,
Emerging Markets
Equity, and
Diversified
</TABLE>
Under the terms of the Shareholder Servicing Agreement with each Fund, Morgan
Guaranty may delegate one or more of its responsibilities to other entities at
Morgan Guaranty's expense.
Shareholders should address all inquiries to Pierpont Shareholder Services,
Morgan Guaranty Trust Company of New York, 522 5th Avenue, New York, New York
10036 or call (800) 521-5411.
The business days of each Fund and its corresponding Portfolio are the days
the New York Stock Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with a Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
Guaranty as shareholder servicing agent and the Funds are authorized to accept
any instructions relating to a Fund account from Morgan Guaranty as shareholder
servicing agent for the customer. All purchase orders must be accepted by the
Fund's Distributor. Investors must be customers of Morgan Guaranty or an
Eligible Institution. Investors may also be employer-sponsored retirement plans
that have designated the Funds as investment options for the plans. Prospective
investors who are not already customers of Morgan Guaranty may apply to become
customers of Morgan Guaranty for the sole purpose of Fund transactions. There
are no charges associated with becoming a Morgan Guaranty customer for this
purpose. Morgan Guaranty reserves the right to determine the customers that it
will accept, and the Trust reserves the right to determine the purchase orders
that it will accept.
Each of The Pierpont Funds requires the minimum initial investment shown
below and a minimum subsequent investment of $5,000:
<TABLE>
<CAPTION>
INITIAL
FUND INVESTMENT
- ----------------------------------- -----------
<S> <C>
The Pierpont Money Market Fund..... $ 25,000
The Pierpont Tax Exempt Money
Market Fund....................... $ 25,000
The Pierpont Treasury Money Market
Fund.............................. $ 25,000
The Pierpont Short Term Bond
Fund.............................. $ 100,000
The Pierpont Bond Fund............. $ 100,000
<CAPTION>
INITIAL
FUND INVESTMENT
- ----------------------------------- -----------
<S> <C>
The Pierpont Tax Exempt Bond
Fund.............................. $ 100,000
The Pierpont Equity Fund........... $ 100,000
The Pierpont Capital Appreciation
Fund.............................. $ 100,000
The Pierpont International Equity
Fund.............................. $ 100,000
The Pierpont Emerging Markets
Equity Fund....................... $ 100,000
The Pierpont Diversified Fund...... $ 100,000
</TABLE>
For investors who were shareholders of a Pierpont Fund as of September 29,
1995, the minimum initial investment in any other Pierpont Fund is $10,000.
These minimum investment requirements may be waived for investors for whom the
Advisor is a fiduciary or who are employees of the Advisor, or who maintain
related accounts with the Funds or the Advisor or maintain investments in the
Funds (other than the money market funds) when such accounts and/or investments
total $500,000 or more.
For investors such as investment advisors, trust companies and financial
advisors who make investments for a group of clients, the minimum investment in
any Fund (other than the money market funds) is (i) $100,000 per individual
client or (ii) $250,000 for an aggregated purchase order for more than one
client. An employer-sponsored retirement plan opening an account in any Fund
(other than the money market funds) will be required to attain a minimum balance
of $250,000 within thirteen months of opening the account.
PURCHASE PRICE AND SETTLEMENT. Each Fund's shares are sold on a continuous
basis without a sales
33
<PAGE>
charge at the net asset value per share next determined after receipt of an
order. Prospective investors may purchase shares with the assistance of an
Eligible Institution that may establish its own terms, conditions and charges.
THE PIERPONT MONEY MARKET, TAX EXEMPT MONEY MARKET, AND TREASURY MONEY MARKET
FUNDS. To purchase shares in The Pierpont Money Market Fund, The Pierpont Tax
Exempt Money Market Fund or The Pierpont Treasury Money Market Fund, investors
should request their Morgan Guaranty representative (or a representative of
their Eligible Institution) to assist them in placing a purchase order with the
Fund's Distributor and to transfer immediately available funds to the Fund's
Distributor on the same day. Any shareholder may also call Pierpont Shareholder
Services at (800) 521-5411 for assistance with placing an order for Fund shares.
Immediately available funds must be received by 3:00 P.M. New York time on a
business day in the case of The Pierpont Money Market and The Pierpont Treasury
Money Market Funds, and by 11:00 A.M. New York time on a business day in the
case of The Pierpont Tax Exempt Money Market Fund, for the purchase to be
effective and dividends to be earned on the same day. None of The Pierpont Money
Market Fund, The Pierpont Treasury Money Market Fund, or The Pierpont Tax Exempt
Money Market Fund accepts orders after the indicated time. If funds are received
after that time fo r any reason, including that the day is a Federal Reserve
holiday, the purchase is not effective and dividends are not earned until the
next business day.
THE PIERPONT SHORT TERM BOND, BOND AND TAX EXEMPT BOND FUNDS. To purchase
shares in The Pierpont Short Term Bond Fund, The Pierpont Bond Fund and The
Pierpont Tax Exempt Bond Fund, investors should request their Morgan Guaranty
representative (or a representative of their Eligible Institution) to assist
them in placing a purchase order with the Fund's Distributor. Any shareholder
may also call Pierpont Shareholder Services at (800) 521-5411 for assistance
with placing an order for Fund shares. If the Fund receives a purchase order
prior to 4:00 P.M. New York time on any business day, the purchase of Fund
shares is effective and is made at the net asset value determined that day. If
the Fund receives a purchase order after 4:00 P.M. New York time, the purchase
is effective and is made at net asset value determined on the next business day.
All purchase orders for Fund shares must be accompanied by instructions to
Morgan Guaranty (or an Eligible Institution) to transfer immediately available
funds to the Funds' Distributor on settlement date. The settlement date is
generally the business day after the purchase is effective. The purchaser will
begin to receive the daily dividends on the settlement date. See Dividends and
Distributions.
THE PIERPONT EQUITY, CAPITAL APPRECIATION, INTERNATIONAL EQUITY, EMERGING
MARKETS EQUITY AND DIVERSIFIED FUNDS. To purchase shares in The Pierpont Equity
Fund, The Pierpont Capital Appreciation Fund, The Pierpont International Equity
Fund, The Pierpont Emerging Markets Equity Fund and The Pierpont Diversified
Fund, investors should request their Morgan Guaranty representative (or a
representative of their Eligible Institution) to assist them in placing a
purchase order with the Fund's Distributor and to transfer immediately available
funds to the Funds' Distributor on the next business day. Any shareholder may
also call Pierpont Shareholder Services at (800) 521-5411 for assistance with
placing an order for Fund shares. If the Fund receives a purchase order prior to
4:00 P.M. New York time on any business day, the purchase of Fund shares is
effective and is made at the net asset value determined that day, and the
purchaser generally becomes a holder of record on the next business day upon the
Fund's receipt of payment. If the Fund receives a purchase order after 4:00 P.M.
New York time, the purchase is effective and is made at the net asset value
determined on the next business day, and the purchaser becomes a holder of
record on the following business day upon the Fund's receipt of payment.
ELIGIBLE INSTITUTIONS. The services provided by Eligible Institutions may
include establishing and maintaining shareholder accounts, processing purchase
and redemption transactions, arranging for bank wires, performing shareholder
sub-accounting, answering client inquiries regarding the Trust, assisting
clients in changing dividend options, account designations and addresses,
providing periodic statements showing the client's account balance and
integrating these statements with those of other transactions and balances in
the client's other accounts serviced by the Eligible Institution, transmitting
proxy statements, periodic reports, updated prospectuses and other
communications to shareholders and, with respect to meetings of shareholders,
collecting, tabulating and forwarding executed proxies and obtaining such other
information and performing such other services as Morgan Guaranty or the
Eligible Institution's clients may reasonably request and agree upon with the
Eligible Institution. Eligible Institutions may separately establish their own
terms, conditions and charges for providing the aforementioned services and for
providing other services.
34
<PAGE>
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in any of The Pierpont Funds, an
investor may instruct Morgan Guaranty or his or her Eligible Institution, as
appropriate, to submit a redemption request to the appropriate Fund or may
telephone Pierpont Shareholder Services directly at (800) 521-5411 and give the
Shareholder Service Representative a preassigned shareholder Personal
Identification Number and the amount of the redemption. Each Fund executes
effective redemption requests at the next determined net asset value per share.
See Net Asset Value. See Additional Information below for an explanation of the
telephone redemption policy of The Pierpont Funds.
THE PIERPONT MONEY MARKET, TAX EXEMPT MONEY MARKET, AND TREASURY MONEY MARKET
FUNDS. A redemption request received on a business day prior to 1:00 P.M. New
York time in the case of The Pierpont Money Market Fund or The Pierpont Treasury
Money Market Fund, and prior to 11:00 A.M. New York time in the case of The
Pierpont Tax Exempt Money Market Fund, is effective on that day. A redemption
request received after that time becomes effective on the next day. Proceeds of
an effective redemption are generally deposited the same day in immediately
available funds to the shareholder's account at Morgan Guaranty or at his
Eligible Institution or, in the case of certain Morgan Guaranty customers, are
mailed by check in accordance with the customer's instructions. If a redemption
request becomes effective on a day when the New York Stock Exchange is open but
which is a Federal Reserve holiday, the proceeds are paid the next business day.
See Further Redemption Information.
THE PIERPONT SHORT TERM BOND, BOND AND TAX EXEMPT BOND FUNDS. A redemption
request received by The Pierpont Short Term Bond Fund, The Pierpont Bond Fund or
The Pierpont Tax Exempt Bond Fund prior to 4:00 P.M. New York time is effective
on that day. A redemption request received after that time becomes effective on
the next business day. Proceeds of an effective redemption are deposited on
settlement date in immediately available funds to the shareholder's account at
Morgan Guaranty or at his or her Eligible Institution or, in the case of certain
Morgan Guaranty customers, are mailed by check or wire transferred in accordance
with the customer's instructions. The redeemer will continue to receive
dividends on these shares through the day before the settlement date. Settlement
date is generally the next business day after a redemption is effective and,
subject to Further Redemption Information below, in any event is within seven
days. See Dividends and Distributions.
THE PIERPONT EQUITY, CAPITAL APPRECIATION, INTERNATIONAL EQUITY, EMERGING
MARKETS EQUITY AND DIVERSIFIED FUNDS. A redemption request received by The
Pierpont Equity Fund, The Pierpont Capital Appreciation Fund, The Pierpont
International Equity Fund, The Pierpont Emerging Markets Equity Fund or The
Pierpont Diversified Fund prior to 4:00 P.M. New York time is effective on that
day. A redemption request received after that time becomes effective on the next
business day. Proceeds of an effective redemption are generally deposited the
next business day in immediately available funds to the shareholder's account at
Morgan Guaranty or at his Eligible Institution or, in the case of certain Morgan
Guaranty customers, are mailed by check or wire transferred in accordance with
the customer's instructions, and, subject to Further Redemption Information
below, in any event are paid within seven days.
MANDATORY REDEMPTION BY THE FUND. If the value of a shareholder's holdings in
any of The Pierpont Funds falls below the applicable minimum investment amount
for more than 30 days because of a redemption of shares, the shareholder's
remaining shares may be redeemed by the Fund 60 days after written notice to the
shareholder unless the account is increased to the minimum investment amount or
more.
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions
from The Pierpont Funds may not be processed if a redemption request is not
submitted in proper form. To be in proper form, The Pierpont Funds must have
received the shareholder's taxpayer identification number and address. As
discussed under Taxes below, The Pierpont Funds may be required to impose
"back-up" withholding of federal income tax on dividends, distributions and
redemption proceeds when non-corporate investors have not provided a certified
taxpayer identification number. In addition, if a shareholder sends a check for
the purchase of Fund shares and shares are purchased before the check has
cleared, the transmittal of redemption proceeds from the shares will occur upon
clearance of the check which may take up to 15 days.
Each of The Pierpont Funds reserves the right to suspend the right of
redemption and to postpone the date of payment upon redemption for up to seven
days and for such other periods as the 1940 Act or the Securities and Exchange
Commission may permit. See Redemption of Shares in the Statement of Additional
Information.
35
<PAGE>
EXCHANGE OF SHARES
An investor may exchange shares from any of The Pierpont Funds into any other
Pierpont Fund or JPM Institutional Fund without charge. An exchange may be made
so long as after the exchange the investor has shares, in each fund in which he
or she remains an investor, with a value of at least each of those fund's
minimum investment amount. Shares are exchanged on the basis of relative net
asset value per share. Exchanges are in effect redemptions from one fund and
purchases of another fund and the usual purchase and redemption procedures and
requirements are applicable to exchanges. See Purchase of Shares and Redemption
of Shares in this Prospectus and in the prospectuses for The JPM Institutional
Funds. See also Additional Information below for an explanation of the telephone
exchange policy of The Pierpont Funds.
Shareholders subject to federal income tax who exchange shares in one fund
for shares in another fund may recognize capital gain or loss for federal income
tax purposes. Each fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state
securities laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
THE PIERPONT MONEY MARKET, TAX EXEMPT MONEY MARKET AND TREASURY MONEY MARKET
FUNDS. In the case of The Pierpont Money Market Fund, The Pierpont Tax Exempt
Money Market Fund and The Pierpont Treasury Money Market Fund, all of each
Fund's net investment income is declared as a dividend daily and paid monthly.
If an investor's shares are redeemed during a month, accrued but unpaid
dividends are paid with the redemption proceeds. The net investment income of
each Fund for dividend purposes consists of its pro rata share of the net income
of the corresponding Portfolio less the Fund's expenses. Dividends and
distributions are payable to shareholders of record at the time of declaration.
The net investment income of The Pierpont Money Market Fund, The Pierpont Tax
Exempt Money Market Fund and The Pierpont Treasury Money Market Fund for each
business day is determined immediately prior to the determination of net asset
value. Net investment income for other days is determined at the time net asset
value is determined on the prior business day. Shares of The Pierpont Money
Market Fund, The Pierpont Tax Exempt Money Market Fund and The Pierpont Treasury
Money Market Fund earn dividends on the business day their purchase is
effective, but not on the business day redemption proceeds are paid. See
Purchase of Shares and Redemption of Shares.
Substantially all the realized net capital gains, if any, of The Pierpont
Money Market Fund, The Pierpont Tax Exempt Money Market Fund, and The Pierpont
Treasury Money Market Fund are declared and paid on an annual basis, except that
an additional capital gains distribution may be made in a given year to the
extent necessary to avoid the imposition of federal excise tax on a Fund.
THE PIERPONT SHORT TERM BOND, BOND AND TAX EXEMPT BOND FUNDS. Each of The
Pierpont Short Term Bond Fund, The Pierpont Bond Fund and The Pierpont Tax
Exempt Bond Fund intends to distribute substantially all of its net investment
income. The net investment income of each Fund is declared as a dividend daily
immediately prior to the determination of the net asset value of the Fund on
that day and paid monthly. If an investor's shares are redeemed during a month,
accrued but unpaid dividends are paid with the redemption proceeds. The net
investment income of each Fund for dividend purposes consists of its pro rata
share of the net income of the corresponding Portfolio less the Fund's expenses.
Expenses of each Fund and Portfolio, including the fees payable to Morgan
Guaranty, are accrued daily. Shares will accrue dividends as long as they are
issued and outstanding. Shares are issued and outstanding as of the settlement
date of a purchase order to the settlement date of a redemption order.
Substantially all the realized net capital gains of The Pierpont Short Term
Bond Fund, The Pierpont Bond Fund and The Pierpont Tax Exempt Bond Fund are
declared and paid on an annual basis, except that an additional capital gains
distribution may be made in a given year to the extent necessary to avoid the
imposition of federal excise tax on a Fund.
THE PIERPONT EQUITY, CAPITAL APPRECIATION, INTERNATIONAL EQUITY, EMERGING
MARKETS EQUITY AND DIVERSIFIED FUNDS. Dividends consisting of
36
<PAGE>
substantially all the Fund's net investment income, if any, are declared and
paid twice a year for The Pierpont Equity, The Pierpont Capital Appreciation and
The Pierpont Diversified Funds and annually for The Pierpont International
Equity and The Pierpont Emerging Markets Equity Funds. These Funds may also
declare an additional dividend of net investment income in a given year to the
extent necessary to avoid the imposition of federal excise tax on the Funds.
Substantially all the realized net capital gains for these Funds are declared
and paid on an annual basis, except that an additional capital gains
distribution may be made in a given year to the extent necessary to avoid the
imposition of federal excise tax on a Fund. Declared dividends and distributions
are payable to shareholders of record on the record date.
Dividends and capital gains distributions paid for each of The Pierpont Funds
are automatically reinvested in additional shares of the same Fund unless the
shareholder has elected to have them paid in cash. Dividends and distributions
to be paid in cash are credited to the shareholder's account at Morgan Guaranty
or at his Eligible Institution or, in the case of certain Morgan Guaranty
customers, are mailed by check in accordance with the customer's instructions.
The Pierpont Funds reserve the right to discontinue, alter or limit the
automatic reinvestment privilege at any time.
NET ASSET VALUE
Net asset value per share for each Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in its
corresponding Portfolio and other assets) the amount of its liabilities and
dividing the remainder by the number of its outstanding shares, rounded to the
nearest cent. Expenses, including the fees payable to Morgan Guaranty, are
accrued daily. Each of the Portfolios for The Pierpont Money Market, Tax Exempt
Money Market and Treasury Money Market Funds value all portfolio securities by
the amortized cost method. This method attempts to maintain for each of these
Funds a constant net asset value per share of $1.00. No assurances can be given
that this goal can be attained. See Net Asset Value in the Statement of
Additional Information for more information on valuation of portfolio securities
for these Portfolios.
Each of The Pierpont Funds computes its net asset value once daily on Monday
through Friday, except that the net asset value is not computed for a Fund on a
day in which no orders to purchase or redeem Fund shares have been received or
on the holidays listed under Net Asset Value in the Statement of Additional
Information. The Pierpont Funds compute net asset value as follows, New York
time: The Pierpont Money Market Fund, The Pierpont Tax Exempt Money Market Fund,
The Pierpont Treasury Money Market Fund, The Pierpont International Equity Fund
and The Pierpont Emerging Markets Equity Fund, 4:00 P.M.; The Pierpont Tax
Exempt Bond Fund, The Pierpont Short Term Bond Fund, The Pierpont Bond, The
Pierpont Equity Fund, The Pierpont Capital Appreciation Fund and The Pierpont
Diversified Fund, 4:15 P.M.
ORGANIZATION
The Trust was organized on November 4, 1992 as an unincorporated business
trust under Massachusetts law and is an entity commonly known as a
"Massachusetts business trust." The Declaration of Trust permits the Trustees to
issue an unlimited number of full and fractional shares ($0.001 par value) of
one or more series. To date, shares of twelve series have been authorized and
are available for sale to the public. Shares of The Pierpont New York Total
Return Bond Fund are described in, and offered pursuant to, a separate
prospectus. The Pierpont New York Total Return Bond Fund is described in, and
offered pursuant to, a separate prospectus. No series of shares has any
preference over any other series of shares. See Massachusetts Trust in the
Statement of Additional Information.
The Declaration of Trust for the Trust provides that no Trustee, shareholder,
officer, employee, or agent of any Fund shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of any Fund, but
that the Trust property only shall be liable.
Shareholders of each Fund are entitled to one vote for each share and to the
appropriate fractional vote for each fractional share. There is no cumulative
37
<PAGE>
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and non-assessable by each Fund. The Trust has adopted a policy of not issuing
share certificates. The Trust does not intend 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 Declaration of
Trust. The Trustees will call a meeting of shareholders to vote on removal of a
Trustee upon the written request of the record holders of ten percent of Trust
shares and will assist shareholders in communicating with each other as
prescribed in Section 16(c) of the 1940 Act. For further organization
information, including certain shareholder rights, see Description of Shares in
the Statement of Additional Information.
Each Portfolio in which all of the assets of each corresponding Fund are
invested is organized as a trust under the laws of the State of New York. Each
Portfolio's Declaration of Trust provides that the Fund and other entities
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable for
all obligations of the Portfolio. However, the risk of a Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations. Accordingly, the Trustees of the Trust believe that neither a
Fund nor its shareholders will be adversely affected by reason of a Fund's
investing in a Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax
laws in effect on the date of this Prospectus. These laws and regulations are
subject to change by legislative or administrative action. Investors are urged
to consult their own tax advisors with respect to specific questions as to
federal taxes and with respect to the applicability of state or local taxes. See
Taxes in the Statement of Additional Information. Annual statements as to the
current federal tax status of distributions, if applicable, are mailed to
shareholders after the end of the taxable year for the Funds.
The Trust intends to qualify each of the Funds as a separate regulated
investment company under Subchapter M of the Code. As a regulated investment
company, each Fund should not be subject to federal income taxes or federal
excise taxes if all of its net investment income and capital gains less any
available capital loss carryforwards are distributed to shareholders within
allowable time limits. Each Portfolio intends to qualify as an association
treated as a partnership for federal income tax purposes. As such, each
Portfolio should not be subject to tax. Each Fund's status as a regulated
investment company is dependent on, among other things, the corresponding
Portfolio's continued qualification as a partnership for federal income tax
purposes.
If a correct and certified taxpayer identification number is not on file, a
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to non-corporate shareholders.
THE PIERPONT MONEY MARKET FUND; THE PIERPONT TREASURY MONEY MARKET FUND; THE
PIERPONT SHORT TERM BOND FUND; THE PIERPONT BOND FUND; THE PIERPONT EQUITY FUND;
THE PIERPONT CAPITAL APPRECIATION FUND; THE PIERPONT INTERNATIONAL EQUITY FUND;
THE PIERPONT EMERGING MARKETS EQUITY FUND AND THE PIERPONT DIVERSIFIED FUND.
Distributions of net investment income and realized net short-term capital gains
in excess of net long-term capital losses are taxable as ordinary income to
shareholders of The Pierpont Money Market Fund, The Pierpont Treasury Money
Market Fund, The Pierpont Short Term Bond Fund, The Pierpont Bond Fund, The
Pierpont Equity Fund, The Pierpont Capital Appreciation Fund, The Pierpont
International Equity Fund, The Pierpont Emerging Markets Equity Fund and The
Pierpont Diversified Fund, whether such distributions are taken in cash or
reinvested in additional shares. Distributions of this type to corporate
shareholders of The Pierpont Money Market Fund, The Pierpont Treasury Money
Market Fund, The Pierpont Short Term Bond Fund and The Pierpont Bond Fund are
not eligible for the dividends-received deduction; however, The Pierpont Equity,
The Pierpont Capital Appreciation and The Pierpont Diversified Funds expect a
portion of these distributions to corporate shareholders to be eligible for the
dividends-received deduction. Distributions of this type to corporate
shareholders of The Pierpont International Equity and The Pierpont Emerging
Markets Equity Funds will not qualify for the
dividends-re-
38
<PAGE>
ceived deduction because the income of these Funds will not consist of dividends
paid by United States corporations.
Distributions of net long-term capital gains in excess of net short-term
capital losses are taxable to shareholders of each of these Funds as long-term
capital gains regardless of how long a shareholder has held shares in the Fund
and regardless of whether taken in cash or reinvested in additional shares.
Long-term capital gains distributions to corporate shareholders are not eligible
for the dividends-received deduction. The Pierpont Money Market Fund and The
Pierpont Treasury Money Market Fund do not expect to realize long-term capital
gains and thus do not contemplate paying distributions taxable to shareholders
who are subject to tax as long-term capital gains.
In the case of The Pierpont Short Term Bond Fund and The Pierpont Bond Fund
any distribution of capital gains will have the effect of reducing the net asset
value of Fund shares held by a shareholder by the same amount as the
distribution. In the case of The Pierpont Equity Fund, The Pierpont Capital
Appreciation Fund, The Pierpont International Equity Fund, The Pierpont Emerging
Markets Equity Fund and The Pierpont Diversified Fund, any distribution of net
investment income or capital gains will have the same effect. If the net asset
value of the shares is reduced below a shareholder's cost as a result of such a
distribution, the distribution, although constituting a return of capital to the
shareholder, will be taxable as described above.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
such shares.
In the case of The Pierpont Treasury Money Market Fund, shareholders should
consult their tax advisors to assess the consequences of investing in the Fund
under state and local laws. Interest income derived from Treasury Securities is
generally not subject to state and local personal income taxation. Most states
allow a pass-through to the individual shareholders of the Fund of the
tax-exempt character of this income, subject to certain restrictions, for
purposes of those states' personal income taxes.
The Pierpont International Equity Fund and The Pierpont Emerging Markets
Equity Fund are subject to foreign withholding taxes with respect to income
received from sources within certain foreign countries. So long as more than 50%
of the value of the Fund's total assets at the close of any taxable year
consists of stock or securities of foreign corporations, the Fund may elect to
treat any such foreign income taxes paid by it as paid directly by its
shareholders. The Fund will make such an election only if it deems it to be in
the best interests of its shareholders and will notify shareholders in writing
each year if it makes the election and of the amount of foreign income taxes, if
any, to be treated as paid by the shareholders. If the Fund makes the election,
each shareholder will be required to include in income his proportionate share
of the amount of foreign income taxes paid by the Fund and will be entitled to
claim either a credit (which is subject to certain limitations), or, if the
shareholder itemizes deductions, a deduction for his share of the foreign income
taxes in computing his federal income tax liability. (No deduction will be
permitted to individuals in computing their alternative minimum tax liability.)
THE PIERPONT TAX EXEMPT MONEY MARKET AND TAX EXEMPT BOND FUNDS. The Pierpont
Tax Exempt Money Market Fund and The Pierpont Tax Exempt Bond Fund each intends
to qualify to pay exempt-interest dividends to its shareholders by having, at
the close of each quarter of its taxable year, at least 50% of the value of its
total assets consist of tax exempt securities. An exempt-interest dividend is
that part of dividend distributions made by these Funds which consists of
interest received by the Funds on tax exempt securities. Exempt-interest
dividends received from these Funds will be treated for federal income tax
purposes as tax exempt interest income. In view of the Funds' investment
policies, it is expected that a substantial portion of the Funds' dividends will
be exempt-interest dividends, although the Funds may from time to time realize
and distribute net short-term capital gains and may invest limited amounts in
taxable securities under certain circumstances. See Taxable Investments for The
Pierpont Tax Exempt Funds.
Interest on certain tax exempt municipal obligations issued after August 7,
1986 is a preference item for purposes of the alternative minimum tax applicable
to individuals and corporations. Under tax regulations to be issued, the portion
of an exempt-interest dividend of a regulated investment company that is
allocable to these obligations will be treated as a preference item for purposes
of the alternative minimum tax. The Pierpont Tax Exempt Money Market Fund and
The Pierpont Tax Exempt Bond Fund have
lim-
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ited their investments to those securities the interest on which will not be
treated as preference items for purposes of the alternative minimum tax in the
opinion of bond counsel for the issuer. The Pierpont Tax Exempt Money Market
Fund and The Pierpont Tax Exempt Bond Fund currently have no intention of
investing in obligations subject to the alternative minimum tax under normal
market conditions.
Corporations should, however, be aware that interest on all municipal
securities will be included in calculating (i) adjusted current earnings for
purposes of the alternative minimum tax applicable to them, (ii) the additional
tax imposed on certain corporations by the Superfund Revenue Act of 1986, and
(iii) the foreign branch profits tax imposed on effectively connected earnings
and profits of United States branches of foreign corporations. Furthermore,
special tax provisions may apply to certain financial institutions and property
and casualty insurance companies, and they should consult their tax advisors
before purchasing shares of these Funds.
Interest on indebtedness incurred or continued by a shareholder (whether a
corporation or an individual) to purchase or carry shares of these Funds is not
deductible. The Treasury has been given authority to issue regulations which
would disallow the interest deduction if incurred to purchase or carry shares of
these Funds owned by the taxpayer's spouse, minor child or entity controlled by
the taxpayer. Entities or persons who are "substantial users" (or related
persons) of facilities financed by tax exempt bonds should consult their tax
advisors before purchasing shares of these Funds.
Distributions of taxable net investment income, realized net short-term
capital gains in excess of net long-term capital losses, and net long-term
capital gains in excess of net short-term capital losses by these Funds, as well
as gains or losses realized on the redemption or exchange of shares of these
Funds, are generally treated as described above under the heading Taxes, The
Pierpont Money Market Fund, The Pierpont Treasury Money Market Fund, The
Pierpont Bond Fund, The Pierpont Short Term Bond Fund, The Pierpont Equity Fund,
The Pierpont Capital Appreciation Fund, The Pierpont International Equity Fund,
The Pierpont Emerging Markets Equity Fund and The Pierpont Diversified Fund. Any
loss realized by a shareholder, however, upon the redemption or exchange of
shares in these Funds held six months or less will be disallowed to the extent
of any exempt-interest dividends received by the shareholder with respect to
these shares. See Taxes in the Statement of Additional Information. In addition,
in the case of The Pierpont Tax Exempt Bond Fund, any distribution of capital
gains will have the effect of reducing the net asset value of Fund shares as
described under the same heading.
ADDITIONAL INFORMATION
Each of The Pierpont Funds sends to its shareholders annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. Shareholders also will be sent confirmations of each
purchase and redemption and monthly statements, reflecting all account activity,
including dividends and any distributions reinvested in additional shares or
credited as cash.
All shareholders are given the privilege to initiate transactions
automatically by telephone upon opening an account. However, an investor should
be aware that a transaction authorized by telephone and reasonably believed to
be genuine by the Fund, Morgan Guaranty, his Eligible Institution or the
Distributor may subject the investor to risk of loss if such instruction is
subsequently found not to be genuine. Each Fund will employ reasonable
procedures, including requiring investors to give their Personal Identification
Number and tape recording of telephone instructions, to confirm that
instructions communicated from investors by telephone are genuine; if it does
not, the Fund, the Shareholder Servicing Agent or a shareholder's Eligible
Institution may be liable for any losses due to unauthorized or fraudulent
instructions.
The Pierpont Funds may make historical performance information available and
may compare their performance to other investments, relevant indexes or
appropriate industry averages, including data from Lipper Analytical Services,
Inc., Morningstar Inc., Micropal Inc., Ibbotson Associates, the Dow Jones
Industrial Average and other industry publications. See Investment Advisor in
the Statement of Additional Information. The Pierpont Money Market Fund, The
Pierpont Tax Exempt Money Market Fund, The Pierpont Treasury Money Market Fund,
The Pierpont Short Term Bond Fund, The Pierpont Bond Fund and The Pierpont Tax
Exempt Bond Fund may advertise "yield"; The Pierpont Money Market Fund, The
Pierpont Tax Exempt Money Market Fund and The Pierpont Treasury Money Market
Fund may also advertise "effective yield"; and The Pierpont Tax
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Exempt Money Market Fund and The Pierpont Tax Exempt Bond Fund may also
advertise "tax equivalent yield."
In the case of The Pierpont Money Market Fund, The Pierpont Tax Exempt Money
Market Fund and The Pierpont Treasury Money Market Fund, the yield refers to the
net income generated by an investment in each of these Funds over a stated
seven-day period. This income is then annualized--i.e., the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. In
the case of The Pierpont Short Term Bond Fund, The Pierpont Bond Fund, The
Pierpont Tax Exempt Bond Fund and The Pierpont Equity Fund, the yield refers to
the net income generated by an investment in each of these Funds over a stated
30-day period. This income is then annualized--i.e., the amount of income
generated by the investment during the 30-day period is assumed to be generated
each 30-day period for twelve periods and is shown as a percentage of the
investment. The income earned on the investment is also assumed to be reinvested
at the end of the sixth 30-day period. In the case of The Pierpont Money Market
Fund, The Pierpont Tax Exempt Money Market Fund and The Pierpont Treasury Money
Market Fund, the effective yield is calculated similarly to the yield for each
of these Funds, but, when annualized, the income earned by an investment in each
of the Funds is assumed to be reinvested; the effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment. In the case of The Pierpont Tax Exempt Money Market Fund and The
Pierpont Tax Exempt Bond Fund, the tax equivalent yield is calculated similarly
to the yield for each of these Funds, except that the yield is increased using a
stated income tax rate to demonstrate the taxable yield necessary to produce an
after-tax equivalent to each of these Funds.
Each of the Funds may advertise "total return" and non-standardized total
return data. The total return shows what an investment in each of these Funds
would have earned over a specified period of time (one, five or ten years or
since commencement of operations, if less) assuming that all distributions and
dividends by the Fund were reinvested on the reinvestment dates during the
period and less all recurring fees. These methods of calculating yield and total
return are required by regulations of the Securities and Exchange Commission.
Yield and total return data similarly calculated, unless otherwise indicated,
over other specified periods of time may also be used. See Performance Data in
the Statement of Additional Information. All performance figures are based on
historical earnings and are not intended to indicate future performance.
Performance information may be obtained by calling The Pierpont Funds'
Distributor at (800) 847-9487.
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APPENDIX
The Portfolios for each of The Pierpont Tax Exempt Bond, Bond, Short Term
Bond and Diversified Funds may (a) purchase exchange traded and over-the-counter
(OTC) put and call options on fixed income securities and indexes of fixed
income securities, (b) purchase and sell futures contracts on fixed income
securities and indexes of fixed income securities and (c) purchase put and call
options on futures contracts on fixed income securities and indexes of fixed
income securities. In addition, the Portfolio for the Diversified Fund may sell
(write) exchange traded and OTC put and call options on fixed income securities
and indexes of fixed income securities and on futures contracts on fixed income
securities and indexes of fixed income securities.
The Portfolios for each of The Pierpont Equity, Capital Appreciation,
International Equity, Emerging Markets Equity and Diversified Funds may (a)
purchase exchange traded and OTC put and call options on equity securities or
indexes of equity securities, (b) purchase and sell futures contracts on indexes
of equity securities, and (c) purchase put and call options on futures contracts
on indexes of equity securities. In addition, the Portfolios for the Emerging
Markets Equity and Diversified Funds may sell (write) exchange traded and OTC
put and call options on equity securities and indexes of equity securities and
on futures contracts on indexes of equity securities.
Each of these Portfolios may use futures contracts and options for hedging
purposes. The Portfolios for each of The Pierpont Emerging Markets Equity and
Diversified Funds may also use futures contracts and options for risk management
purposes. See Risk Management in the Statement of Additional Information. None
of the Portfolios may use futures contracts and options for speculation.
Each of these Portfolios may utilize options and futures contracts to manage
their exposure to changing interest rates and/or security prices. Some options
and futures strategies, including selling futures contracts and buying puts,
tend to hedge a Portfolio's investments against price fluctuations. Other
strategies, including buying futures contracts, writing puts and calls, and
buying calls, tend to increase market exposure. Options and futures contracts
may be combined with each other or with forward contracts in order to adjust the
risk and return characteristics of a Portfolio's overall strategy in a manner
deemed appropriate to the Advisor and consistent with a Portfolio's objective
and policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase a Portfolio's return. While the use of these instruments
by a Portfolio may reduce certain risks associated with owning its portfolio
securities, these techniques themselves entail certain other risks. If the
Advisor applies a strategy at an inappropriate time or judges market conditions
or trends incorrectly, options and futures strategies may lower a Portfolio's
return. Certain strategies limit a Portfolio's possibilities to realize gains as
well as limiting its exposure to losses. The Portfolio could also experience
losses if the prices of its options and futures positions were poorly correlated
with its other investments, or if it could not close out its positions because
of an illiquid secondary market. In addition, a Portfolio will incur transaction
costs, including trading commissions and option premiums, in connection with its
futures and options transactions and these transactions could significantly
increase the Portfolio's turnover rate.
Each of the Portfolios may purchase put and call options on securities,
indexes of securities and futures contracts, or purchase and sell futures
contracts, only if such options are written by other persons and if (i) the
aggregate premiums paid on all such options which are held at any time do not
exceed 20% of the Portfolio's net assets, and (ii) the aggregate margin deposits
required on all such futures or options thereon held at any time do not exceed
5% of the Portfolio's total assets. In addition, the Portfolios for The Pierpont
Emerging Markets Equity and Diversified Funds will not purchase or sell (write)
futures contracts, options on futures contracts or commodity options for risk
management purposes if, as a result, the aggregate initial margin and options
premiums required to establish these positions exceed 5% of the net asset value
of such Portfolio.
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OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a Portfolio
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by
allowing it to expire or by exercising the option. The Portfolio may also close
out a put option position by entering into an offsetting transaction, if a
liquid market exists. If the option is allowed to expire, the Portfolio will
lose the entire premium it paid. If the Portfolio exercises a put option on a
security, it will sell the instrument underlying the option at the strike price.
If the Portfolio exercises an option on an index, settlement is in cash and does
not involve the actual sale of securities. If an option is American style, it
may be exercised on any day up to its expiration date. A European style option
may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the price
of the underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument underlying the option at the option's
strike price. A call buyer typically attempts to participate in potential price
increases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost of
the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When a Portfolio writes a put option,
it takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the instrument underlying the option if the other party to
the option chooses to exercise it. The Portfolio may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a put
option the Portfolio has written, however, the Portfolio must continue to be
prepared to pay the strike price while the option is outstanding, regardless of
price changes, and must continue to post margin as discussed below.
If the price of the underlying instrument rises, a put writer would generally
expect to profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it is likely
that the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would expect to
suffer a loss. This loss should be less than the loss from purchasing and
holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.
Writing a call option obligates a Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an index
of securities or a futures contract is required to deposit cash or securities or
a letter of credit as margin and to make mark to market payments of variation
margin as the position becomes unprofitable.
OPTIONS ON INDEXES. Each Portfolio permitted to enter into options
transactions may purchase put and call options on any securities index based on
securities in which the Portfolio may invest. The Portfolios for The Pierpont
Emerging Markets Equity and Diversified Funds may also sell (write) put and call
options on such indexes. Options on securities indexes are similar to options on
securities, except that
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the exercise of securities index options is settled by cash payment and does not
involve the actual purchase or sale of securities. In addition, these options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price fluctuations in a single security. A
Portfolio, in purchasing or selling index options, is subject to the risk that
the value of its portfolio securities may not change as much as an index because
the Portfolio's investments generally will not match the composition of an
index. For a number of reasons, a liquid market may not exist and thus a
Portfolio may not be able to close out an option position that it has previously
entered into. When a Portfolio purchases an OTC option, it will be relying on
its counterparty to perform its obligations, and a Portfolio may incur
additional losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When a Portfolio purchases a futures contract, it agrees to purchase a
specified quantity of an underlying instrument at a specified future date or to
make a cash payment based on the value of a securities index. When a Portfolio
sells a futures contract, it agrees to sell a specified quantity of the
underlying instrument at a specified future date or to receive a cash payment
based on the value of a securities index. The price at which the purchase and
sale will take place is fixed when the Portfolio enters into the contract.
Futures can be held until their delivery dates or the position can be (and
normally is) closed out before then. There is no assurance, however, that a
liquid market will exist when the Portfolio wishes to close out a particular
position.
When a Portfolio purchases a futures contract, the value of the futures
contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase a Portfolio's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying instrument
directly. When a Portfolio sells a futures contract, by contrast, the value of
its futures position will tend to move in a direction contrary to the value of
the underlying instrument. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
The purchaser or seller of a futures contract is not required to deliver or
pay for the underlying instrument unless the contract is held until the delivery
date. However, when a Portfolio buys or sells a futures contract it will be
required to deposit "initial margin" with its Custodian in a segregated account
in the name of its futures broker, known as a futures commission merchant (FCM).
Initial margin deposits are typically equal to a small percentage of the
contract's value. If the value of either party's position declines, that party
will be required to make additional "variation margin" payments equal to the
change in value on a daily basis. The party that has a gain may be entitled to
receive all or a portion of this amount. A Portfolio may be obligated to make
payments of variation margin at a time when it is disadvantageous to do so.
Furthermore, it may not always be possible for a Portfolio to close out its
futures positions. Until it closes out a futures position, a Portfolio will be
obligated to continue to pay variation margin. Initial and variation margin
payments do not constitute purchasing on margin for purposes of the Portfolios'
investment restrictions. In the event of the bankruptcy of an FCM that holds
margin on behalf of a Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.
Each Portfolio will segregate liquid, high quality assets in connection with
its use of options and futures contracts to the extent required by the staff of
the Securities and Exchange Commission. Securities held in a segregated account
cannot be sold while the futures contract or option is outstanding, unless they
are replaced with other suitable assets. As a result, there is a possibility
that segregation of a large percentage of a Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
For further information about the Portfolios' use of futures and options and
a more detailed discussion of associated risks, see Investment Objectives and
Policies in the Statement of Additional Information.
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<PAGE>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE TRUST OR THE DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER BY THE TRUST OR BY THE DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE TRUST OR THE
DISTRIBUTOR TO MAKE SUCH OFFER IN SUCH JURISDICTION.
<PAGE>
JPM491A
THE PIERPONT FUNDS
THE PIERPONT MONEY MARKET FUND
THE PIERPONT TAX EXEMPT MONEY MARKET FUND
THE PIERPONT TREASURY MONEY MARKET FUND
THE PIERPONT SHORT TERM BOND FUND
THE PIERPONT BOND FUND
THE PIERPONT TAX EXEMPT BOND FUND
THE PIERPONT NEW YORK TOTAL RETURN BOND FUND
THE PIERPONT DIVERSIFIED FUND
THE PIERPONT EQUITY FUND
THE PIERPONT CAPITAL APPRECIATION FUND
THE PIERPONT INTERNATIONAL EQUITY FUND
THE PIERPONT EMERGING MARKETS EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 29, 1995
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
FOR THE FUND OR FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO TIME, WHICH MAY
BE OBTAINED UPON REQUEST FROM SIGNATURE BROKER-DEALER SERVICES, INC., ATTENTION:
THE PIERPONT FUNDS; (800) 847-9487.
<PAGE>
Table of Contents
PAGE
General................................. 1
Investment Objectives and Policies...... 1
Investment Restrictions................. 30
Trustees and Officers................... 50
Investment Advisor...................... 54
Administrator and Distributor........... 59
Services Agent.......................... 62
Custodian............................... 64
Shareholder Servicing................... 65
Independent Accountants................. 67
Expenses................................ 67
Purchase of Shares...................... 68
Redemption of Shares.................... 68
Exchange of Shares...................... 69
Dividends and Distributions............. 69
Net Asset Value......................... 70
Performance Data........................ 72
Portfolio Transactions.................. 76
Massachusetts Trust..................... 79
Description of Shares................... 80
Taxes................................... 82
Additional Information.................. 87
Financial Statements.................... 87
Appendix A - Description of Securities
Ratings................................ A-1
Appendix B - Additional Information
Concerning New York Municipal
Obligations............................ B-1
<PAGE>
GENERAL
The Pierpont Funds currently consist of twelve funds: The Pierpont
Money Market Fund, The Pierpont Treasury Money Market Fund, The Pierpont Tax
Exempt Money Market Fund, The Pierpont Short Term Bond Fund, The Pierpont Bond
Fund, The Pierpont Tax Exempt Bond Fund, The Pierpont New York Total Return Bond
Fund, The Pierpont Equity Fund, The Pierpont Capital Appreciation Fund, The
Pierpont International Equity Fund, The Pierpont Emerging Markets Equity Fund
and The Pierpont Diversified Fund (collectively, the "Funds"). Each of the Funds
is a series of The Pierpont Funds, an open-end management investment company
formed as a Massachusetts business trust (the "Trust"; where appropriate,
references to the "Trust" refer to the Trust acting on behalf of a Fund and
references to a "Fund" refer to a Fund acting through the Trust).
1
<PAGE>
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 Pierpont Funds operate through Signature Financial Group, Inc.'s Hub and
Spoke(R) financial services method. Formerly, The Pierpont Money Market Fund,
The Pierpont Tax Exempt Money Market Fund, The Pierpont Bond Fund, The Pierpont
Tax Exempt Bond Fund, The Pierpont Equity Fund, The Pierpont Capital
Appreciation Fund, and The Pierpont International Equity Fund operated as
free-standing mutual funds and not through Hub and Spoke(R). Where indicated in
this Statement of Additional Information, historical information for each of
these Funds includes information for their respective predecessor entities.
This Statement of Additional Information provides additional
information with respect to the Funds, and should be read in conjunction with
the current Prospectus. Capitalized terms not otherwise defined in this
Statement of Additional Information have the meanings accorded to them in the
Funds' Prospectus. The Funds' executive offices are located at 6 St. James
Avenue, Boston, Massachusetts 02116.
INVESTMENT OBJECTIVES AND POLICIES
THE PIERPONT MONEY MARKET FUND (the "Money Market Fund") is designed to
be an economical and convenient means of making substantial investments in money
market instruments. The Money Market Fund's investment objective is to maximize
current income and maintain a high level of liquidity. The Fund attempts to
achieve this objective by investing all of its investable assets in The Money
Market Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Money Market Fund.
The Portfolio seeks to achieve its investment objective by maintaining
a dollar-weighted average portfolio maturity of not more than 90 days and by
investing in U.S. dollar denominated securities described in the Prospectus and
this Statement of Additional Information that meet certain rating criteria,
present minimal credit risk and have effective maturities of not more than
thirteen months. The Portfolio's ability to achieve maximum current income is
affected by its high quality standards. See "Quality and Diversification
Requirements."
THE PIERPONT 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
2
<PAGE>
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 PIERPONT TREASURY MONEY MARKET FUND (the "Treasury Money Market
Fund") is designed to be an economical and convenient means of making
substantial investments in short term direct obligations of the U.S.
Treasury. The Treasury Money Market Fund's investment objective is to provide
current income, maintain a high level of liquidity and preserve capital. The
Fund attempts to accomplish this objective by investing all of its investable
assets in The Treasury Money Market Portfolio (the "Portfolio"), a diversified
open-end management investment company having the same investment objective as
the Treasury Money Market Fund.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing in 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 PIERPONT SHORT TERM BOND FUND (the "Short Term Bond Fund") is
designed for investors who place a strong emphasis on conservation of capital
but who also want a return greater than that of a money market fund or other
very low risk investment vehicles. It is appropriate for investors who do not
require the stable net asset value typical of a money market fund but who want
less price fluctuation than is typical of a longer-term bond fund. The Short
Term Bond Fund's investment objective is to provide a high total return while
attempting to limit the likelihood of negative quarterly returns. The Short Term
Bond Fund seeks to achieve this high total return to the extent consistent with
modest risk of capital and the maintenance of liquidity. The Short Term Bond
Fund attempts to achieve its investment objective by investing all of its
investable assets in The Short Term Bond Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Short Term Bond Fund.
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The Portfolio attempts to achieve its investment objective by investing
primarily in the corporate and government debt obligations and related
securities described in the Prospectus and this Statement of Additional
Information.
THE PIERPONT BOND FUND (the "Bond Fund") is designed to be an
economical and convenient means of making substantial investments in a broad
range of corporate and government debt obligations and related investments of
domestic and foreign issuers, subject to certain quality and other restrictions.
See "Quality and Diversification Requirements." The Bond Fund's investment
objective is to provide a high total return consistent with moderate risk of
capital and maintenance of liquidity. Although the net asset value of the Bond
Fund will fluctuate, the Bond Fund attempts to conserve the value of its
investments to the extent consistent with its objective. The Bond Fund attempts
to achieve its objective by investing all of its investable assets in The U.S.
Fixed Income Portfolio (the "Portfolio"), a diversified open-end management
investment company having the same investment objective as the Bond Fund.
The Portfolio attempts to achieve its investment objective by investing
in high grade corporate and government debt obligations and related securities
of domestic and foreign issuers described in the Prospectus and this Statement
of Additional Information.
INVESTMENT PROCESS
Duration/yield curve management: Morgan's duration decision begins with
an analysis of real yields, which its research indicates are generally a
reliable indicator of longer term interest rate trends. Other factors Morgan
studies in regard to interest rates include economic growth and inflation,
capital flows and monetary policy. Based on this analysis, Morgan forms a view
of the most likely changes in the level and shape of the yield curve -- as well
as the timing of those changes -- and sets the Portfolio's duration and maturity
structure accordingly. 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.
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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 PIERPONT 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 PIERPONT 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
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State and its political subdivisions and by agencies, authorities and
instrumentalities of New York and its political subdivisions.
These securities earn income exempt from federal and New York State and local
income taxes but, in certain circumstances, may be subject to alternative
minimum tax. In addition, the Portfolio may invest in municipal securities
issued by states other than New York, by territories and possessions of the
United States and by the District of Columbia and their political subdivisions,
agencies and instrumentalities. These securities earn income exempt from federal
income taxes but, in certain circumstances, may be subject to alternative
minimum tax. In order to seek to enhance the Portfolio's after tax return, the
Portfolio may also invest in securities which earn income subject to New York
and/or federal income taxes. These securities include U.S. government
securities, corporate securities and municipal securities issued on a taxable
basis.
THE PIERPONT DIVERSIFIED FUND (the "Diversified Fund") is designed for
investors who wish to invest for long term objectives such as retirement and who
seek to attain real appreciation in their investments over the long term, but
with somewhat less price fluctuation than a portfolio consisting solely of
equity securities. The Diversified Fund's investment objective is to provide a
high total return from a diversified portfolio of equity and fixed income
securities. The Fund attempts to achieve its investment objective by investing
all of its investable assets in The Diversified Portfolio, a diversified
open-end management investment company having the same investment objective as
the Diversified Fund.
THE PIERPONT EQUITY FUND (the "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 Equity Fund's investment objective is to
provide a high total return from a portfolio of selected equity securities. The
Fund attempts to achieve its investment objective by investing all of its
investable assets in The Selected U.S. Equity Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Equity Fund.
In normal circumstances, at least 65% of the Portfolio's net assets
will be invested in equity securities consisting of common stocks and other
securities with equity characteristics comprised of preferred stock, warrants,
rights, convertible securities, trust certifications, limited partnership
interests and equity participations (collectively, "Equity Securities"). The
Portfolio's primary equity investments are the common stock of large and medium
sized U.S. corporations and, to a limited extent, similar securities of foreign
corporations.
INVESTMENT PROCESS
Fundamental research: Morgan's 20 domestic equity analysts,
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each an industry specialist with an average of 13 years of experience, follow
700 predominantly large- and medium-sized U.S. companies -- 500 of which form
the universe for the Portfolio's investments. Their research goal is to forecast
normalized, longer term earnings and dividends for the most attractive companies
among those they cover. In doing this, they may work in concert with Morgan's
international equity analysts in order to gain a broader perspective for
evaluating industries and companies in today's global economy.
Systematic valuation: The analysts' forecasts are converted into
comparable expected returns by a dividend discount model, which calculates those
expected returns by comparing a company's current stock price with the "fair
value" price forecasted by its estimated long term earnings power. Within each
sector, companies are ranked by their expected return and grouped into
quintiles: those with the highest expected returns (Quintile 1) are deemed the
most undervalued relative to their long-term earnings power, while those with
the lowest expected returns (Quintile 5) are deemed the most overvalued.
Disciplined portfolio construction: A diversified portfolio is
constructed using disciplined buy and sell rules. Purchases are concentrated
among first-quintile stocks; the specific names selected reflect the portfolio
manager's judgment concerning the soundness of the underlying forecasts, the
likelihood that the perceived misvaluation will be corrected within a reasonable
time frame and the magnitude of the risks versus the rewards. Once a stock falls
into the third quintile -- because its price has risen or its fundamentals have
deteriorated -- it generally becomes a sale candidate. The portfolio manager
seeks to hold sector weightings close to those of the S&P 500 Index, reflecting
Morgan's belief that its research has the potential to add value at the
individual stock level, but not at the sector level. Sector neutrality is also
seen as a way to help protect the portfolio from macroeconomic risks, and
- --together with diversification -- represents an important element of Morgan's
risk control strategy. A dedicated trading desk handles all transactions
for the Portfolio.
THE PIERPONT CAPITAL APPRECIATION FUND (the "Capital Appreciation
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
Capital Appreciation Fund's investment objective is to provide a high total
return from portfolio of Equity Securities of small companies. The Fund attempts
to achieve its investment objective by investing all of its investable assets in
The U.S. Small Company Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the
Capital Appreciation Fund.
The Portfolio attempts to achieve its investment objective
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by investing primarily in the common stock of small U.S.
companies included in the Russell 2500 Index, which is composed
of 2,500 common stocks of U.S. companies with market
capitalizations ranging between $100 million and $1.5 billion.
INVESTMENT PROCESS
Fundamental Research: Morgan's 20 domestic equity analysts -- each an
industry specialist with an average of 13 years of experience -- continuously
monitor the small cap stocks in their respective sectors with the aim of
identifying companies that exhibit superior financial strength and operating
returns. Meetings with management and on-site visits play a key role in shaping
their assessments. Their research goal is to forecast normalized, long-term
earnings and dividends for the most attractive small cap companies among those
they monitor -- a universe that generally contains a total of 300-350 names.
Because Morgan's analysts follow both the larger and smaller companies in their
industries -- in essence, covering their industries from top to bottom -- they
are able to bring broad perspective to the research they do on both.
Systematic valuation: The analysts' forecasts are converted into
comparable expected returns by Morgan's dividend discount model, which
calculates those returns by comparing a company's current stock price with the
"fair value" price forecasted by its estimated long-term earnings power. Within
each industry, companies are ranked by their expected returns and grouped into
quintiles: those with the highest expected returns (Quintile 1) are deemed the
most undervalued relative to their long-term earnings power, while those with
the lowest expected returns (Quintile 5) are deemed the most overvalued.
Disciplined portfolio construction: A diversified portfolio is
constructed using disciplined buy and sell rules. Purchases are concentrated
among the stocks in the top two quintiles of the rankings: the specific names
selected reflect the portfolio manager's judgment concerning the soundness of
the underlying forecasts, the likelihood that the perceived misevaluation will
soon be corrected and the magnitude of the risks versus the rewards. Once a
stock falls into the third quintile -- because its price has risen or its
fundamentals have deteriorated -- it generally becomes a sale candidate. The
portfolio manager seeks to hold sector weightings close to those of the Russell
2500 Index, the Portfolio's benchmark, reflecting Morgan's belief that its
research has the potential to add value at the individual stock level, but not
at the sector level. Sector neutrality is also seen as a way to help to protect
the portfolio from macroeconomic risks, and -- together with diversification --
represents an important element of Morgan's investment strategy.
THE PIERPONT INTERNATIONAL EQUITY FUND (the "International Equity
Fund") is designed for investors with a long term investment horizon who want to
diversify their portfolios by
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investing in an actively managed portfolio of non-U.S. securities that seeks to
outperform the Morgan Stanley Europe, Australia and Far East Index (the "EAFE
Index"). The International Equity Fund's investment objective is to provide a
high total return from a portfolio of Equity Securities of foreign corporations.
The Fund attempts to achieve its investment objective by investing all of its
investable assets in The Non-U.S. Equity Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the International Equity Fund.
The Portfolio seeks to achieve its investment objective by investing
primarily in the Equity Securities of foreign corporations. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing at the same time in a significant number of developed
foreign countries render investments in such countries inadvisable.
INVESTMENT PROCESS
Country allocation: Morgan's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then rank countries according to the size of those
deviations. Countries with high (low) rankings are overweighted (underweighted)
in comparisons to the EAFE Index to reflect the above-average (below-average)
attractiveness of their stock markets. In determining weightings, Morgan
analyzes a variety of qualitative factors as well -- including the liquidity,
earnings momentum and interest rate climate of the market at hand. These
qualitative assessments can change the magnitude but not the direction of the
country allocations called for by the risk premium forecast. Morgan places
limits on the total size of the Portfolio's country over- and under-weightings
relative to the EAFE Index.
Stock selection: Morgan's 44 international equity analysts, each an
industry and country specialist, forecast normalized earnings and dividend
payouts for roughly 1,000 non-U.S. companies -- taking a long-term perspective
rather than the short time frame common to consensus estimates. These forecasts
are converted into comparable expected returns by a dividend discount model, and
then companies are ranked from most to least attractive by industry and country.
A diversified portfolio is constructed using disciplined buy and sell rules. The
portfolio manager's objective is to concentrate the purchases in the top third
of the rankings, and to keep sector weightings close to those of the EAFE Index,
the Fund's benchmark. Once a stock
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falls into the bottom third of the rankings, it generally becomes a sales
candidate. Where available, warrants and convertibles may be purchased instead
of common stock if they are deemed a more attractive means of investing in an
undervalued company.
Currency management: Currency is actively managed, in conjunction with
country and stock allocation, with the goal of protecting and possibly enhancing
the Fund's return. Morgan's currency decisions are supported by a proprietary
tactical mode which forecasts currency movements based on an analysis of four
fundamental factors -- trade balance trends, purchasing power parity, real
short-term interest differentials and real bond yields -- plus a technical
factor designed to improve the timing of transactions. Combining the output of
this model with a subjective assessment of economic political and market
factors, Morgan's currency group recommends currency strategies that are
implemented in conjunction with the portfolio's investment strategy.
THE PIERPONT EMERGING MARKETS EQUITY FUND (the "Emerging Markets Equity
Fund") is designed for investors with a long term investment horizon who want
exposure to the rapidly growing emerging markets. The Emerging Markets Equity
Fund's investment objective is to provide a high total return from a portfolio
of Equity Securities of companies in emerging markets. The Fund attempts to
achieve its investment objective by investing all of its investable assets in
The Emerging Markets Equity Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the
Emerging Markets Equity Fund.
The Portfolio seeks to achieve its investment objective by investing
primarily in Equity Securities of emerging markets issuers. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing at the same time in a significant number of emerging
markets countries render investments in such countries inadvisable.
INVESTMENT PROCESS
Country allocation: Morgan's country allocation decision begins with a
forecast of the expected return of each market in the Portfolio's universe.
These expected returns are calculated using a proprietary valuation method that
is forward looking in nature rather than based on historical data. Morgan then
evaluates these expected returns from two different perspectives:
first, it identifies 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
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overweighted relative to the Fund's benchmark, the Morgan Stanley
Capital International ("MSCI") Emerging Markets Free Index, while those that
rank poorly are underweighted. To help contain risk, Morgan places limits on the
total size of the Portfolio's country over- and under-weightings.
Stock selection: Morgan's 12 emerging market equity analysts -- each an
industry specialist -- monitor a universe of approximately 900 companies in
these countries, developing forecasts of earnings and cash flows for the most
attractive among them. Companies are ranked from most to least attractive based
on this research, and then a diversified portfolio is constructed using
disciplined buy and sell rules. The portfolio manager's objective is to
concentrate the Portfolio's holdings in the stocks deemed most undervalued, and
to keep sector weightings relatively close to those of the index. Stocks are
generally held until they fall into the bottom half of Morgan's rankings.
The following discussion supplements the information regarding the
investment objective of each of the Funds and the policies to be employed to
achieve this objective by their corresponding Portfolios as set forth above and
in the Prospectus. The investment objective of each Fund and its corresponding
Portfolio is identical. Accordingly, references below to a Fund also include the
Fund's corresponding Portfolio; similarly, references to a Portfolio also
include the corresponding Fund that invests in the Portfolio unless the context
requires otherwise.
MONEY MARKET INSTRUMENTS
As discussed in the Prospectus, each Fund may invest in
money market instruments to the extent consistent with its
investment objective and policies. A description of the various
types of money market instruments that may be purchased by the
Funds appears below. See "Quality and Diversification
Requirements."
U.S. TREASURY SECURITIES. Each of the Funds may invest in
direct obligations of the U.S. Treasury, including Treasury
bills, notes and bonds, all of which are backed as to principal
and interest payments by the full faith and credit of the United
States.
ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. Each of the Funds, except the
Treasury Money Market Fund, 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. In the case of
securities not backed by the full faith and credit of the United States, each
Fund must look principally to the federal agency issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet
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its commitments. Securities in which each Fund, except the Treasury
Money Market Fund, may invest that are not backed by the full faith and credit
of the United States include, but are not limited to, obligations of the
Tennessee Valley Authority, the Federal Home Loan Mortgage Corporation and the
U.S. Postal Service, each of which has the right to borrow from the U.S.
Treasury to meet its obligations, and obligations of the Federal Farm Credit
System and the Federal Home Loan Banks, both of whose obligations may be
satisfied only by the individual credits of each issuing agency. Securities
which are backed by the full faith and credit of the United States include
obligations of the Government National Mortgage Association, the Farmers Home
Administration, and the Export-Import Bank.
FOREIGN GOVERNMENT OBLIGATIONS. Each of the Funds, except
the Tax Exempt Money Market Fund, the Treasury Money Market Fund,
the Tax Exempt Bond Fund and the New York Total Return Bond Fund,
subject to its applicable investment policies, may also invest in
short-term obligations of foreign sovereign governments or of
their agencies, instrumentalities, authorities or political
subdivisions. These securities may be denominated in the U.S.
dollar or, in the case of the Short Term Bond, Bond, Equity,
Capital Appreciation, International Equity, Emerging Markets
Equity or Diversified Funds, in another currency. See "Foreign
Investments."
BANK OBLIGATIONS. Each of the Funds, except the Treasury Money Market
Fund, unless otherwise noted in the Prospectus or below, may invest in
negotiable certificates of deposit, time deposits and bankers' acceptances of
(i) banks, savings and loan associations and savings banks which have more than
$2 billion in total assets (the "Asset Limitation") and are organized under the
laws of the United States or any state, (ii) foreign branches of these banks or
of foreign banks of equivalent size (Euros) and (iii) U.S. branches of foreign
banks of equivalent size (Yankees). The Tax Exempt Money Market, Tax Exempt Bond
and New York Total Return Bond Funds may not invest in obligations of foreign
branches of foreign banks and the Asset Limitation is not applicable to the
International Equity or Emerging Markets Equity Funds. See "Foreign
Investments." The Funds will not invest in obligations for which the Advisor, or
any of its affiliated persons, is the ultimate obligor or accepting bank. Each
of the Funds, other than the Tax Exempt Money Market, Treasury Money Market, Tax
Exempt Bond and New York Total Return Bond Funds, may also invest in obligations
of international banking institutions designated or supported by national
governments to promote economic reconstruction, development or trade between
nations (e.g., the European Investment Bank, the Inter-American Development
Bank, or the World Bank).
COMMERCIAL PAPER. Each of the Funds (except the Treasury
Money Market Fund) may invest in commercial paper, including
master demand obligations. Master demand obligations are
obligations that provide for a periodic adjustment in the
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interest rate paid and permit daily changes in the amount borrowed. Master
demand obligations are governed by agreements between the issuer and Morgan
Guaranty Trust Company of New York acting as agent, for no additional fee, in
its capacity as investment advisor to the Portfolios and as fiduciary for other
clients for whom it exercises investment discretion. The monies loaned to the
borrower come from accounts managed by the Advisor or its affiliates, pursuant
to arrangements with such accounts. Interest and principal payments are credited
to such accounts. The Advisor, acting as a fiduciary on behalf of its clients,
has the right to increase or decrease the amount provided to the borrower under
an obligation. The borrower has the right to pay without penalty all or any part
of the principal amount then outstanding on an obligation together with interest
to the date of payment. Since these obligations typically provide that the
interest rate is tied to the Federal Reserve commercial paper composite rate,
the rate on master demand obligations is subject to change. Repayment of a
master demand obligation to participating accounts depends on the ability of the
borrower to pay the accrued interest and principal of the obligation on demand
which is continuously monitored by the Advisor. Since master demand obligations
typically are not rated by credit rating agencies, the Funds may invest in such
unrated obligations only if at the time of an investment the obligation is
determined by the Advisor to have a credit quality which satisfies the Fund's
quality restrictions. See "Quality and Diversification Requirements." Although
there is no secondary market for master demand obligations, such obligations are
considered by the Funds to be liquid because they are payable upon demand. The
Funds do not have any specific percentage limitation on investments in master
demand obligations.
REPURCHASE AGREEMENTS. Each of the Funds may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Funds' Trustees. In a repurchase agreement, a Fund buys a
security from a seller that has agreed to repurchase the same security at a
mutually agreed upon date and price . The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. This interest rate
is effective for the period of time the Fund is invested in the agreement and is
not related to the coupon rate on the underlying security. A repurchase
agreement may also be viewed as a fully collateralized loan of money by a Fund
to the seller. The period of these repurchase agreements will usually be short,
from overnight to one week, and at no time will the Funds invest in repurchase
agreements for more than thirteen months. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of thirteen
months from the effective date of the repurchase agreement. The Treasury Money
Market Fund will only enter into repurchase agreements involving U.S. Treasury
securities or permitted agency securities. The Funds will always receive
securities as collateral whose market value is, and during the entire term of
the agreement remains, at least equal to 100% of the dollar amount invested by
the Funds in
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each agreement plus accrued interest, and the Funds will make payment for such
securities only upon physical delivery or upon evidence of book entry transfer
to the account of the Custodian. The Money Market, Tax Exempt Money Market, and
Treasury Money Markets Funds will be fully collateralized within the meaning of
paragraph (a)(3) of Rule 2a-7 under the Investment Company Act of 1940, as
amended (the "1940 Act"). If the seller defaults, a Fund might incur a loss if
the value of the collateral securing the repurchase agreement declines and might
incur disposition costs in connection with liquidating the collateral. In
addition, if bankruptcy proceedings are commenced with respect to the seller of
the security, realization upon disposal of the collateral by a Fund may be
delayed or limited.
Each of the Funds (other than the Treasury Money Market Fund) may make
investments in other debt securities with remaining effective maturities of not
more than thirteen months, including without limitation corporate and foreign
bonds, asset-backed securities and other obligations described in the Prospectus
or this Statement of Additional Information. The Tax Exempt Money Market and Tax
Exempt Bond Funds may not invest in foreign bonds or asset-backed securities.
CORPORATE BONDS AND OTHER DEBT SECURITIES
As discussed in the Prospectus, the Bond, Short Term Bond, New York
Total Return Bond and Diversified Funds may invest in bonds and other debt
securities of domestic and (except for the New York Total Return Bond Fund)
foreign issuers to the extent consistent with their investment objectives and
policies. A description of these investments appears in the Prospectus and
below. See "Quality and Diversification Requirements." For information on
short-term investments in these securities, see "Money Market Instruments."
ASSET-BACKED SECURITIES. Asset-backed securities directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets such as motor vehicle or
credit card receivables. Payments of principal and interest may be guaranteed up
to certain amounts and for a certain time period by a letter of credit issued by
a financial institution unaffiliated with the entities issuing the securities.
The asset-backed securities in which a Fund may invest are subject to the Fund's
overall credit requirements. However, asset-backed securities, in general, are
subject to certain risks. Most of these risks are related to limited interests
in applicable collateral. For example, credit card debt receivables are
generally unsecured and 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
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on underlying sales contracts are not realized. Because asset-backed securities
are relatively new, the market experience in these securities is limited and the
market's ability to sustain liquidity through all phases of the market cycle has
not been tested.
TAX EXEMPT OBLIGATIONS
As discussed in the Prospectus, the Tax Exempt Money Market, Tax Exempt
Bond and New York Total Return Bond Funds and, in certain circumstances, the
Bond and Short Term Bond Funds, may invest in tax exempt obligations to the
extent consistent with each Fund's investment objective and policies. A
description of the various types of tax exempt obligations which may be
purchased by the Funds appears in the Prospectus and below. See "Quality and
Diversification Requirements."
MUNICIPAL BONDS. Municipal bonds are debt obligations issued by the
states, territories and possessions of the United States and the District of
Columbia, by their political subdivisions and by duly constituted authorities
and corporations. For example, states, territories, possessions and
municipalities may issue municipal bonds to raise funds for various public
purposes such as airports, housing, hospitals, mass transportation, schools,
water and sewer works. They may also issue municipal bonds to refund outstanding
obligations and to meet general operating expenses. Public authorities issue
municipal bonds to obtain funding for privately operated facilities, such as
housing and pollution control facilities, for industrial facilities or for water
supply, gas, electricity or waste disposal facilities.
Municipal bonds may be general obligation or revenue bonds. General
obligation bonds are secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
payable from revenues derived from particular facilities, from the proceeds of a
special excise tax or from other specific revenue sources. They are not
generally payable from the general taxing power of a municipality.
MUNICIPAL NOTES. Municipal notes are subdivided into three
categories of short-term obligations: municipal notes, municipal
commercial paper and municipal demand obligations.
Municipal notes are short-term obligations with a maturity at the time
of issuance ranging from six months to five years. The principal types of
municipal notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes, grant anticipation notes and project notes. Notes sold in
anticipation of collection of taxes, a bond sale, or receipt of other revenues
are usually general obligations of the issuing municipality or agency.
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Municipal commercial paper typically consists of very short-term
unsecured negotiable promissory notes that are sold to meet seasonal working
capital or interim construction financing needs of a municipality or agency.
While these obligations are intended to be paid from general revenues or
refinanced with long-term debt, they frequently are backed by letters of credit,
lending agreements, note repurchase agreements or other credit facility
agreements offered by banks or institutions.
Municipal demand obligations are subdivided into two types:
variable rate demand notes and master demand obligations.
Variable rate demand notes are tax exempt municipal obligations or
participation interests that provide for a periodic adjustment in the interest
rate paid on the notes. They permit the holder to demand payment of the notes,
or to demand purchase of the notes at a purchase price equal to the unpaid
principal balance, plus accrued interest either directly by the issuer or by
drawing on a bank letter of credit or guaranty issued with respect to such note.
The issuer of the municipal obligation may have a corresponding right to prepay
at its discretion the outstanding principal of the note plus accrued interest
upon notice comparable to that required for the holder to demand payment. The
variable rate demand notes in which each Fund may invest are payable, or are
subject to purchase, on demand usually on notice of seven calendar days or less.
The terms of the notes provide that interest rates are adjustable at intervals
ranging from daily to six months, and the adjustments are based upon the prime
rate of a bank or other appropriate interest rate index specified in the
respective notes. Variable rate demand notes are valued at amortized cost; no
value is assigned to the right of each Fund to receive the par value of the
obligation upon demand or notice.
Master demand obligations are tax exempt municipal obligations that
provide for a periodic adjustment in the interest rate paid and permit daily
changes in the amount borrowed. The interest on such obligations is, in the
opinion of counsel for the borrower, exempt from federal income tax. For a
description of the attributes of master demand obligations, see "Money Market
Instruments" above. Although there is no secondary market for master demand
obligations, such obligations are considered by each Fund to be liquid because
they are payable upon demand. The Funds have no specific percentage limitations
on investments in master demand obligations.
The Tax Exempt Money Market Fund may purchase securities of the type
described above if they have effective maturities within 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
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interest rate, coupled with a conditional or unconditional right
to resell the investment to the issuer or a third party. See
"Variable Rate Demand Notes" and "Puts." A substantial portion
of the Tax Exempt Money Market Fund's portfolio is subject to
maturity shortening mechanisms consisting of variable interest
rates coupled with unconditional rights to resell the securities
to the issuers either directly or by drawing on a domestic or
foreign bank letter of credit or other credit support
arrangement. See "Foreign Investments."
PUTS. The Tax Exempt Money Market, Tax Exempt Bond and New York Total
Return Bond Funds may purchase without limit municipal bonds or notes together
with the right to resell the bonds or notes to the seller at an agreed price or
yield within a specified period prior to the maturity date of the bonds or
notes. Such a right to resell is commonly known as a "put." The aggregate price
for bonds or notes with puts may be higher than the price for bonds or notes
without puts. Consistent with each Fund's investment objective and subject to
the supervision of the Trustees, the purpose of this practice is to permit each
Fund to be fully invested in tax exempt securities while preserving the
necessary liquidity to purchase securities on a when-issued basis, to meet
unusually large redemptions, and to purchase at a later date securities other
than those subject to the put. The principal risk of puts is that the writer of
the put may default on its obligation to repurchase. The Advisor will monitor
each writer's ability to meet its obligations under puts.
Puts may be exercised prior to the expiration date in order to fund
obligations to purchase other securities or to meet redemption requests. These
obligations may arise during periods in which proceeds from sales of Fund shares
and from recent sales of portfolio securities are insufficient to meet
obligations or when the funds available are otherwise allocated for investment.
In addition, puts may be exercised prior to the expiration date in order to take
advantage of alternative investment opportunities or in the event the Advisor
revises its evaluation of the creditworthiness of the issuer of the underlying
security.
In determining whether to exercise puts prior to their expiration date and in
selecting which puts to exercise, the Advisor considers the amount of cash
available to each Fund, the expiration dates of the available puts, any future
commitments for securities purchases, alternative investment opportunities, the
desirability of retaining the underlying securities in each Fund's portfolio and
the yield, quality and maturity dates of the underlying securities.
The Tax Exempt Money Market Fund values any municipal bonds 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
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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.
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.
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EQUITY INVESTMENTS
As discussed in the Prospectus, the Portfolios for the Equity, Capital
Appreciation, International Equity and Emerging Markets Equity Funds and the
equity portion of the Diversified Fund (collectively, the "Equity Portfolios")
invest primarily in Equity Securities. The Equity Securities in which the Equity
Portfolios invest include those listed on any domestic or foreign securities
exchange or traded in the over-the-counter market as well as certain restricted
or unlisted securities. A discussion of the various types of equity investments
which may be purchased by these Portfolios appears in the Prospectus and below.
See "Quality and Diversification Requirements."
EQUITY SECURITIES. The Equity Securities in which the Equity Portfolios
may invest may or may not pay dividends and may or may not carry voting rights.
Common stock occupies the most junior position in a company's capital structure.
The convertible securities in which the Equity Portfolios may invest
include any debt securities or preferred stock which may be converted into
common stock or which carry the right to purchase common stock. Convertible
securities entitle the holder to exchange the securities for a specified number
of shares of common stock, usually of the same company, at specified prices
within a certain period of time.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors, and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
WARRANTS
The Equity Portfolios may invest in warrants, which entitle the holder
to buy common stock from the issuer at a specific price (the strike price) for a
specific period of time. The strike price of warrants sometimes is much lower
than the current market price of the underlying securities, yet warrants are
subject to similar price fluctuations. As a result, warrants may be more
volatile investments than the underlying securities.
Warrants do not entitle the holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date.
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FOREIGN INVESTMENTS
The International Equity and Emerging Markets Equity Funds make
substantial investments in foreign countries. The Money Market, Bond, Short Term
Bond, Equity, Capital Appreciation and Diversified Funds may invest in certain
foreign securities. The Short Term Bond Fund and the Bond Fund may invest in
dollar-denominated fixed income securities of foreign issuers. The 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 Capital Appreciation 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, Equity, Capital Appreciation and Diversified Funds do not
expect to invest more than 25%, 25%, 5%, 5% and 30%, respectively, of their
total assets at the time of purchase in securities of foreign issuers. All
investments of the Money Market Fund must be U.S. dollar-denominated. In the
case of the Money Market, Bond and Short Term Bond Funds, any foreign commercial
paper must not be subject to foreign withholding tax at the time of purchase.
Foreign investments may be made directly in securities of foreign issuers or in
the form of American Depositary Receipts ("ADRs") and European Depositary
Receipts ("EDRs"). Generally, ADRs and EDRs are receipts issued by a bank or
trust company that evidence ownership of underlying securities issued by a
foreign corporation and that are designed for use in the domestic, in the case
of ADRs, or European, in the case of EDRs, securities markets.
Since investments in foreign securities may involve foreign currencies,
the value of a Fund's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. The Equity, Capital Appreciation,
International Equity, Emerging Markets Equity and Diversified Funds may enter
into forward commitments for the purchase or sale of foreign currencies in
connection with the settlement of foreign securities transactions or to manage
the Funds' currency exposure related to foreign investments. The Funds will not
enter into such commitments for speculative purposes.
For a description of the risks associated with investing in foreign
securities, see "Additional Investment Information and Risk Factors" in the
Prospectus. To the extent that the Tax Exempt Money Market, Tax Exempt Bond and
New York Total Return Bond Funds invest in municipal bonds and notes backed by
credit support arrangements with foreign financial institutions, the risks
associated with investing in foreign securities may be relevant to these Funds.
INVESTING IN JAPAN. Investing in Japanese securities may
involve the risks associated with investing in foreign securities
generally. In addition, because it invests in Japan, The
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International Equity Portfolio will be subject to the general economic and
political conditions in Japan.
Share prices of companies listed on Japanese stock exchanges and on the
Japanese OTC market reached historical peaks (which were later referred to as
the "bubble") as well as historically high trading volumes in 1989 and 1990.
Since then, stock prices in both markets decreased significantly, with listed
stock prices reaching their lowest levels in the third quarter of 1992 and OTC
stock prices reaching their lowest levels in the fourth quarter of 1992. During
the period from January 1, 1989 through December 31, 1994, the highest Nikkei
stock average and Nikkei OTC average were 38,915.87 and 4,149.20, respectively,
and the lowest for each were 14,309.41 and 1,099.32, respectively. There can be
no assurance that additional market corrections will not occur.
The common stocks of many Japanese companies continue to trade at high
price earnings ratios in comparison with those in the United States, even after
the recent market decline. Differences in accounting methods make it difficult
to compare the earnings of Japanese companies with those of companies in other
countries, especially the United States.
Since The International Equity Portfolio invests in securities
denominated in yen, changes in exchange rates between the U.S. dollar and the
yen affect the U.S. dollar value of The International Equity Portfolio's assets.
Such rate of exchange is determined by forces of supply and demand on the
foreign exchange markets. These forces are in turn affected by the international
balance of payments and other economic, political and financial conditions,
government intervention, speculation and other factors. See Foreign Currency
Exchange Transactions.
Japanese securities held by The International Equity Portfolio are not
registered with the SEC nor are the issuers thereof subject to its reporting
requirements. There may be less publicly available information about issuers of
Japanese securities than about U.S. companies and such issuers may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those to which U.S. companies are subject.
Although the Japanese economy has grown substantially over the past
four decades, recently the rate of growth had slowed substantially. During 1991,
1992 and 1993, the Japanese economy grew at rates of 4.3%, 1.1% and 0.1%,
respectively, as measured by real gross domestic product.
Japan's success in exporting its products has generated a sizeable
trade surplus. Such trade surplus has caused tensions at times between Japan and
some of its trading partners. In particular, Japan's trade relations with the
United States have recently been the subject of discussion and negotiation
between the two nations. The United States has imposed certain measures
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designed to address trade issues in specific industries. These measures and
similar measures in the future may adversely affect the performance of The
International Equity Portfolio.
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 The
International Equity Portfolio.
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 no interest accrues to a Portfolio until
settlement takes place. At the time a Portfolio makes the commitment to purchase
securities on a when-issued or delayed delivery basis, it will record the
transaction, reflect the value each day of such securities in determining its
net asset value and, if applicable, calculate the maturity for the purposes of
average maturity from that date. At the time of settlement a when-issued
security may be valued at less than the purchase price. To facilitate such
acquisitions, each Portfolio will maintain with the Custodian a segregated
account with liquid assets, consisting of cash, U.S. Government securities or
other appropriate securities, in an amount at least equal to such commitments.
On delivery dates for such transactions, each Portfolio will meet its
obligations from maturities or sales of the securities held in the segregated
account and/or from cash flow. If a Portfolio chooses to dispose of the right to
acquire a when-issued security prior to its acquisition, it could, as with the
disposition of any other portfolio obligation, incur a gain or loss due to
market fluctuation. It is the current policy of each Portfolio not to enter into
when-issued commitments exceeding in the aggregate 15%
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of the market value of the Portfolio's total assets, less liabilities other than
the obligations created by when-issued commitments.
INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by each of the Funds and their corresponding Portfolios to the
extent permitted under the 1940 Act. These limits require that, as determined
immediately after a purchase is made, (i) not more than 5% of the value of a
Fund's total assets will be invested in the securities of any one investment
company, (ii) not more than 10% of the value of its total assets will be
invested in the aggregate in securities of investment companies as a group, and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by a Fund, provided however, that a Fund may invest all of
its investable assets in an open-end investment company that has the same
investment objective as the Fund (its corresponding Portfolio). As a shareholder
of another investment company, a Fund would bear, along with other shareholders,
its PRO RATA portion of the other investment company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that a Fund bears directly in connection with its own operations.
REVERSE REPURCHASE AGREEMENTS. Each of the Portfolios may enter into
reverse repurchase agreements. In a reverse repurchase agreement, a Portfolio
sells a security and agrees to repurchase the same security at a mutually agreed
upon date and price. The Portfolio for the Treasury Money Market Fund will only
enter into reverse repurchase agreements involving Treasury securities. For
purposes of the 1940 Act it is also considered as the borrowing of money by the
Portfolio and, therefore, a form of leverage. The Portfolios will invest the
proceeds of borrowings under reverse repurchase agreements. In addition, a
Portfolio will enter into a reverse repurchase agreement only when the interest
income to be earned from the investment of the proceeds is greater than the
interest expense of the transaction.
A Portfolio will not invest the proceeds of a reverse repurchase agreement for
a period which exceeds the duration of the reverse repurchase agreement. A
Portfolio may not enter into reverse repurchase agreements exceeding in the
aggregate one-third of the market value of its total assets, less liabilities
other than the obligations created by reverse repurchase agreements. Each
Portfolio will establish and maintain with the Custodian a separate account with
a segregated portfolio of securities in an amount at least equal to its purchase
obligations under its reverse repurchase agreements. If interest rates rise
during the term of a reverse repurchase agreement, entering into the reverse
repurchase agreement may have a negative impact on the Money Market, Tax Exempt
Money Market and Treasury Money Market Funds' ability to maintain a net asset
value of $1.00 per share. See "Investment Restrictions."
MORTGAGE DOLLAR ROLL TRANSACTIONS. The Portfolios for the
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Short Term Bond Fund and the Bond Fund may engage in mortgage dollar roll
transactions with respect to mortgage securities issued by the Government
National Mortgage Association, the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation. In a mortgage dollar roll transaction,
the Portfolio sells a mortgage backed security and simultaneously agrees to
repurchase a similar security on a specified future date at an agreed upon
price. During the roll period, the Portfolio will not be entitled to receive any
interest or principal paid on the securities sold. The Portfolio is compensated
for the lost interest on the securities sold by the difference between the sales
price and the lower price for the future repurchase as well as by the interest
earned on the reinvestment of the sales proceeds. The Portfolio may also be
compensated by receipt of a commitment fee. When the Portfolio enters into a
mortgage dollar roll transaction, liquid assets in an amount sufficient to pay
for the future repurchase are segregated with the Custodian. Mortgage dollar
roll transactions are considered reverse repurchase agreements for purposes of
the Portfolio's investment restrictions.
LOANS OF PORTFOLIO SECURITIES. Each of the Portfolios may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Portfolio
any income accruing thereon. Loans will be subject to termination by the
Portfolios in the normal settlement time, generally five 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 Treasury Money Market Fund) may invest in
privately placed, restricted, Rule 144A or other unregistered securities as
described in the Prospectus.
As to illiquid investments, a Portfolio is subject to a risk that
should the Portfolio decide to sell them when a ready buyer is not available at
a price the Portfolio deems representative of their value, the value of the
Portfolio's net assets could be adversely affected. Where an illiquid security
must be
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registered under the Securities Act of 1933, as amended (the "1933 Act") before
it may be sold, a Portfolio may be obligated to pay all or part of the
registration expenses, and a considerable period may elapse between the time of
the decision to sell and the time the Portfolio may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, a Portfolio might obtain a less
favorable price than prevailed when it decided to sell.
SYNTHETIC VARIABLE RATE INSTRUMENTS. The Portfolios for the Tax Exempt
Bond, New York Total Return Bond and Tax Exempt Money Market Funds may invest in
certain synthetic variable rate instruments as described in the Prospectus. In
the case of some types of instruments credit enhancement is not provided, and if
certain events, which may include (a) default in the payment of principal or
interest on the underlying bond, (b) downgrading of the bond below investment
grade or (c) a loss of the bond's tax exempt status, occur, then (i) the put
will terminate, (ii) the risk to a Fund will be that of holding a long-term
bond, and (iii) in the case of the Tax Exempt Money Market Fund, the disposition
of the bond may be required which could be at a loss.
QUALITY AND DIVERSIFICATION REQUIREMENTS
Each of the Funds, except the New York Total Return Bond Fund, intends
to meet the diversification requirements of the 1940 Act. To meet these
requirements, 75% of the assets of these Funds is subject to the following
fundamental limitations: (1) the Fund may not invest more than 5% of its total
assets in the securities of any one issuer, except obligations of the U.S.
Government, its agencies and instrumentalities, and (2) the Fund may not own
more than 10% of the outstanding voting securities of any one issuer. As for the
other 25% of the Fund's assets not subject to the limitation described above,
there is no limitation on investment of these assets under the 1940 Act, so that
all of such assets may be invested in securities of any one issuer, subject to
the limitation of any applicable state securities laws, or with respect to the
Money Market and Treasury Money Market Funds, as described below. Investments
not subject to the limitations described above could involve an increased risk
to a Fund should an issuer, or a state or its related entities, be unable to
make interest or principal payments or should the market value of such
securities decline.
Although the New York Total Return Bond Fund is not limited by the
diversification requirements of the 1940 Act, the Fund will comply with the
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company. To
meet these requirements, the Fund must diversify its holdings so that, with
respect to 50% of the Fund's assets, no more than 5% of its assets are invested
in the securities of any one issuer other
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than the U.S. Government at the close of each quarter of the
Fund's taxable year. The Fund may with respect to the remaining
50% of its assets, invest up to 25% of its assets in the
securities of any one issuer (except this limitation does not
apply to U.S. Government Securities).
With respect to the Tax Exempt Money Market and Tax Exempt Bond Funds,
for purposes of diversification and concentration under the 1940 Act,
identification of the issuer of municipal bonds or notes depends on the terms
and conditions of the obligation. With respect to the New York Total Return Bond
Fund, for purposes of diversification under the Code and concentration under the
1940 Act, identification of the issuer of municipal bonds or notes also depends
on the terms and conditions of the obligation. If the assets and revenues of an
agency, authority, instrumentality or other political subdivision are separate
from those of the government creating the subdivision and the obligation is
backed only by the assets and revenues of the subdivision, such subdivision is
regarded as the sole issuer. Similarly, in the case of an industrial development
revenue bond or pollution control revenue bond, if the bond is backed only by
the assets and revenues of the nongovernmental user, the nongovernmental user is
regarded as the sole issuer. If in either case the creating government or
another entity guarantees an obligation, the guaranty is regarded as a separate
security and treated as an issue of such guarantor. Since securities issued or
guaranteed by states or municipalities are not voting securities, there is no
limitation on the percentage of a single issuer's securities which a Fund may
own so long as it does not invest more than 5% of its total assets that are
subject to the diversification limitation in the securities of such issuer,
except obligations issued or guaranteed by the U.S. Government. Consequently,
the Funds may invest in a greater percentage of the outstanding securities of a
single issuer than would an investment company which invests in voting
securities. See "Investment Restrictions."
MONEY MARKET FUND. In order to attain the Money Market Fund's objective
of maintaining a stable net asset value, the Portfolio for the Money Market Fund
will (i) limit its investment in the securities (other than U.S. Government
securities) of any one issuer to no more than 5% of its assets, measured at the
time of purchase, except for investments held for not more than three business
days (subject, however, to the investment restriction No. 4 set forth under
"Investment Restrictions" below); and (ii) limit investments to securities that
present minimal credit risks and securities (other than U.S. Government
securities) that are rated within the highest short-term rating category by at
least two nationally recognized statistical rating organizations ("NRSROs") or
by the only NRSRO that has rated the security. Securities which originally had a
maturity of over one year are subject to more complicated, but generally similar
rating requirements. A description of illustrative credit ratings is set forth
in Appendix A attached to this Statement of Additional
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Information. The Portfolio may also purchase unrated securities that are of
comparable quality to the rated securities described above. Additionally, if the
issuer of a particular security has issued other securities of comparable
priority and security and which have been rated in accordance with (ii) above,
that security will be deemed to have the same rating as such other rated
securities.
In addition, the Board of Trustees has adopted procedures which (i)
require the Board of Trustees to approve or ratify purchases by the Portfolio of
securities (other than U.S. Government securities) that are rated by only one
NRSRO or that are unrated; (ii) require the Portfolio to maintain a
dollar-weighted average portfolio maturity of not more than 90 days and to
invest only in securities with a remaining maturity of not more than thirteen
months; and (iii) require the Portfolio, in the event of certain downgradings of
or defaults on portfolio holdings, to dispose of the holding, subject in certain
circumstances to a finding by the Trustees that disposing of the holding would
not be in the Portfolio's best interest.
TAX EXEMPT MONEY MARKET FUND. In order to attain the Tax Exempt Money
Market Fund's objective of maintaining a stable net asset value, the Portfolio
for the Tax Exempt Money Market Fund will limit its investments to securities
that present minimal credit risks and securities (other than New York State
municipal notes) that are rated within the highest rating assigned to short-term
debt securities (or, in the case of New York State municipal notes, within one
of the two highest ratings assigned to short-term debt securities) by at least
two NRSROs or by the only NRSRO that has rated the security. Securities which
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
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insurance, and these arrangements are considered when investment quality is
evaluated. The rating of credit-enhanced municipal obligations by a NRSRO may be
based primarily or exclusively on the credit support arrangement.
TREASURY MONEY MARKET FUND. In order to attain its objective of
maintaining a stable net asset value, the Treasury Money Market Fund will limit
its investments to direct obligations of the U.S. Treasury including Treasury
bills, notes and bonds with remaining maturities of thirteen months or less at
the time of purchase and will maintain a dollar-weighted average portfolio
maturity of not more than 90 days.
SHORT TERM BOND, BOND, AND DIVERSIFIED FUNDS. The Short Term Bond and
Bond Funds, and the fixed income portion of the Diversified Fund, invest
principally in a diversified portfolio of "high grade" and "investment grade"
securities. Investment grade debt is rated, on the date of investment, within
the four highest ratings of Moody's, currently Aaa, Aa, A and Baa, or of
Standard & Poor's, currently AAA, AA, A and BBB, while high grade debt is rated,
on the date of the investment, within the two highest of such ratings. The Bond
Fund may also invest up to 5% of its total assets in securities which are "below
investment grade." Such securities must be rated, on the date of investment, Ba
by Moody's or BB by Standard & Poor's. The Funds may invest in debt securities
which are not rated or other debt securities to which these ratings are not
applicable, if in the opinion of the Advisor, such securities are of comparable
quality to the rated securities discussed above. In addition, at the time the
Funds invest in any commercial paper, bank obligation or repurchase agreement,
the issuer must have outstanding debt rat
ed A or higher by Moody's or Standard &
Poor's, the issuer's parent corporation, if any, must have outstanding
commercial paper rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no
such ratings are available, the investment must be of comparable quality in the
Advisor's opinion.
TAX EXEMPT BOND FUND. The Tax Exempt Bond Fund invests principally in a
diversified portfolio of "high grade" and "investment grade" tax exempt
securities. On the date of investment (i) municipal bonds must be rated within
the three highest ratings of Moody's, currently Aaa, Aa and A, or of Standard &
Poor's, currently AAA, AA, and A, (ii) municipal notes must be rated MIG-1 by
Moody's or SP-1 by Standard & Poor's (or, in the case of New York State
municipal notes, MIG-1 or MIG-2 by Moody's or SP-1 or SP-2 by Standard & Poor's)
and (iii) municipal commercial paper must be rated Prime-1 by Moody's or A-1 by
Standard & Poor's or, if not rated by either Moody's or Standard & Poor's,
issued by an issuer either (a) having an outstanding debt issue rated A or
higher by Moody's or Standard & Poor's or (b) having comparable quality in the
opinion of the Advisor. The Fund may invest in other tax exempt securities which
are not rated if, in the opinion of the Advisor, such securities are of
comparable quality to the rated securities discussed above. In
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addition, at the time the Fund invests in any commercial paper, bank obligation
or repurchase agreement, the issuer must have outstanding debt rated A or higher
by Moody's or Standard & Poor's, the issuer's parent corporation, if any, must
have outstanding commercial paper rated Prime-1 by Moody's or A-1 by Standard &
Poor's, or if no such ratings are available, the investment must be of
comparable quality in the Advisor's opinion.
NEW YORK TOTAL RETURN BOND FUND. The New York Total Return Bond Fund
invests principally in a diversified portfolio of "investment grade" tax exempt
securities. An investment grade bond is rated, on the date of investment within
the four highest ratings of Moody's, currently Aaa, Aa, A and Baa or of Standard
& Poor's, currently AAA, AA, A and BBB, while high grade debt is rated, on the
date of the investment within the two highest of such ratings. Investment grade
municipal notes are rated, on the date of investment, MIG-1 or MIG-2 by Standard
& Poor's or SP-1 and SP-2 by Moody's. Investment grade municipal commercial
paper is rated, on the date of investment, Prime 1 or Prime 2 by Moody's and A-1
or A-2 by Standard & Poor's. The New York Total Return Bond Fund may also invest
up to 5% of its total assets in securities which are "below investment grade."
Such securities must be rated, on the date of investment, Ba by Moody's or BB by
Standard & Poor's. The New York Total Return Bond Fund may invest in debt
securities which are not rated or other debt securities to which these ratings
are not applicable, if in the opinion of the Advisor, such securities are of
comparable quality to the rated securities discussed above. In addition, at the
time the Fund invests in any taxable commercial paper, bank obligation or
repurchase agreement, the issuer must have outstanding debt rated A or higher by
Moody's or Standard & Poor's, the issuer's parent corporation, if any, must have
outstanding commercial paper rated Prime-1 by Moody's or A-1 by Standard &
Poor's, or if no such ratings are available, the investment must be of
comparable quality in the Advisor's opinion.
EQUITY, CAPITAL APPRECIATION, INTERNATIONAL EQUITY, EMERGING MARKETS
EQUITY AND DIVERSIFIED FUNDS. The Equity, Capital Appreciation, International
Equity, Emerging Markets Equity and Diversified Funds may invest in convertible
debt securities, for which there are no specific quality requirements. 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. At the time the 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.
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<PAGE>
In determining suitability of investment in a particular unrated
security, the Advisor takes into consideration asset and debt service coverage,
the purpose of the financing, history of the issuer, existence of other rated
securities of the issuer, and other relevant conditions, such as comparability
to other issuers.
OPTIONS AND FUTURES TRANSACTIONS
EXCHANGE TRADED AND OVER-THE-COUNTER OPTIONS. All options purchased or sold by
the Portfolios will be traded on a securities exchange or will be purchased or
sold by securities dealers (over-the-counter or OTC options) that meet
creditworthiness standards approved by the Portfolio's Board of Trustees. While
exchange-traded options are obligations of the Options Clearing Corporation, in
the case of OTC options, a Portfolio relies on the dealer from which it
purchased the option to perform if the option is exercised. Thus, when a
Portfolio purchases an OTC option, it relies on the dealer from which it
purchased the option to make or take delivery of the underlying securities.
Failure by the dealer to do so would result in the loss of the premium paid by
the Portfolio as well as loss of the expected benefit of the transaction.
The staff of the SEC has taken the position that, in general, purchased
OTC options and the underlying securities used to cover written OTC options are
illiquid securities. However, a Portfolio may treat as liquid the underlying
securities used to cover written OTC options, provided it has arrangements with
certain qualified dealers who agree that the Portfolio may repurchase any option
it writes for a maximum price to be calculated by a predetermined formula. In
these cases, the OTC option itself would only be considered illiquid to the
extent that the maximum repurchase price under the formula exceeds the intrinsic
value of the option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolios permitted to
enter into futures and options transactions may purchase or sell (write) futures
contracts and purchase put and call options, including put and call options on
futures contracts. In addition, the Portfolios for the Emerging Markets Equity
and Diversified 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
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<PAGE>
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
by such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining
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until expiration of the contract, which may not affect security prices the same
way. Imperfect correlation may also result from differing levels of demand in
the options and futures markets and the securities markets, from structural
differences in how options and futures and securities are traded, or from
imposition of daily price fluctuation limits or trading halts. A Portfolio may
purchase or sell options and futures contracts with a greater or lesser value
than the securities it wishes to hedge or intends to purchase in order to
attempt to compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price changes
in a Portfolio's options or futures positions are poorly correlated with its
other investments, the positions may fail to produce anticipated gains or result
in losses that are not offset by gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for a
Portfolio to enter into new positions or close out existing positions. If the
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions, and
could potentially require a Portfolio to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, the
Portfolio's access to other assets held to cover its options or futures
positions could also be impaired. (See "Exchange Traded and Over-the-Counter
Options" above for a discussion of the liquidity of options not traded on an
exchange.)
POSITION LIMITS. Futures exchanges can limit the number of futures and options
on futures contracts that can be held or controlled by an entity. If an adequate
exemption cannot be obtained, a Portfolio or the Advisor may be required to
reduce the size of its futures and options positions or may not be able to trade
a certain futures or options contract in order to avoid exceeding such limits.
ASSET COVERAGE FOR FUTURES CONTRACTS AND OPTIONS POSITIONS. The Portfolios
intend to comply with Section 4.5 of the regulations under the Commodity
Exchange Act, which limits the extent to which a Portfolio can commit assets to
initial margin deposits and option premiums. In addition, the Portfolios will
comply with guidelines established by the SEC with respect to coverage of
options and futures contracts by mutual funds, and if the guidelines so require,
will set aside appropriate liquid assets in a segregated custodial account in
the amount prescribed. Securities held in a segregated account cannot be sold
while the
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futures contract or option is outstanding, unless they are replaced with other
suitable assets. As a result, there is a possibility that segregation of a large
percentage of a Portfolio's assets could impede portfolio management or the
Portfolio's ability to meet redemption requests or other current obligations.
RISK MANAGEMENT
The Portfolios for the New York Total Return Bond, Diversified and
Emerging Markets Equity Funds may employ non-hedging risk management techniques.
Examples of such strategies include synthetically altering the duration of a
portfolio or the mix of securities in a portfolio. For example, if the Advisor
wishes to extend maturities in a fixed income portfolio in order to take
advantage of an anticipated decline in interest rates, but does not wish to
purchase the underlying long term securities, it might cause the Portfolio to
purchase futures contracts on long term debt securities. Similarly, if the
Advisor wishes to decrease fixed income securities or purchase equities, it
could cause the Portfolio to sell futures contracts on debt securities and
purchase futures contracts on a stock index. Such non-hedging risk management
techniques are not speculative, but because they involve leverage include, as do
all leveraged transactions, the possibility of losses as well as gains that are
greater than if these techniques involved the purchase and sale of the
securities themselves rather than their synthetic derivatives.
SPECIAL FACTORS AFFECTING THE NEW YORK TOTAL RETURN BOND FUND. The New York
Total Return Bond Fund intends to invest a high proportion of its assets in
municipal obligations of the State of New York and its political subdivisions,
municipalities, agencies, instrumentalities and public authorities. Payment of
interest and preservation of principal is dependent upon the continuing ability
of New York issuers and/or obligators of state, municipal and public authority
debt obligations to meet their obligations thereunder.
The fiscal stability of New York State is related, at least in part, to
the fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State through lease-purchase arrangements, other
contractual arrangements or moral obligation provisions. While debt service is
normally paid out of revenues generated by projects of such State agencies,
authorities and localities, the State has had to provide special assistance in
recent years, in some cases of a recurring nature, to enable such agencies,
authorities and localities to meet their financial obligations and, in some
cases, to prevent or cure defaults. To the extent State agencies and local
governments require State assistance to meet their financial obligations, the
ability of the State to meet its own obligations as they become due or to obtain
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additional financing could be adversely affected.
On July 10, 1995, Standard & Poor's downgraded its rating on New York
city's outstanding general obligation bonds to BBB+ from A-, citing the city's
chronic structural budget problems and weak economic outlook. Other factors
contributing to Standard & Poor's downgrade include the city's reliance on
one-time revenue measures to close annual budget gaps, a dependence on
unrealized labor savings, overly optimistic estimates of revenues and of state
and federal aid, and the city's continued high debt levels.
For further information concerning New York municipal obligations, see
Appendix B to this Statement of Additional Information. The summary set forth
above and in Appendix B is included for the purpose of providing a general
description of New York State and New York City credit and financial conditions.
This summary is based on information from an official statement of New York
general obligation municipal obligations and does not purport to be complete.
PORTFOLIO TURNOVER
Set forth below are the portfolio turnover rates for the Portfolios
corresponding to the Funds. A rate of 100% indicates that the equivalent of all
of the Portfolio's assets have been sold and reinvested in a year. High
portfolio turnover may result in the realization of substantial net capital
gains or losses. To the extent net short term capital gains are realized, any
distributions resulting from such gains are considered ordinary income for
federal income tax purposes. See "Taxes" below.
THE SHORT TERM BOND PORTFOLIO (SHORT TERM BOND FUND) -- For the
fiscal year ended October 31, 1994: 230%.
THE TAX EXEMPT BOND PORTFOLIO (TAX EXEMPT BOND FUND) -- For the
fiscal year ended August 31, 1994: 33%. For the fiscal
year ended August 31, 1995: 47%.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO (NEW YORK TOTAL RETURN BOND FUND) --
For the period April 11, 1994 (commencement of operations) through March 31,
1995: 63%.
THE U.S. FIXED INCOME PORTFOLIO (BOND FUND) -- For the fiscal
year ended October 31, 1994: 234%.
THE SELECTED U.S. EQUITY PORTFOLIO (EQUITY FUND) -- For the
period July 19, 1993 (commencement of operations) through May 31,
1994: 76%. For the fiscal year ended May 31, 1995: 71%.
THE U.S. SMALL COMPANY PORTFOLIO (CAPITAL APPRECIATION FUND) -- For the period
July 19, 1993 (commencement of operations) through May 31, 1994: 97%. For the
fiscal year ended May 31, 1995:
75%.
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THE NON-U.S. EQUITY PORTFOLIO (INTERNATIONAL EQUITY FUND) -- For
the fiscal year ended October 31, 1994: 56%.
THE EMERGING MARKETS EQUITY PORTFOLIO (EMERGING MARKETS EQUITY
FUND) -- For the fiscal year ended October 31, 1994: 27.48%.
THE DIVERSIFIED PORTFOLIO (DIVERSIFIED FUND) -- For the period
July 8, 1993 (commencement of operations) through June 30, 1994:
115%. For the fiscal year ended June 30, 1995: 136%.
INVESTMENT RESTRICTIONS
The investment restrictions of each Fund and its corresponding
Portfolio are identical, unless otherwise specified. Accordingly, references
below to a Fund also include the Fund's corresponding Portfolio unless the
context requires otherwise; similarly, references to a Portfolio also include
its corresponding Fund unless the context requires otherwise.
The investment restrictions below have been adopted by the Trust with
respect to each Fund and by each corresponding Portfolio. Except where otherwise
noted, these investment restrictions are "fundamental" policies which, under the
1940 Act, may not be changed without the vote of a majority of the outstanding
voting securities of the Fund or Portfolio, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
(a) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities. Whenever a Fund is requested to vote on a change in the
fundamental investment restrictions of its corresponding Portfolio, the Trust
will hold a meeting of Fund shareholders and will cast its votes as instructed
by the Fund's shareholders.
The MONEY MARKET FUND and its corresponding PORTFOLIO may not:
1. Acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of
over seven calendar days, if as a result thereof, more than 10% of the
market value of the Fund's total assets would be in investments which
are illiquid;
2. Enter into reverse repurchase agreements exceeding in the
aggregate one-third of the market value of the Fund's total
assets, less liabilities other than obligations created by
reverse repurchase agreements;
3. Borrow money, except from banks for extraordinary or
emergency purposes and then only in amounts not to exceed 10%
of the value of the Fund's total assets, taken at cost, at
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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;
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8. Purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be
deemed to be applicable to the purchase or sale of when-issued
securities or of securities for delivery at a future date;
9. Acquire securities of other investment companies, except as
permitted by the 1940 Act; or
10. Act as an underwriter of securities.
The TAX EXEMPT MONEY MARKET FUND and its corresponding PORTFOLIO
may not:
1. Borrow money, except from banks for temporary, extraordinary
or emergency purposes and then only in amounts up to 10% of
the value of the Fund's total assets, taken at cost at the
time of such borrowing; or mortgage, pledge or hypothecate
any assets except in connection with any such borrowing in
amounts up to 10% of the value of the Fund's net assets at
the time of such borrowing. The Fund will not purchase
securities while borrowings exceed 5% of the Fund's total
assets, provided, however, that the Fund may increase its
interest in an open-end management investment company with
the same investment objective and restrictions as the Fund's
while such borrowings are outstanding. This borrowing
provision, for example, facilitates the orderly sale of
portfolio securities in the event of abnormally heavy
redemption requests or in the event of redemption requests
during periods of tight market supply. This provision is not
for leveraging purposes;
2. Invest more than 25% of its total assets in securities of governmental
units located in any one state, territory, or possession of the United
States. The Fund may invest more then 25% of its total assets in
industrial development and pollution control obligations whether or not
the users of facilities financed by such obligations are in the same
industry;1
3. Purchase industrial revenue bonds if, as a result of such purchase, more
than 5% of total Fund assets would be invested in industrial revenue
bonds where payment of principal and interest are the responsibility of
companies with fewer than three years of operating history;
4. Purchase the securities or other obligations of any one
issuer if, immediately after such purchase, more than 5% of
the value of the Fund's total assets would be invested in
securities or other obligations of any one such issuer,
provided, however, that the Fund may invest all or part of
its investable assets in an open-end management investment
company with the same investment objective and restrictions
as the Fund's. Each state and each political subdivision,
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1Pursuant to an interpretation of the staff of the SEC, the Fund may not
invest more than 25% of its assets in industrial development bonds in
projects of similar type or in the same state. The Fund shall comply
with this interpretation until such time as it may be modified by the
staff or the SEC.
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agency or instrumentality of such state and each multi-state agency of
which such state is a member will be a separate issuer if the security
is backed only by the assets and revenues of that issuer. If the
security is guaranteed by another entity, the guarantor will be deemed
to be the issuer.1 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;
5. Make loans, except through the purchase or holding of debt
obligations, repurchase agreements, or loans of portfolio
securities in accordance with the Fund's investment objective
and policies (see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any
combination thereof except to the extent that securities
subject to a demand obligation, stand-by commitments and puts
may be purchased (see "Investment Objectives and Policies");
real estate; commodities; commodity contracts; or interests
in oil, gas, or mineral exploration or development programs.
However, the Fund may purchase municipal bonds, notes or
commercial paper secured by interests in real estate;
7. Purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be
deemed to be applicable to the purchase or sale of when-issued
securities or of securities for delayed delivery;
8. Acquire securities of other investment companies, except as
permitted by the 1940 Act; or
9. Act as an underwriter of securities.
The TREASURY MONEY MARKET FUND and its corresponding PORTFOLIO
may not:
1. Enter into reverse repurchase agreements which together with any other
borrowing exceeds in the aggregate one-third of the market value of the
Fund's or the Portfolio's total assets, less liabilities other than the
obligations created by reverse repurchase agreements;
2. Borrow money (not including reverse repurchase agreements),
except from banks for temporary or extraordinary or emergency
purposes and then only in amounts up to 10% of the value of
the Fund's or the Portfolio's total assets, taken at cost at
the time of such borrowing (and provided that such borrowings
and reverse repurchase agreements do not exceed in the
aggregate one-third of the market value of the Fund's and the
Portfolio's total assets less liabilities other than the
obligations represented by the bank borrowings and reverse
repurchase agreements). Mortgage, pledge, or hypothecate any
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1For 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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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;
39
<PAGE>
8. Acquire securities of other investment companies, except as
permitted by the 1940 Act or in connection with a merger,
consolidation, reorganization, acquisition of assets or an
offer of exchange; provided, however, that nothing in this
investment restriction shall prevent the Trust from investing
all or part of the Fund's assets in an open-end management
investment company with the same investment objective and
restrictions as the Fund; or
9. Act as an underwriter of securities.
The SHORT TERM BOND FUND and its corresponding PORTFOLIO may not:
1. Purchase securities or other obligations of issuers
conducting their principal business activity in the same
industry if, immediately after such purchase the value of its
investments in such industry would exceed 25% of the value of
the Fund's total assets; provided, however, that the Fund may
invest all or part of its investable assets in an open-end
management investment company with the same investment
objective and restrictions as the Fund's. For purposes of
industry concentration, there is no percentage limitation
with respect to investments in U.S. Government securities;
2. Purchase the securities or other obligations of any one
issuer if, immediately after such purchase, more than 5% of
the value of the Fund's total assets would be invested in
securities or other obligations of any one such issuer;
provided, however, that the Fund may invest all or part of
its investable assets in an open-end management investment
company with the same investment objective and restrictions
as the Fund's. This limitation shall not apply to securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of
the Fund's total assets;
3. Purchase the securities of an issuer if, immediately after
such purchase, the Fund owns more than 10% of the outstanding
voting securities of such issuer; provided, however, that the
Fund may invest all or part of its investable assets in an
open-end management investment company with the same
investment objective and restrictions as the Fund's. This
limitation shall not apply to permitted investments of up to
25% of the Fund's total assets;
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
40
<PAGE>
repurchase agreements). The Fund will not mortgage, pledge, or
hypothecate any assets except in connection with any such borrowing and
in amounts not to exceed 30% of the value of the Fund's or the
Portfolio's net assets at the time of such borrowing. The Fund or the
Portfolio will not purchase securities while borrowings exceed 5% of the
Fund's total assets; provided, however, that the Fund may increase its
interest in an open-end management investment company with the same
investment objective and restrictions as the Fund's while such
borrowings are outstanding. Collateral arrangements for premium and
margin payments in connection with the Fund's hedging activities are not
deemed to be a pledge of assets;
5. Issue any senior security, except as appropriate to evidence
indebtedness which constitutes a senior security and which
the Fund is permitted to incur pursuant to Investment
Restriction No. 4 and except that the Fund may enter into
reverse repurchase agreements, provided that the aggregate of
senior securities, including reverse repurchase agreements,
shall not exceed one-third of the market value of the Fund's
total assets, less liabilities other than obligations created
by reverse repurchase agreements. The Fund's arrangements in
connection with its hedging activities as described in
"Investment Objectives and Policies" shall not be considered
senior securities for purposes hereof;
6. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities) or the entering into of
repurchase agreements, or loans of portfolio securities in accordance
with the Fund's investment objective and policies;
7. Purchase or sell puts, calls, straddles, spreads, or any
combination thereof, real estate, commodities, or commodity
contracts, except for the Fund's interests in hedging
activities as described under "Investment Objectives and
Policies"; or interests in oil, gas, or mineral exploration
or development programs. However, the Fund may purchase
securities or commercial paper issued by companies which
invest in real estate or interests therein, including real
estate investment trusts, and purchase instruments secured by
real estate or interests therein;
8. Purchase securities on margin, make short sales of securities, or
maintain a short position in securities, except to obtain such
short-term credit as necessary for the clearance of purchases and sales
of securities; provided that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued securities or delayed
delivery securities;
9. Acquire securities of other investment companies, except as
permitted by the 1940 Act or in connection with a merger,
41
<PAGE>
consolidation, reorganization, acquisition of assets or an offer of
exchange; provided, however, that nothing in this investment restriction
shall prevent the Trust from investing all or part of the Fund's assets
in an open-end management investment company with the same investment
objective and restrictions as the Fund; or
10. Act as an underwriter of securities.
The BOND FUND and its corresponding PORTFOLIO may not:
1. Borrow money, except from banks for extraordinary or
emergency purposes and then only in amounts up to 30% of the
value of the Fund's total assets, taken at cost at the time
of such borrowing and except in connection with reverse
repurchase agreements permitted by Investment Restriction No.
8. Mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing in amounts up to 30% of
the value of the Fund's net assets at the time of such
borrowing. The Fund will not purchase securities while
borrowings (including reverse repurchase agreements) exceed
5% of the Fund's total assets; provided, however, that the
Fund may increase its interest in an open-end management
investment company with the same investment objective and
restrictions as the Fund's while such borrowings are
outstanding. This borrowing provision facilitates the
orderly sale of portfolio securities, for example, in the
event of abnormally heavy redemption requests. This
provision is not for investment purposes. Collateral
arrangements for premium and margin payments in connection
with the Fund's hedging activities are not deemed to be a
pledge of assets;
2. Purchase the securities or other obligations of any one
issuer if, immediately after such purchase, more than 5% of
the value of the Fund's total assets would be invested in
securities or other obligations of any one such issuer;
provided, however, that the Fund may invest all or part of
its investable assets in an open-end management investment
company with the same investment objective and restrictions
as the Fund's. This limitation shall not apply to securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of
the Fund's total assets;
3. Purchase the securities of an issuer if, immediately after
such purchase, the Fund owns more than 10% of the outstanding
voting securities of such issuer; provided, however, that the
Fund may invest all or part of its investable assets 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;
42
<PAGE>
4. Purchase securities or other obligations of issuers
conducting their principal business activity in the same
industry if, immediately after such purchase the value of its
investments in such industry would exceed 25% of the value of
the Fund's total assets; provided, however, that the Fund may
invest all or part of its investable assets in an open-end
management investment company with the same investment
objective and restrictions as the Fund's. For purposes of
industry concentration, there is no percentage limitation
with respect to investments in U.S. Government securities;
5. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities) or the entering into of
repurchase agreements, or loans of portfolio securities in accordance
with the Fund's investment objective and policies;
6. Purchase or sell puts, calls, straddles, spreads, or any
combination thereof, real estate, commodities, commodity
contracts, except for the Fund's interest in hedging
activities as described under "Investment Objectives and
Policies"; or interests in oil, gas, or mineral exploration
or development programs. However, the Fund may purchase debt
obligations secured by interests in real estate or issued by
companies which invest in real estate or interests therein
including real estate investment trusts;
7. Purchase securities on margin, make short sales of
securities, or maintain a short position in securities,
except in the course of the Fund's hedging activities, unless
at all times when a short position is open the Fund owns an
equal amount of such securities, provided that this
restriction shall not be deemed to be applicable to the
purchase or sale of when-issued securities or delayed
delivery securities;
8. Issue any senior security, except as appropriate to evidence
indebtedness which constitutes a senior security and which
the Fund is permitted to incur pursuant to Investment
Restriction No. 1 and except that the Fund may enter into
reverse repurchase agreements, provided that the aggregate of
senior securities, including reverse repurchase agreements,
shall not exceed one-third of the market value of the Fund's
total assets, less liabilities other than obligations created
by reverse repurchase agreements. The Fund's arrangements in
connection with its hedging activities as described in
"Investment Objectives and Policies" shall not be considered
senior securities for purposes hereof;
9. Acquire securities of other investment companies, except as
permitted by the 1940 Act; or
10. Act as an underwriter of securities.
43
<PAGE>
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.1 This limitation shall not apply to securities issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of
the Fund's total assets;
3. Invest more than 25% of its total assets in securities of governmental
units located in any one state, territory, or possession of the United
States. The Fund may invest more than 25% of its total assets in
industrial developments and pollution control obligations whether or not
the users of facilities financed by such obligations are in that same
industry;1
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);
- --------
1For 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. 1Pursuant to an interpretation of the staff of the SEC,
the Fund may not invest more than 25% of its assets in industrial
development bonds in projects of similar type or in the same state. The
Fund shall comply with this interpretation until such time as it may be
modified by the staff of the SEC.
44
<PAGE>
5. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities) or the entering into of
repurchase agreements, or loans of portfolio securities in accordance
with the Fund's investment objective and policies (see "Investment
Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any
combination thereof except to the extent that securities
subject to a demand obligation, stand-by commitments and puts
may be purchased (see "Investment Objectives and Policies");
real estate; commodities; commodity contracts, except for the
Fund's interests in hedging activities as described under
"Investment Objectives and Policies"; or interests in oil,
gas, or mineral exploration or development programs.
However, the Fund may purchase municipal bonds, notes or
commercial paper secured by interests in real estate;
7. Purchase securities on margin, make short sales of
securities, or maintain a short position, except in the
course of the Fund's hedging activities, unless at all times
when a short position is open the Fund owns an equal amount
of such securities or owns securities which, without payment
of any further consideration, are convertible into or
exchangeable for securities of the same issue as, and equal
in amount to, the securities sold short; provided that this
restriction shall not be deemed to be applicable to the
purchase or sale of when-issued or delayed delivery
securities;
8. Issue any senior security, except as appropriate to evidence
indebtedness which the Fund is permitted to incur pursuant to
Investment Restriction No. 1. The Fund's arrangements in
connection with its hedging activities as described in
"Investment Objectives and Policies" shall not be considered
senior securities for purposes hereof;
9. Acquire securities of other investment companies, except as
permitted by the 1940 Act; or
10. Act as an underwriter of securities.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC staff
interpretations thereof, are amended or modified, the NEW YORK TOTAL RETURN BOND
FUND and its corresponding PORTFOLIO
may not:
1. Purchase any security if, as a result, more than 25% of the value of the
Fund's total assets would be invested in securities of issuers having
their principal business activities in the same industry. This
limitation shall not apply to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities;
2. Borrow money, except that the Fund may (i) borrow money from
banks for temporary or emergency purposes (not for leveraging
45
<PAGE>
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 be invested in
46
<PAGE>
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
47
<PAGE>
connection with its use of futures contracts and options
shall not be considered senior securities for purposes
hereof;
6. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities), or the entering into of
repurchase agreements, or loans of portfolio securities in accordance
with the Fund's investment objective and policies (see "Investment
Objectives and Policies");
7. Purchase or sell commodities or commodity contracts, but this
restriction shall not prohibit the Fund from purchasing or
selling futures contracts or options (including options on
futures contracts, but excluding options or futures contracts
on physical commodities) or entering into foreign currency
forward contracts; or purchase or sell real estate or
interests in oil, gas, or mineral exploration or development
programs. However, the Fund may purchase securities or
commercial paper issued by companies which invest in real
estate or interests therein, including real estate investment
trusts, and purchase instruments secured by real estate or
interests therein;
8. Purchase securities on margin, make short sales of
securities, or maintain a short position in securities,
except to obtain such short term credit as necessary for the
clearance of purchases and sales of securities, provided that
this restriction shall not be deemed to be applicable to the
purchase or sale of when-issued securities or delayed
delivery securities or to restrict the Fund's use of futures
contracts or options;
9. Acquire securities of other investment companies, except as
permitted by the 1940 Act or in connection with a merger,
consolidation, reorganization, acquisition of assets or an
offer of exchange; provided, however, that nothing in this
investment restriction shall prevent the Trust from investing
all or part of the Fund's assets in an open-end management
investment company with the same investment objective and
restrictions as the Fund; or
10. Act as an underwriter of securities.
Each of the EQUITY FUND and the CAPITAL APPRECIATION 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
48
<PAGE>
industry concentration, there is no percentage limitation
with respect to investments in U.S. Government securities;
2. Borrow money, except from banks for extraordinary or
emergency purposes and then only in amounts not to exceed 10%
of the value of the Fund's total assets, taken at cost, at
the time of such borrowing. Mortgage, pledge, or hypothecate
any assets except in connection with any such borrowing and
in amounts not to exceed 10% of the value of the Fund's net
assets at the time of such borrowing. The Fund will not
purchase securities while borrowings exceed 5% of the Fund's
total assets; provided, however, that the Fund may increase
its interest in an open-end management investment company
with the same investment objective and restrictions as the
Fund's while such borrowings are outstanding. This borrowing
provision is included to facilitate the orderly sale of
portfolio securities, for example, in the event of abnormally
heavy redemption requests, and is not for investment
purposes. Collateral arrangements for premium and margin
payments in connection with the Fund's hedging activities are
not deemed to be a pledge of assets;
3. Purchase the securities or other obligations of any one
issuer if, immediately after such purchase, more than 5% of
the value of the Fund's total assets would be invested in
securities or other obligations of any one such issuer;
provided, however, that the Fund may invest all or part of
its investable assets in an open-end management investment
company with the same investment objective and restrictions
as the Fund's. This limitation shall not apply to issues of
the U.S. Government, its agencies or instrumentalities and to
permitted investments of up to 25% of the Fund's total
assets;
4. Purchase the securities of an issuer if, immediately after such
purchase, the Fund owns more than 10% of the outstanding voting
securities of such issuer; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management
investment company with the same investment objective and restrictions
as the Fund's;
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
49
<PAGE>
invest in real estate or interests therein, including real
estate investment trusts;
7. Purchase securities on margin, make short sales of securities, or
maintain a short position, except in the course of the Fund's hedging
activities, provided that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued securities or delayed
delivery securities;
8. Acquire securities of other investment companies, except as
permitted by the 1940 Act;
9. Act as an underwriter of securities;
10. Issue any senior security, except as appropriate to evidence
indebtedness which the Fund is permitted to incur pursuant to
Investment Restriction No. 2. The Fund's arrangements in
connection with its hedging activities as described in
"Investment Objectives and Policies" shall not be considered
senior securities for purposes hereof; or
11. Purchase any equity security if, as a result, the Fund would then have
more than 5% of its total assets invested in securities of companies
(including predecessors) that have been in continuous operation for
fewer than three years.
The INTERNATIONAL EQUITY FUND and its corresponding PORTFOLIO may not:
1. Borrow money, except from banks for extraordinary or
emergency purposes and then only in amounts up to 30% of the
value of the Fund's net assets at the time of borrowing, and
except in connection with reverse repurchase agreements and
then only in amounts up to 33 1/3% of the value of the Fund's
net assets; or purchase securities while borrowings,
including reverse repurchase agreements, exceed 5% of the
Fund's total assets; provided, however, that the Fund may
increase its interest in an open-end management investment
company with the same investment objective and restrictions
as the Fund's while such borrowings are outstanding. The
Fund will not mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts
not to exceed 30% of the value of the Fund's net assets at
the time of such borrowing;
2. Purchase the securities or other obligations of any one
issuer if, immediately after such purchase, more than 5% of
the value of the Fund's total assets would be invested in
securities or other obligations of any one such issuer;
provided, however, that the Fund may invest all or part of
its investable assets in an open-end management investment
company with the same investment objective and restrictions
as the Fund's. This limitation shall not apply to securities
issued or guaranteed by the U.S. Government, its agencies or
50
<PAGE>
instrumentalities or to permitted investments of up to 25% of
the Fund's total assets;
3. Purchase the securities of an issuer if, immediately after
such purchase, the Fund owns more than 10% of the outstanding
voting securities of such issuer; provided, however, that the
Fund may invest all or part of its investable assets in an
open-end management investment company with the same
investment objective and restrictions as the Fund's. This
limitation shall not apply to permitted investments of up to
25% of the Fund's total assets;
4. Purchase the securities or other obligations of issuers
conducting their principal business activity in the same
industry if, immediately after such purchase, the value of
its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the
Fund may invest all or part of its investable assets in an
open-end management investment company with the same
investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage
limitation with respect to investments in U.S. Government
securities;
5. Make loans, except through the purchase or holding of debt obligations
(including restricted securities), or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the
Fund's investment objective and policies, see "Additional Investment
Information" in the Prospectus and "Investment Objectives and Policies"
in this Statement of Additional Information;
6. Purchase or sell puts, calls, straddles, spreads, or any
combination thereof, real property, including limited
partnership interests, commodities, or commodity contracts,
except for the Fund's interests in hedging and foreign
exchange activities as described under "Additional Investment
Information" in the Prospectus; or interests in oil, gas,
mineral or other exploration or development programs or
leases. However, the Fund may purchase securities or
commercial paper issued by companies that invest in real
estate or interests therein including real estate investment
trusts;
7. Purchase securities on margin, make short sales of securities, or
maintain a short position in securities, except to obtain such
short-term credit as necessary for the clearance of purchases and sales
of securities, provided that this restriction shall not be deemed to
apply to the purchase or sale of when-issued securities or delayed
delivery securities;
8. Acquire securities of other investment companies, except as
permitted by the 1940 Act;
51
<PAGE>
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, the EMERGING MARKETS
EQUITY FUND and its corresponding PORTFOLIO may not:
1. Purchase any security if, as a result, more than 25% of the value of the
Fund's total assets would be invested in securities of issuers having
their principal business activities in the same industry. This
limitation shall not apply to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities;
2. Borrow money, except that the Fund may (i) borrow money from
banks for temporary or emergency purposes (not for leveraging
purposes) and (ii) enter into reverse repurchase agreements
for any purpose; provided that (i) and (ii) in total do not
exceed 33 1/3% of the value of the Fund's total assets
(including the amount borrowed) less liabilities (other than
borrowings). If at any time any borrowings come to exceed 33
1/3% of the value of the Fund's total assets, the Fund will
reduce its borrowings within three business days to the
extent necessary to comply with the 33 1/3% limitation;
3. 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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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.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - MONEY MARKET FUND. The
investment restriction described below is not a fundamental policy of the Money
Market Fund or its corresponding Portfolio and may be changed by their
respective Trustees. This non-fundamental investment policy requires that the
Money Market Fund and its corresponding Portfolio may not:
(i) enter into reverse repurchase agreements or borrow money, except
from banks for extraordinary or emergency purposes, if such obligations
exceed in the aggregate one-third of the market value of the Fund's
total assets, less liabilities other than obligations created by reverse
repurchase agreements and borrowings.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - TAX EXEMPT MONEY MARKET FUND
AND TREASURY MONEY MARKET FUND. The investment restriction described below is
not a fundamental policy of these Funds or their corresponding Portfolios and
may be changed by their respective Trustees. This non-fundamental investment
policy requires that each such Fund may not:
(i) acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration
of over seven calendar days, if as a result thereof, more than 10% of
the market value of the Fund's total assets would be in investments that
are illiquid.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - SHORT TERM BOND FUND, TAX
EXEMPT BOND FUND, BOND FUND, EQUITY FUND, CAPITAL APPRECIATION FUND,
INTERNATIONAL EQUITY FUND AND DIVERSIFIED FUND. The investment restriction
described below is not a fundamental policy of these Funds or their
corresponding Portfolios and may be changed by their respective Trustees. This
non-fundamental investment policy requires that each such Fund may not:
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<PAGE>
(i) acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration
of over seven calendar days, if as a result thereof, more than 15% of
the market value of the Fund's total 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 total assets would be in investments that
are illiquid;
(iii) Sell any security short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold or
unless it covers such short sales as required by the current rules or
positions of the SEC or its staff. Transactions in futures contracts and
options shall not constitute selling securities short; or
(iv) Purchase securities on margin, but the Fund may obtain such short
term credits as may be necessary for the clearance of transactions.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - INTERNATIONAL EQUITY FUND AND
DIVERSIFIED FUND. The investment restrictions described below are not
fundamental policies of these Funds or their corresponding Portfolios and may be
changed by their respective Trustees. These non-fundamental investment policies
require that each such Fund may not:
(i) purchase any equity security if, as a result, the Fund would then
have more than 5% of its total assets invested in securities of
companies (including predecessors) that have been in continuous
operation for fewer than three years;
(ii) invest in warrants (other than warrants acquired by the Fund as
part of a unit or attached to securities at the time of purchase) if, as
a result, the investments (valued at the lower of cost or market) would
exceed 5% of the value of the
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<PAGE>
Fund's net assets or if, as a result, more than 2% of the Fund's net
assets would be invested in warrants not listed on a recognized U.S. or
foreign stock exchange, to the extent permitted by applicable state
securities laws; or
(iii) invest in any securities issued by an issuer any of whose
officers, directors, trustees or security holders is an officer or
Trustee of the Trust, or is an officer of the Investment Advisor, if
after the Portfolio's purchase of the securities of such issuer, one or
more of such persons owns beneficially more than 1/2 of 1% of the shares
or securities, or both, all taken at market value, of such issuer, and
such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or securities, or
both, all taken at market value.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - EQUITY FUND AND CAPITAL
APPRECIATION FUND. The investment restrictions described below are not
fundamental policies of these Funds or their corresponding Portfolios and may be
changed by their respective Trustees. These non-fundamental investment policies
require that
each such Fund may not:
(i) invest in warrants (other than warrants acquired by the Fund as part
of a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would
exceed 5% of the value of the Fund's net assets or if, as a result, more
than 2% of the Fund's net assets would be invested in warrants not
listed on a recognized U.S. or foreign stock exchange, to the extent
permitted by applicable state securities laws; or
(ii) invest in any securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the
Trust, or is an officer of the Investment Advisor, if after the
Portfolio's purchase of the securities of such issuer, one or more of
such persons owns beneficially more than 1/2 of 1% of the shares or
securities, or both, all taken at market value, of such issuer, and such
persons owning more than 1/2 of 1% of such shares or securities together
own beneficially more than 5% of such shares or securities, or both, all
taken at market value.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - EQUITY FUND, CAPITAL
APPRECIATION FUND AND DIVERSIFIED FUND. The investment restrictions described
below are not fundamental policies of these Funds or their corresponding
Portfolios and may be changed by their respective Trustees. These
non-fundamental investment policies require that each such Fund may not:
(i) invest in real estate limited partnership interests; or
(ii) invest in oil, gas or other mineral leases.
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<PAGE>
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - EMERGING MARKETS EQUITY FUND.
The investment restrictions described below are not fundamental policies of the
Emerging Markets Equity Fund and its corresponding Portfolio and may be changed
by their Trustees. These non-fundamental investment policies require that the
Emerging Markets Equity Fund and its corresponding Portfolio may not:
(i) Acquire securities of other investment companies, except as
permitted by the 1940 Act or any rule, order or interpretation
thereunder, or in connection with a merger, consolidation,
reorganization, acquisition of assets or an offer of exchange;
(ii) Acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration
of over seven calendar days, if as a result thereof, more than 15% of
the market value of the Fund's total assets would be in investments that
are illiquid;
(iii) Purchase any security if, as a result, the Fund would then have
more than 5% of its total assets invested in securities of companies
(including predecessors) that have been in continuous operation for
fewer than three years;
(iv) Invest in warrants (other than warrants acquired by the Fund as
part of a unit or attached to securities at the time of purchase) if, as
a result, the investments (valued at the lower of cost or market) would
exceed 5% of the value of the Fund's net assets or if, as a result, more
than 2% of the Fund's net assets would be invested in warrants not
listed on a recognized U.S. or foreign stock exchange, to the extent
permitted by applicable state securities laws;
(v) Sell any security short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold or
unless it covers such short sales as required by the current rules or
positions of the SEC or its staff. Transactions in futures contracts and
options shall not constitute selling securities short;
(vi) Purchase securities on margin, but the Fund may obtain
such short term credits as may be necessary for the clearance
of transactions;
(vii) Purchase or retain securities of any issuer if, to the knowledge
of the Fund, any of the Fund's officers or Trustees or any officer of
the Portfolio's investment adviser individually owns more than 1/2 of 1%
of the issuer's outstanding securities and such persons owning more than
1/2 of 1% of such securities together beneficially own more than 5% of
such securities, all taken at market; or
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<PAGE>
(viii) Invest in real estate limited partnerships or purchase interests
in oil, gas or mineral exploration or development programs or leases.
ALL FUNDS. There will be no violation of any investment restriction if
that restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
TRUSTEES AND OFFICERS
The Trustees of the Trust, who are also the Trustees of each of the
Portfolios, their business addresses, and their principal occupations during the
past five years are set forth below.
TRUSTEES
FREDERICK S. ADDY--Trustee; Retired; Executive Vice President
and Chief Financial Officer from January 1990 to April 1994,
Amoco Corporation. His address is 5300 Arbutus Cove, Austin, TX 78746.
WILLIAM G. BURNS--Trustee; Retired; Limited Partner, Galen
Partners L.P. and Vice Chairman, Galen Associates, since 1990;
Chief Executive Officer, Galen Associates and General Partner,
Galen Partners L.P., until 1991. His address is 2200 Alaqua Drive,
Longwood, FL 32779.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Senior Vice
President, Morgan Guaranty Trust Company of New York until 1987.
His address is 14 Alta Vista Drive, RD #2, Princeton, NJ 08540.
MATTHEW HEALEY (*)--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since 1989; Chairman and Chief Executive
Officer, Execution Services, Inc. until October 1991. His address is Pine Tree
Club Estates, 10286 Saint Andrews Road, Boynton Beach, FL 33436.
MICHAEL P. MALLARDI--Trustee; Senior Vice President, Capital
Cities/ABC, Inc., President, Broadcast Group, since 1986. His
address is 77 West 66th Street, New York, NY 10017.
- ------------------------
(*) Mr. Healey is an "interested person" of the Trust and each
Portfolio as that term is defined in the 1940 Act.
The Trustees of the Trust are the same as the Trustees of each of the
Portfolios. In accordance with applicable state requirements, a majority of the
disinterested Trustees have adopted written procedures reasonably appropriate to
deal with potential conflicts of interest arising from the fact that the same
individuals are Trustees of the Trust, each of the Portfolios and The JPM
Institutional Funds, up to and including
57
<PAGE>
creating a separate board of trustees.
Each Trustee is paid an annual fee as follows for serving as Trustee of
the Trust, each of the Portfolios, The Series Portfolio and The JPM
Institutional Funds, and is reimbursed for expenses incurred in connection with
service as a Trustee. The compensation paid to the Trustees in calendar 1994 is
set forth below. The Trustees may hold various other directorships unrelated to
these funds.
<TABLE>
<CAPTION>
TOTAL COMPENSATION FROM THE
AGGREGATE PENSION OR RETIREMENT TRUST, THE JPM INSTITUTUIONAL
COMPENSATION BENEFITS ESTIMATED ANNUAL FUNDS AND CORRESPONDING
FROM THE TRUST ACCRUED AS PART OF BENEFITS UPON PORTFOLIOS PAID TO TRUSTEES
DURING 1994 FUND EXPENSES RETIREMENT DURING 1994
<S> <C> <C> <C> <C>
Frederick S. Addy, Trustee $21,721 None None $55,000
William G. $21,721 None None $55,000
Burns, Trustee
Arthur C. Eschenlauer, Trustee None None $55,000
$21,721
Matthew Healey, Trustee (*), $21,721 None None $55,000
Chairman and Chief Executive
Officer
Michael P. Mallardi, Trustee $21,721 None None $55,000
</TABLE>
(*) During 1994, Pierpont Group, Inc. paid Mr. Healey, in his
role as Chairman of Pierpont Group, Inc., compensation in the
amount of $130,000, contributed $19,500 to a defined contribution
plan on his behalf and paid $20,000 in insurance premiums for his
benefit.
As of April 1, 1995 the annual fee paid to each Trustee for serving as
a Trustee of the Trust, each of the Portfolios, The Series Portfolio and The JPM
Institutional Funds was adjusted to $65,000.
The Trustees, in addition to reviewing actions of the Trust's and the
Portfolios' various service providers, decide upon matters of general policy. On
January 15, 1994 each of the Portfolios and the Trust 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 Funds, and the Trustees are the equal and sole
shareholders of Pierpont Group, Inc. The Trust and the Portfolios have agreed to
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<PAGE>
pay Pierpont Group, Inc. a fee in an amount representing its
reasonable costs in performing these services. These costs are
periodically reviewed by the Trustees.
The aggregate fees paid to Pierpont Group, Inc. by each Fund and its
corresponding Portfolio during their respective fiscal years completed after
January 15, 1994 are set forth below:
MONEY MARKET FUND -- For the fiscal year ended November 30, 1994:
$302,195.
THE MONEY MARKET PORTFOLIO -- For the fiscal year ended November
30, 1994: $246,089.
TAX EXEMPT MONEY MARKET FUND -- For the fiscal year ended August
31, 1995: $101,846.
THE TAX EXEMPT MONEY MARKET PORTFOLIO -- For the fiscal year
ended August 31, 1995: $110,325.
TREASURY MONEY MARKET FUND -- For the fiscal year ended October
31, 1994: $16,086.
THE TREASURY MONEY MARKET PORTFOLIO -- For the fiscal year ended
October 31, 1994: $17,104.
SHORT TERM BOND -- For the fiscal year ended October 31, 1994:
$952.
THE SHORT TERM BOND PORTFOLIO -- For the fiscal year ended
October 31, 1994: $4,545.
TAX EXEMPT BOND FUND -- For the fiscal year ended August 31,
1995: $35,144.
THE TAX EXEMPT BOND PORTFOLIO -- For the fiscal year ended August
31, 1995: $38,804.
NEW YORK TOTAL RETURN BOND FUND -- For the period April 11, 1994 (commencement
of operations) through March 31, 1995: $2,847. THE NEW YORK TOTAL RETURN BOND
PORTFOLIO -- For the period April 11, 1994 (commencement of operations) through
March 31, 1995:
$4,140.
BOND FUND -- For the fiscal year ended October 31, 1994:
$15,491.
THE U.S. FIXED INCOME PORTFOLIO -- For the fiscal year ended
October 31, 1994: $23,028.
EQUITY FUND -- For the period July 19, 1993 (commencement of
operations) through May 31, 1994: $48,660. For the fiscal year
ended May 31, 1995: $25,316.
THE SELECTED U.S. EQUITY PORTFOLIO -- For the period July 19,
1993 (commencement of operations) through May 31, 1994: $20,385.
For the fiscal year ended May 31, 1995: $52,948
CAPITAL APPRECIATION FUND -- For the period July 19, 1993
(commencement of operations) through May 31, 1994: $47,244. For
the fiscal year ended May 31, 1995: $19,612.
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<PAGE>
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: $62,256.
INTERNATIONAL EQUITY FUND -- For the fiscal year ended October
31, 1994: $27,503.
THE NON-U.S. EQUITY PORTFOLIO -- For the fiscal year ended
October 31, 1994: $32,512.
EMERGING MARKETS EQUITY FUND -- For the fiscal year ended October
31, 1994: $4,331.
THE EMERGING MARKETS EQUITY PORTFOLIO -- For the fiscal year
ended October 31, 1994: $42,764.
DIVERSIFIED FUND -- For the period July 8, 1993 (commencement of
operations) through June 30, 1994: $247. For the fiscal year
ended June 30, 1995: $1,437.
THE DIVERSIFIED PORTFOLIO -- For the period July 8, 1993
(commencement of operations) through June 30, 1994: $3,434. For
the fiscal year ended June 30, 1995: $11,702.
The Trust's and Portfolios' executive officers (listed
below), other than the Chief Executive Officer, are provided and
compensated by Signature Broker-Dealer Services, Inc. ("SBDS"), a
wholly owned subsidiary of Signature Financial Group, Inc.
("Signature"). The officers conduct and supervise the business
operations of the Trust and the Portfolios. The Trust and the
Portfolios have no employees.
OFFICERS
The officers of the Trust and the Portfolios and their principal
occupations during the past five years are set forth below. Unless otherwise
specified, each officer holds the same position with the Trust and each
Portfolio. The business address of each of the officers unless otherwise noted
is Signature Broker-Dealer Services, Inc., 6 St. James Avenue, Boston,
Massachusetts 02116.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
Inc., since 1989; Chairman and Chief Executive Officer, Execution Services, Inc.
until October 1991. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, FL 33436.
PHILIP W. COOLIDGE; President; Chairman, Chief Executive
Officer and President, Signature since December 1988 and SBDS
since April 1989.
DAVID G. DANIELSON; Assistant Treasurer; Assistant Manager,
Signature since May 1991; Graduate Student, Northeastern
University from April 1990 to March 1991.
JOHN R. ELDER; Treasurer; Vice President, SFG (since April 1995);
Treasurer, Phoenix Family of Mutual Funds (Phoenix Home Life Mutual Insurance
Company) (from 1983 to March 1995).
LINDA T. GIBSON; Assistant Secretary; Legal Counsel and
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<PAGE>
Assistant Secretary, Signature since June 1991; Assistant Secretary, SBDS since
November 1992; law student, Boston University School of Law prior to May 1992.
JAMES E. HOOLAHAN; Vice President; Senior Vice President,
Signature since December 1989.
SUSAN JAKUBOSKI; Assistant Secretary and Assistant Treasurer of the
Portfolios only; Manager and Senior Fund Administrator, SFG and Signature
(Cayman) (since August 1994); Assistant Treasurer, SBDS (since September 1994);
Fund Compliance Administrator, Concord Financial Group, Inc. (from November 1990
to August 1994); Senior Fund Accountant, Neuberger & Berman Management
Incorporated (since prior to 1990). Her address is P.O. Box 2494, Elizabethan
Square, George Town, Grand Cayman, Cayman Islands, B.W.I.
JAMES S. LELKO; Assistant Treasurer; Assistant Manager,
Signature since January 1993; Senior Tax Compliance Accountant,
Putnam Companies since prior to December 1992.
THOMAS M. LENZ; Secretary; Vice President and
Associate General Counsel, Signature since November 1989;
Assistant Secretary, SBDS since February 1991.
MOLLY S. MUGLER; Assistant Secretary; Legal Counsel and
Assistant Secretary, Signature since December 1988; Assistant
Secretary, SBDS since April 1989.
ANDRES E. SALDANA; Assistant Secretary; Legal Counsel and
Assistant Secretary, Signature since November 1992; Assistant
Secretary, SBDS since September 1993; Attorney, Ropes & Gray from
September 1990 to November 1992.
DANIEL E. SHEA; Assistant Treasurer; Assistant Manager of
Fund Administration, Signature since November 1993; Supervisor
and Senior Technical Advisor, Putnam Investments since prior to
1990.
Messrs. Coolidge, Danielson, Elder, Hoolahan, Lelko, Lenz, Saldana
and Shea and Mss. Gibson, Mugler and Jakuboski hold similar
positions for other investment companies for which SBDS or an
affiliate serves as principal underwriter.
INVESTMENT ADVISOR
The investment advisor to the Portfolios is Morgan Guaranty Trust
Company of New York, a wholly-owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), a bank holding company organized under the laws of the State of
Delaware. Morgan, whose principal offices are at 60 Wall Street, New York, New
York 10260, is a New York trust company which conducts a general banking and
trust business. Morgan is subject to regulation by the New York State Banking
Department and is a member bank of the
61
<PAGE>
Federal Reserve System. Through offices in New York City and abroad, Morgan
offers a wide range of services, primarily to governmental, institutional,
corporate and high net worth individual customers in the United States and
throughout the world.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of $165 billion (of which the Advisor advises over $26 billion).
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of Morgan's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, Melbourne and Singapore to cover companies, industries and
countries on site. In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers and traders.
The conclusions of the equity analysts' fundamental research is quantified into
a set of projected returns for individual companies through the use of a
dividend discount model. These returns are projected for 2 to 5 years to enable
analysts to take a longer term view. These returns, or normalized earnings, are
used to establish relative values among stocks in each industrial sector. These
values may not be the same as the markets' current valuations of these
companies. This provides the basis for ranking the attractiveness of the
companies in an industry according to five distinct quintiles or rankings. This
ranking is one of the factors considered in determining the stocks purchased and
sold in each sector. The Advisor's fixed income investment process is based on
analysis of real rates, sector diversification and quantitative and credit
analysis.
The investment advisory services the Advisor provides to the Portfolios
are not exclusive under the terms of the Advisory Agreements. The Advisor is
free to and does render similar investment advisory services to others. The
Advisor serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments
62
<PAGE>
substantially similar to, or the same as, those which are
expected to constitute the principal investments of the
Portfolios. Such accounts are supervised by officers and
employees of the Advisor who may also be acting in similar
capacities for the Portfolios. See "Portfolio Transactions."
Sector weightings are generally similar to a fund's benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmarks for the Portfolios in which the Funds
invest are currently: The Money Market Portfolio and The Treasury Money Market
Portfolio--IBC/Donoghue's Money Fund Average; The Tax Exempt Money Market
Portfolio--IBC/Donoghue's Tax Exempt Money Fund Average; The Short Term Bond
Portfolio--Merrill Lynch 1-3 Year Treasury Index; The U.S. Fixed Income
Portfolio--Salomon Brothers Broad Investment Grade Bond Index; The Tax Exempt
Bond Portfolio--Lehman Brothers Quality Intermediate Municipal Bond Index; The
New York Total Return Bond Portfolio--Lehman Brothers 1-15 Year Municipal Bond
Index; The Selected U.S. Equity Portfolio--S&P 500 Index; The U.S. Small Company
Portfolio--Russell 2500 Index; The Non-U.S. Equity Portfolio--EAFE Index; The
Emerging Markets Equity Portfolio--the MSCI Emerging Markets Free Index; The
Diversified Portfolio--diversified benchmark (52% S&P 500, 35% Salomon Brothers
Broad Investment Grade Bond, 3% Russell 2000 and 10% EAFE indexes).
J.P. Morgan Investment Management Inc., a wholly-owned subsidiary of
J.P. Morgan, is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, which manages employee benefit funds of corporations,
labor unions and state and local governments and the accounts of other
institutional investors, including investment companies. Certain of the assets
of employee benefit accounts under its management are invested in commingled
pension trust funds for which the Advisor serves as trustee. J.P. Morgan
Investment Management Inc. advises the Advisor on investment of the commingled
pension trust funds.
The Portfolios are managed by officers of the Advisor who, in acting
for their customers, including the Portfolios, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan Investment Management Inc. See "Portfolio Transactions" below for a
description of services provided to the Portfolios by J.P.
Morgan Investment Management Inc.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Advisory
Agreements, the Portfolio corresponding to each Fund has agreed to pay the
Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of each Portfolio's average daily net assets shown below.
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<PAGE>
MONEY MARKET: 0.20% of net assets up to $1 billion and 0.10% of
net assets in excess of $1 billion
TAX EXEMPT MONEY MARKET: 0.20% of net assets up to $1 billion
and 0.10% of net assets in excess of $1 billion
TREASURY MONEY MARKET: 0.20% of net assets up to $1 billion and
0.10% of net assets in excess of $1 billion
SHORT TERM BOND: 0.25%
U.S. FIXED INCOME: 0.30%
TAX EXEMPT BOND: 0.30%
NEW YORK TOTAL RETURN BOND: 0.30%
SELECTED U.S. EQUITY: 0.40%
U.S. SMALL COMPANY: 0.60%
NON-U.S. EQUITY: 0.60%
EMERGING MARKETS EQUITY: 1.00%
DIVERSIFIED: 0.55%
Below are set forth for the predecessor of each Fund listed below (for
the indicated fiscal years) the advisory fees, net of fee waivers and
reimbursements, paid by the Fund (expressed as an aggregate amount of the Fund's
average daily net assets) and the advisory fees waived or reimbursed by Morgan
for the Fund (expressed as an aggregate amount), in each case prior to such
Fund's reorganization. See "Expenses" in the Prospectus and below for applicable
expense limitations.
Money Market: Nov. 1993 - net amount paid: $2,244,381; amount
waived: $0.
Money Market: Nov. 1992 - net amount paid: $3,999,028; amount
waived: $0.
Tax Exempt Money Market: Aug. 1993 - net amount paid: $1,688,141;
amount waived: $0.
Bond: Oct. 1993 - net amount paid: $149,804; amount waived:
$25,312.
Bond: Oct. 1992 - net amount paid: $129,227; amount waived:
$60,229.
Tax Exempt Bond: Aug. 1993 - net amount paid: $1,035,734; amount
waived: $0.
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Equity: May 1993 - net amount paid: $485,214; amount waived:
$51,158.
Capital Appreciation: May 1993 - net amount paid: $434,662;
amount waived: $29,585.
International Equity: May 1993 - net amount paid: $359,813;
amount waived: $27,018.
International Equity: May 1992 - net amount paid: $95,439; amount
waived: $82,266.
Below are set forth for each Fund listed the advisory fees paid by its
corresponding Portfolio to Morgan following the Fund's reorganization or
commencement of operations and its corresponding Portfolio's commencement of
operations. See "Expenses" in the Prospectus and below for applicable expense
limitations.
THE MONEY MARKET PORTFOLIO (Money Market Fund) -- For the period July 12, 1993
(commencement of operations) through November 30, 1993: $1,370,552. For the
fiscal year ended November 30, 1994:
$3,423,576.
THE TAX EXEMPT MONEY MARKET PORTFOLIO (Tax Exempt Money Market
Fund) -- For the period July 12, 1993 (commencement of
operations) through August 31, 1993: $271,454. For the fiscal
year ended August 31, 1994: $2,021,476. For the fiscal year
ended August 31, 1995: $2,150,291.
THE TREASURY MONEY MARKET PORTFOLIO (Treasury Money Market Fund)
- -- For the period January 4, 1993 (commencement of operations)
through October 31, 1993: $93,370. For the fiscal year ended
October 31, 1994: $339,521.
THE SHORT TERM BOND PORTFOLIO (Short Term Bond Fund) -- For the period July 8,
1993 (commencement of operations) through October 31, 1993: $10,427. For the
fiscal year ended October 31, 1994:
$113,379.
THE U.S. FIXED INCOME PORTFOLIO (Bond Fund) -- For the period July 12, 1993
(commencement of operations) through October 31, 1993: $119,488. For the fiscal
year ended October 31, 1994:
$699,081.
THE TAX EXEMPT BOND PORTFOLIO (Tax Exempt Bond Fund) -- For the
period July 12, 1993 (commencement of operations) through August
31, 1993: $200,272. For the fiscal year ended August 31, 1994:
$1,383,986. For the fiscal year ended August 31, 1995:
$1,178,720.
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THE NEW YORK TOTAL RETURN BOND PORTFOLIO (New York Total Return Bond Fund) --
For the period April 11, 1994 (commencement of operations) through March 31,
1995: $120,281.
THE SELECTED U.S. EQUITY PORTFOLIO (Equity Fund) -- For the
period July 19, 1993 (commencement of operations) through May 31,
1994: $1,263,048. For the fiscal year ended May 31, 1995:
$2,025,936.
THE U.S. SMALL COMPANY PORTFOLIO (Capital Appreciation Fund) --
For the period July 19, 1993 (commencement of operations) through
May 31, 1994: $2,912,670. For the fiscal year ended May 31,
1995: $3,514,331.
THE NON-U.S. EQUITY PORTFOLIO (International Equity Fund) -- For
the period October 4, 1993 (commencement of operations) through
October 31, 1993: $78,550. For the fiscal year ended October
31, 1994: $1,911,202.
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.
THE DIVERSIFIED PORTFOLIO (Diversified Fund) -- For the period December 15, 1993
(commencement of operations) through June 30, 1994: $197,026. For the fiscal
year ended June 30, 1995:
$663,000.
The Investment Advisory Agreements provide that they will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Administrator and Distributor" below. Each of the Investment Advisory
Agreements will terminate automatically if assigned and is terminable at any
time without penalty by a vote of a majority of the Portfolio's Trustees, or by
a vote of the holders of a majority of the Portfolio's outstanding voting
securities, on 60 days' written notice to the Advisor and by the Advisor on 90
days' written notice to the Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks such as Morgan from engaging in the business of underwriting or
distributing securities, and the Board of Governors of the Federal Reserve
System has issued an interpretation to the effect that under these laws a bank
holding company registered under the federal Bank Holding Company Act or certain
subsidiaries thereof may not sponsor, organize, or control a registered open-end
investment company continuously engaged in the issuance of its shares, such as
the Trust. The interpretation does not prohibit a holding company or a
subsidiary thereof from acting as investment advisor and custodian to such an
investment company. Morgan believes that it may perform the services for the
Portfolios contemplated by the
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Advisory Agreements without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. State laws on this issue may differ from
the interpretation of relevant federal law, and banks and financial institutions
may be required to register as dealers pursuant to state securities laws.
However, it is possible that future changes in either federal or state statutes
and regulations concerning the permissible activities of banks or trust
companies, as well as further judicial or administrative decisions and
interpretations of present and future statutes and regulations, might prevent
Morgan from continuing to perform such services for the Portfolios.
If Morgan were prohibited from acting as investment advisor to any
Portfolio, it is expected that the Trustees of the Portfolio would recommend to
investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Under separate agreements, Morgan also receives compensation for
providing financial, fund accounting and administrative services to the Trust
and each Portfolio and shareholder services to shareholders of the Funds. See
"Service Agent" and "Shareholder Servicing" below.
ADMINISTRATOR AND DISTRIBUTOR
SBDS serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for each Fund's shares. In that capacity,
SBDS has been granted the right, as agent of the Trust, to solicit and accept
orders for the purchase of each Fund's shares in accordance with the terms of
the Distribution Agreement between the Trust and SBDS. The Distribution
Agreement shall continue in effect with respect to each Fund for a period of two
years after execution only if it is approved at least annually thereafter (i) by
a vote of the holders of a majority of the Fund's outstanding shares or by its
Trustees and (ii) by a vote of a majority of the Trustees of the Trust who are
not "interested persons" (as defined by the 1940 Act) of the parties to the
Distribution Agreement, cast in person at a meeting called for the purpose of
voting on such approval (see "Trustees and Officers"). The Distribution
Agreement will terminate automatically if assigned by either party thereto and
is terminable at any time without penalty by a vote of a majority of the
Trustees of the Trust, a vote of a majority of the Trustees who are not
"interested persons" of the Trust, or by a vote of the holders of a majority of
the Fund's outstanding shares as defined under "Additional Information", in any
case without payment of any penalty on not more than 60 days' nor less than 30
days' written notice to the other party. The principal offices of SBDS are
located at 6 St. James Avenue, Boston, Massachusetts 02116.
SBDS also serves as the Trust's and the Portfolios'
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Administrator and in that capacity administers and manages all aspects of the
Funds' and the Portfolios' day-to-day operations subject to the supervision of
the Trustees, except as set forth under Investment Advisor, Services Agent,
Custodian, and Shareholder Services. In connection with its responsibilities as
Administrator, SBDS (i) furnishes ordinary clerical and related services for
day-to-day operations including certain record keeping responsibilities; (ii)
takes responsibility for compliance with all applicable federal and state
securities and other regulatory requirements including, without limitation,
preparing and mailing and filing (but not paying for) registration statements,
prospectuses, statements of additional information, and proxy statements and all
required reports to the Trust's shareholders, the SEC, the Secretary of The
Commonwealth of Massachusetts, and state securities commissions ; (iii) is
responsible for the registration of sufficient Fund shares under federal and
state securities laws; (iv) takes responsibility for monitoring each Fund's
status as a regulated investment company under the Code; and (v) performs such
administrative and managerial oversight of the activities of the Trust's and the
Portfolios' custodian and transfer agent as the Trustees may direct from time to
time.
Under the Trust's and the Portfolios' Administration Agreements, each
Fund and its corresponding Portfolio has agreed to pay SBDS a fee equal to its
proportionate share of an annual complex-wide charge. This charge is calculated
daily based on the aggregate net assets of the Portfolios and the other
portfolios (collectively the "Master Portfolios") in which series of the Trust,
The JPM Institutional Fund or The JPM Advisor Funds invest. This charge is
calculated in accordance with the following annual schedule: 0.03% of the first
$7 billion of the Master Portfolios' aggregate average daily net assets, and
0.01% of the Master Portfolios' average daily net assets in excess of $7
billion. The portion of this charge payable by a Fund or its corresponding
Portfolio is determined by the proportionate share that its net assets bear to
the total net assets of the Trust, The JPM Institutional Funds,
The JPM Advisor Funds
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and the Master Portfolios.
Below are set forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to the Administrator for the fiscal
periods indicated following each Fund's reorganization or commencement of
operations and its corresponding Portfolio's commencement of operations. See
"Expenses" in the Prospectus and below for applicable expense limitations.
THE MONEY MARKET PORTFOLIO -- For the period July 12, 1993 (commencement of
operations) through November 30, 1993: $32,869.
For the fiscal year ended November 30, 1994: $165,519.
MONEY MARKET FUND -- For the period July 12, 1993 (commencement
of operations)
through November 30, 1993: $341,591. For the fiscal year ended
November 30, 1994: $631,683.
THE TAX EXEMPT MONEY MARKET PORTFOLIO -- For the period July 12,
1993 (commencement of operations) through August 31, 1993: $0.
For the fiscal year ended August 31, 1994: $62,565. For the
fiscal year ended August 31, 1995: $72,729.
TAX EXEMPT MONEY MARKET FUND -- For the period July 12, 1993
(commencement of operations) through August 31, 1993: $51,665.
For the fiscal year ended August 31, 1994: $306,768. For the
fiscal year ended August 31, 1995: $290,271.
THE TREASURY MONEY MARKET PORTFOLIO -- For the period January 4,
1993 (commencement of operations) through October 31, 1993:
$677. For the fiscal year ended October 31, 1994: $11,777.
TREASURY MONEY MARKET FUND -- For the period January 4, 1993
(commencement of operations) through October 31, 1993: $17,014.
For the fiscal year ended October 31, 1994: $32,587.
THE SHORT TERM BOND PORTFOLIO -- For the period July 8, 1993
(commencement of operations) through October 31, 1993: $210.
For the fiscal year ended October 31, 1994: $3,149.
SHORT TERM BOND FUND -- For the period July 8, 1993 (commencement
of operations) through October 31, 1993: $272. For the fiscal
year ended October 31, 1994: $1,839.
THE U.S. FIXED INCOME PORTFOLIO -- For the period July 12, 1993
(commencement of operations) through October 31, 1993: $950.
For the fiscal year ended October 31, 1994: $16,107.
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<PAGE>
BOND FUND -- For the period July 12, 1993 (commencement of
operations) through October 31, 1993: $10,804. For the fiscal
year ended October 31, 1994: $30,915.
THE TAX EXEMPT BOND PORTFOLIO -- For the period July 12, 1993
(commencement of operations) through August 31, 1993: $0. For
the fiscal year ended August 31, 1994: $28,345. For the fiscal
year ended August 31, 1995: $28,290.
TAX EXEMPT BOND FUND -- For the period July 12, 1993
(commencement of operations) through August 31, 1993: $25,780.
For the fiscal year ended August 31, 1994: $137,890. For the
fiscal year ended August 31, 1995: $97,520.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO -- For the period April 11, 1994
(commencement of operations) through March 31, 1995:
$2,563.
NEW YORK TOTAL RETURN BOND FUND -- For the period April 11, 1994 (commencement
of operations) through March 31, 1995: $7,716.
THE SELECTED U.S. EQUITY PORTFOLIO -- For the period July 19,
1993 (commencement of operations) through May 31, 1994: $19,348.
For the fiscal year ended May 31, 1995: $32,670.
EQUITY FUND -- For the period July 19, 1993 (commencement of
operations)
through May 31, 1994: $78,201. For the fiscal year ended May
31, 1995: $61,903.
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.
CAPITAL APPRECIATION FUND -- For the period July 19, 1993
(commencement of operations) through May 31, 1994: $75,401. For
the fiscal year ended May 31, 1995: $51,087.
THE NON-U.S. EQUITY PORTFOLIO -- For the period October 4, 1993
(commencement of operations) through October 31, 1993: $1,005.
For the fiscal year ended October 31, 1994: $22,024.
INTERNATIONAL EQUITY FUND -- For the period October 4, 1993
(commencement of operations) through October 31, 1993: $3,988.
For the fiscal year ended October 31, 1994: $55,782.
THE EMERGING MARKETS EQUITY PORTFOLIO -- For the period November 15, 1993
(commencement of operations) through October 31, 1994:
$30,828.
EMERGING MARKETS EQUITY FUND -- For the period November 15, 1993 (commencement
of operations) through October 31, 1994: $11,373.
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<PAGE>
THE DIVERSIFIED PORTFOLIO -- For the period December 15, 1993
(commencement of operations) through June 30, 1994: $2,423. For
the fiscal year ended June 30, 1995: $7,770.
DIVERSIFIED FUND -- For the period December 15, 1993
(commencement of operations) through June 30, 1994: $638. For
the fiscal year ended June 30, 1995: $3,660.
The Administration Agreements may be renewed or amended by the
respective Trustees without a shareholder vote. The Administration Agreements
are terminable at any time without penalty by a vote of a majority of the
Trustees of the Trust or the Portfolios, as applicable, on not more than 60
days' written notice nor less than 30 days' written notice to the other party.
The Administrator may subcontract for the performance of its obligations under
the Administration Agreements only if the Trustees approve such subcontract and
find the subcontracting party to be qualified to perform the obligations sought
to be subcontracted, provided, however, that unless the Trust or the Portfolios,
as applicable, expressly agrees in writing, the Administrator shall be fully
responsible for the acts and omissions of any subcontractor as it would for its
own acts or omissions.
SERVICES AGENT
The Trust, on behalf of each Fund, and the Portfolios have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
effective December , 1995, pursuant to which Morgan is responsible for certain
financial , fund accounting, and administrative services provided to each Fund
and its corresponding Portfolio. The services to be provided by Morgan as
Services Agent under the Services Agreements include, but are not limited to,
monitoring the fund and shareholder accounting activities of the Custodian,
assisting the Administrator in preparing tax returns, reviewing financial
reports, coordinating annual audits, assisting in the development of budgets,
overseeing preparation of tax information for Fund shareholders, monitoring the
fund accounting activities and daily partnership allocation, and providing other
related services.
Under the Services Agreements , each Fund and its corresponding
Portfolio has agreed to pay Morgan a fee equal to its proportionate share of an
annual complex-wide charge. This charge is calculated daily based on the
aggregate net assets of the Master Portfolios in which series of the Trust, The
JPM Institutional Funds, or The JPM Advisor Funds invest. This charge is
calculated in accordance with the following annual schedule: 0.06% of the first
$7 billion of the
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<PAGE>
Portfolios' aggregate average daily net assets, and 0.03% of the Portfolios'
average daily net assets in excess of $7 billion. The portion of this charge
payable by a Fund or its corresponding Portfolio is determined by the
proportionate share that its net assets bear to the total net assets of the
Trust, The JPM Institutional Funds, The JPM Advisor Funds, the Master
Portfolios, and other investors in the Master Portfolios for which Morgan
provides similar services. Under the Services Agreements, Morgan may delegate
one or more of its responsibilities to other entities, including SBDS, at
Morgan's expense. The Services Agreements may be terminated at any time, without
penalty, by the Trustees or Morgan, in each case on not more than 60 days' nor
less than 30 days' written notice to the other party.
Prior to September 1, 1995, the Trust, on behalf of each Fund, and each
Portfolio entered into Financial and Fund Accounting Services Agreements (the
"Prior Services Agreements").
Under the Prior Services Agreements, Morgan, in addition to performing the
activities described above as Services Agent, assumed the annual costs of
certain expenses incurred by each Fund and its corresponding Portfolio . Below
are set forth for each Fund listed and its corresponding Portfolio the fees paid
to Morgan, net of fee waivers and reimbursements, as Services Agent. See
"Expenses" in the Prospectus and below for applicable expense limitations.
THE MONEY MARKET PORTFOLIO -- For the period July 12, 1993 (commencement of
operations) through November 30, 1993: $193,980. For the fiscal year ended
November 30, 1994:
$385,012.
MONEY MARKET FUND -- For the period July 12, 1993 (commencement
of operations)
through November 30, 1993: $(86,373)*. For the fiscal year
ended November 30, 1994: $(92,422)*.
THE TAX EXEMPT MONEY MARKET PORTFOLIO -- For the period July 12,
1993 (commencement of operations) through August 31, 1993:
$(5,756)*. For the fiscal year ended August 31, 1994: $153,204.
For the fiscal year ended August 31, 1995: $169,754.
TAX EXEMPT MONEY MARKET FUND -- For the period July 12, 1993
(commencement of operations) through August 31, 1993:
$(24,092)*. For the fiscal year ended August 31, 1994:
$(98,653)*. For the fiscal year ended August 31, 1995:
$(30,971)*.
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<PAGE>
THE TREASURY MONEY MARKET PORTFOLIO -- For the period January 4, 1993
(commencement of operations) through October 31, 1993: $(30,702)*. For the
fiscal year ended October 31, 1994:
$(13,844)*.
TREASURY MONEY MARKET FUND -- For the period January 4, 1993 (commencement of
operations) through October 31, 1993: $(74,904)*. For the fiscal year ended
October 31, 1994:
$(98,377)*.
THE SHORT TERM BOND PORTFOLIO -- For the period July 8, 1993 (commencement of
operations) through October 31, 1993: $(39,290)*. For the fiscal year ended
October 31, 1994:
$(22,054)*.
SHORT TERM BOND FUND -- For the period July 8, 1993 (commencement
of operations) through October 31, 1993: $(22,474)*. For the
fiscal year ended October 31, 1994: $(75,727)*.
THE U.S. FIXED INCOME PORTFOLIO -- For the period July 12, 1993
(commencement of operations) through October 31, 1993: $7,691.
For the fiscal year ended October 31, 1994: $140,493.
BOND FUND -- For the period July 12, 1993 (commencement of
operations) through October 31, 1993: $(20,885)*. For the
fiscal year ended October 31, 1994: $(9,177)*.
THE TAX EXEMPT BOND PORTFOLIO -- For the period July 12, 1993 (commencement of
operations) through August 31, 1993: $(1,816)*.
For the fiscal year ended August 31, 1994: $210,795. For the
fiscal year ended August 31, 1995: $189,892.
TAX EXEMPT BOND FUND -- For the period July 12, 1993
(commencement of operations) through August 31, 1993: $13,305.
For the fiscal year ended August 31, 1994: $179,891. For the
fiscal year ended August 31, 1995: $168,215.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO -- For the period April 11, 1994
(commencement of operations) through March 31, 1995:
$(11,830)*.
THE NEW YORK TOTAL RETURN BOND FUND -- For the Period April 11, 1994
(commencement of operations) through March 31, 1995:
$(37,934)*.
THE SELECTED U.S. EQUITY PORTFOLIO -- For the period July 19,
1993 (commencement of operations) through May 31, 1994:
$155,348. For the fiscal year ended May 31, 1995: $236,537.
EQUITY FUND -- For the period July 19, 1993 (commencement of
operations)
through May 31, 1994: $113,959. For the fiscal year ended May
31, 1995: $126,738.
THE U.S. SMALL COMPANY PORTFOLIO -- For the period July 19, 1993
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<PAGE>
(commencement of operations) through May 31, 1994: $203,764.
For the fiscal year ended May 31, 1995: $241,373.
CAPITAL APPRECIATION FUND -- For the period July 19, 1993
(commencement of operations) through May 31, 1994: $72,970. For
the fiscal year ended May 31, 1995: $108,015.
THE NON-U.S. EQUITY PORTFOLIO -- For the period October 4, 1993
(commencement of operations) through October 31, 1993:
$(22,160)*. For the fiscal year ended October 31, 1994:
$327,569.
INTERNATIONAL EQUITY FUND -- For the period October 4, 1993 (commencement of
operations) through October 31, 1993: $(46,370)*. For the fiscal year ended
October 31, 1994:
$223,806.
THE EMERGING MARKETS EQUITY PORTFOLIO -- For the period November 15, 1993
(commencement of operations) through October 31, 1994:
$347,925.
EMERGING MARKETS EQUITY FUND -- For the period November 15, 1993 (commencement
of operations) through October 31, 1994:
$(37,902)*.
THE DIVERSIFIED PORTFOLIO -- For the period December 15, 1993
(commencement of operations) through June 30, 1994: $(17,807)*.
For the fiscal year ended June 30, 1995: $63,153.
DIVERSIFIED FUND -- For the period December 15, 1993 (commencement of
operations) through June 30, 1994: $(66,127)*.
- ------------------------------------
(*) Indicates a reimbursement by Morgan for expenses in excess of its fees under
the Prior Services Agreements. No fees were paid for the fiscal period.
CUSTODIAN
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02101, serves as the Trust's and each of the
Portfolio's Custodian and Transfer and Dividend Disbursing Agent. Pursuant to
the Custodian Contract with each of the Portfolios, it is responsible for
maintaining the books and records of portfolio transactions and holding
portfolio securities and cash. In addition, the Custodian has entered into
subcustodian agreements on behalf of the Portfolios for the Tax Exempt Money
Market, Tax Exempt Bond and New York Total Return Bond Funds with Bankers Trust
Company for the 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
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<PAGE>
portfolio transaction records. As Transfer Agent and Dividend Disbursing Agent,
State Street is responsible for maintaining account records detailing the
ownership of Fund shares and for crediting income, capital gains and other
changes in share ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of each of the Funds has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of an Eligible Institution. Under this agreement, Morgan is responsible for
performing shareholder account administrative and servicing functions, which
includes but is not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to a Fund; assisting customers in
designating and changing dividend options, account designations and addresses;
providing necessary personnel and facilities to coordinate the establishment and
maintenance of shareholder accounts and records with the Funds' transfer agent;
transmitting purchase and redemption orders to the Funds' transfer agent and
arranging for the wiring or other transfer of funds to and from customer
accounts in connection with orders to purchase or redeem Fund shares; verifying
purchase and redemption orders, transfers among and changes in accounts;
informing the Distributor of the gross amount of purchase orders for Fund
shares; and providing other related services.
Under the Shareholder Servicing Agreement, each Fund has agreed to pay
Morgan for these services a fee at the following annual rates (expressed as a
percentage of the average daily net asset values of Fund shares owned by or for
shareholders for whom Morgan is acting as shareholder servicing agent): Money
Market , Treasury Money Market and Tax Exempt Money Market Funds, 0.15% of
average daily net assets up to $2 billion and 0.10% of such assets thereafter;
Short Term Bond, Bond, Tax Exempt Bond and New York Total Return Bond Funds,
0.20% of average daily net assets; Equity, Capital Appreciation, International
Equity, Emerging Markets Equity and Diversified Funds, 0.25% of average daily
net assets. Morgan acts as shareholder servicing agent for all shareholders.
Below are set forth for each Fund listed the shareholder servicing fees
paid by each Fund to Morgan, net of fee waivers and reimbursements, for the
fiscal periods indicated following each Fund's reorganization or commencement of
operations. See "Expenses" in the Prospectus and below for applicable expense
limitations.
MONEY MARKET FUND -- For the period July 12, 1993 (commencement
of operations)
through November 30, 1993: $1,628,914. For the fiscal year
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<PAGE>
ended November 30, 1994: $3,701,260.
TAX EXEMPT MONEY MARKET FUND -- For the period July 12, 1993
(commencement of operations) through August 31, 1993: $278,665.
For the fiscal year ended August 31, 1994: $2,121,421. For the
fiscal year ended August 31, 1995: $2,227,944.
TREASURY MONEY MARKET FUND -- For the period January 4, 1993
(commencement of operations) through October 31, 1993: $71,617.
For the fiscal year ended October 31, 1994: $200,453.
SHORT TERM BOND FUND -- For the period July 8, 1993 (commencement
of operations) through October 31, 1993: $1,437. For the fiscal
year ended October 31, 1994: $11,275.
BOND FUND -- For the period July 12, 1993 (commencement of
operations) through October 31, 1993: $53,352. For the fiscal
year ended October 31, 1994: $189,959.
TAX EXEMPT BOND FUND -- For the period July 12, 1993
(commencement of operations) through August 31, 1993: $119,828.
For the fiscal year ended August 31, 1994: $816,408. For the
fiscal year ended August 31, 1995: $635,645.
NEW YORK TOTAL RETURN BOND FUND -- For the period April 11, 1994 (commencement
of operations) through March 31, 1995: $49,958.
EQUITY FUND -- For the period July 19, 1993 (commencement of
operations)
through May 31, 1994: $506,629. For the fiscal year ended May
31, 1995: $598,644.
CAPITAL APPRECIATION FUND -- For the period July 19, 1993
(commencement of operations) through May 31, 1994: $491,556.
For the fiscal year ended May 31, 1995: $456,271.
INTERNATIONAL EQUITY FUND -- For the period October 4, 1993
(commencement of operations) through October 31, 1993: $32,604.
For the fiscal year ended October 31, 1994: $476,339.
EMERGING MARKETS EQUITY FUND -- For the period November 15, 1993 (commencement
of operations) through October 31, 1994: $92,084.
DIVERSIFIED FUND -- For the period December 15, 1993
(commencement of operations) through June 30, 1994: $5,411. For
the fiscal year ended June 30, 1995: $36,552.
As discussed under "Investment Advisor", the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and providing financial and accounting services to the Funds and the Portfolios
under the Financial and
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Fund Accounting Services Agreements and in acting as Advisor to the Portfolios
under the Investment Advisory Agreements, may raise issues under these laws.
However, Morgan believes that it may properly perform these services and the
other activities described in the Prospectus without violation of the
Glass-Steagall Act or other applicable banking laws or regulations.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing and Financial and Fund Accounting Services Agreements, the
Trustees would seek an alternative provider of such services. In such event,
changes in the operation of the Funds or the Portfolios might occur and a
shareholder might no longer be able to avail himself or herself of any services
then being provided to shareholders by Morgan.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolios are Price
Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036. Price
Waterhouse LLP conducts an annual audit of the financial statements of each of
the Funds and the Portfolios, assists in the preparation and/or review of each
of the Fund's and the Portfolio's federal and state income tax returns and
consults with the Funds and the Portfolios as to matters of accounting and
federal and state income taxation. The independent auditors of the predecessors
of the Money Market, Tax Exempt Money Market, Bond, Tax Exempt Bond, Equity,
Capital Appreciation and International Equity Funds were Ernst & Young LLP, 787
7th Avenue, New York, New York 10019.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., Morgan and
SBDS under various agreements discussed under Trustees and Officers, Investment
Advisor, Administrator and Distributor, Services Agent and Shareholder Servicing
above, the Fund and the Portfolio are responsible for usual and customary
expenses associated with their respective operations. Such expenses include
organization expenses, legal fees, accounting expenses, insurance costs, the
compensation and expenses of the Trustees, registration fees under federal
securities laws, and extraordinary expenses applicable to the Fund or the
Portfolio. For the Fund, such expenses also include transfer, registrar and
dividend disbursing costs, the expenses of printing and mailing reports, notices
and proxy statements to Fund shareholders, and registration fees under state
securities laws. For the Portfolio, such expenses also include applicable
registration fees under foreign securities laws, custodian fees and brokerage
expenses. Under fee arrangements prior to September 1, 1995 , Morgan as Services
Agent was responsible for reimbursements to the Trust and the Portfolio for
SBDS's fees as Administrator and the usual and customary expenses described
above (excluding organization
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and extraordinary expenses, custodian fees and brokerage
expenses).
Morgan has agreed that if in any fiscal year the sum of any Fund's
expenses exceeds the limits set by applicable regulations of state securities
commissions, the fees payable by the Fund to Morgan for that year shall be
reduced as specified by agreement with the Trust on behalf of the Fund.
Currently, Morgan believes that the most restrictive expense limitation of state
securities commissions limits expenses to 2.5% of the first $30 million of
average net assets, 2% of the next $70 million of such net assets and 1.5% of
such net assets in excess of $100 million for any fiscal year. For additional
information regarding waivers or expense subsidies, see "Management of the Trust
and the Portfolio(s)" in the Prospectus.
The Administrator paid the organization expenses and expenses incurred
in the initial offering of shares of the Trust.
PURCHASE OF SHARES
Investors may open Fund accounts and purchase shares as described in
the Prospectus under "Purchase of Shares." References in the Prospectus and this
Statement of Additional Information to customers of Morgan or an Eligible
Institution include customers of their affiliates and references to transactions
by customers with Morgan or an Eligible Institution include transactions with
their affiliates. Only Fund investors who are using the services of a financial
institution acting as shareholder servicing agent pursuant to an agreement with
the Trust on behalf of a Fund may make transactions in shares of a Fund.
Each Fund may, at its own option, accept securities in payment for
shares. The securities delivered in are valued by the method described in Net
Asset Value as of the day the Fund receives the securities. This is a taxable
transaction to the shareholder. Securities may be accepted in payment for shares
only if they are, in the judgment of Morgan, appropriate investments for the
Fund's corresponding Portfolio. In addition, securities accepted in payment for
shares must: (i) meet the investment objective and policies of the acquiring
Fund's corresponding Portfolio; (ii) be acquired by the applicable Fund for
investment and not for resale (other than for resale to the Fund's corresponding
Portfolio); (iii) be liquid securities which are not restricted as to transfer
either by law or liquidity of market; and (iv) if stock, have a value which is
readily ascertainable as evidenced by a listing on a stock exchange, over the
counter market or by readily available market quotations from a dealer in such
securities. Each Fund reserves the right to accept or reject at its own option
any and all securities offered in payment for its shares.
Prospective investors may purchase shares with the
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assistance of an Eligible Institution, and the Eligible Institution may charge
the investor a fee for this service and other services it provides to its
customers.
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus under
"Redemption of Shares." Shareholders redeeming shares of the Money Market, Tax
Exempt Money Market or Treasury Money Market Funds should be aware that these
Funds attempt to maintain a stable net asset value of $1.00 per share; however,
there can be no assurance that they will be able to continue to do so, and in
that case the net asset value of the Funds' shares might deviate from $1.00 per
share. Accordingly, a redemption request might result in payment of a dollar
amount which differs from the number of shares redeemed. See "Net Asset Value"
in the Prospectus and below.
If the Trust on behalf of a Fund and its corresponding Portfolio
determine that it would be detrimental to the best interest of the remaining
shareholders of a Fund to make payment wholly or partly in cash, payment of the
redemption price may be made in whole or in part by a distribution in kind of
securities from the Portfolio, in lieu of cash, in conformity with the
applicable rule of the SEC. If shares are redeemed in kind, the redeeming
shareholder might incur transaction costs in converting the assets into cash.
The method of valuing portfolio securities is described under "Net Asset Value,"
and such valuation will be made as of the same time the redemption price is
determined. The Trust on behalf of all of the Funds and their corresponding
Portfolios 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.
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EXCHANGE OF SHARES
An investor may exchange shares from any Pierpont Fund into any other
Pierpont Fund or JPM Institutional Fund, as described under "Exchange of Shares"
in the Prospectus. For complete information, the Prospectus as it relates to the
Fund into which a transfer is being made should be read prior to the transfer.
Requests for exchange are made in the same manner as requests for redemptions.
See "Redemption of Shares." Shares of the Fund to be acquired are purchased for
settlement when the proceeds from redemption become available. In the case of
investors in certain states, state securities laws may restrict the availability
of the exchange privilege. The Trust reserves the right to discontinue, alter or
limit the exchange privilege at any time.
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares and pays dividends and distributions as described
under "Dividends and Distributions" in the Prospectus.
Net investment income of the Money Market, Tax Exempt Money
Market and Treasury Money Market Funds consists of accrued
interest or discount and amortized premium, less the accrued
expenses of the Fund applicable to that dividend period including
the fees payable to Morgan. See "Net Asset Value."
Determination of the net income for Money Market, Tax Exempt Money
Market, Treasury Money Market, Short Term Bond, Bond, Tax Exempt Bond 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 a day in which no orders to purchase or
redeem Fund shares have been received or on the day the following legal holidays
are observed:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day.
On days when U.S. trading markets close early in observance of these holidays,
the Funds and the Portfolios would expect to close for purchases and redemptions
at the same time. The days on which net asset value is determined are the Funds'
business days.
The net asset value of each Fund is equal to the value of the Fund's
investment in its corresponding Portfolio (which is equal to the Fund's pro rata
share of the total investment of the Fund and of any other investors in the
Portfolio less the Fund's pro rata share of the Portfolio's liabilities) less
the Fund's
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liabilities. The following is a discussion of the procedures
used by the Portfolios corresponding to each Fund in valuing
their assets.
MONEY MARKET, TAX EXEMPT MONEY MARKET AND TREASURY MONEY MARKET FUNDS.
In the case of the Portfolios for the Money Market, Tax Exempt Money Market and
Treasury Money Market Funds, all portfolio securities are valued by the
amortized cost method.
The purpose of this method of calculation is to attempt to maintain a constant
net asset value per share of the Fund of $1.00. No assurances can be given that
this goal can be attained. The amortized cost method of valuation values a
security at its cost at the time of purchase and thereafter assumes a constant
amortization to maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instrument. If a
difference of more than 1/2 of 1% occurs between valuation based on the
amortized cost method and valuation based on market value, the Trustees will
take steps necessary to reduce such deviation, such as changing the Fund's
dividend policy, shortening the average portfolio maturity, realizing gains or
losses, or reducing the number of outstanding Fund shares. Any reduction of
outstanding shares will be effected by having each shareholder contribute to a
Fund's capital the necessary shares on a PRO RATA basis. Each shareholder will
be deemed to have agreed to such contribution in these circumstances by his
investment in the Funds. See "Taxes."
BOND, TAX EXEMPT BOND, NEW YORK TOTAL RETURN BOND, SHORT TERM BOND AND
DIVERSIFIED FUNDS. In the case of the Bond, Tax Exempt Bond, New York Total
Return Bond and Short Term Bond Funds, and the fixed income portion of the
Diversified Fund, portfolio securities with a maturity of 60 days or more,
including securities that are listed on an exchange or traded over the counter,
are valued using prices supplied daily by an independent pricing service or
services that (i) are based on the last sale price on a national securities
exchange or, in the absence of recorded sales, at the readily available closing
bid price on such exchange or at the quoted bid price in the over-the-counter
market, if such exchange or market constitutes the broadest and most
representative market for the security and (ii) in other cases, take into
account various factors affecting market value, including yields and prices of
comparable securities, indication as to value from dealers and general market
conditions. If such prices are not supplied by the Portfolio's independent
pricing service, such securities are priced in accordance with procedures
adopted by the Trustees. All portfolio securities with a remaining maturity of
less than 60 days are valued by the amortized cost method Securities listed on a
foreign exchange are valued at the last quoted sale price available before the
time when net assets are valued. Because of the large number of municipal bond
issues outstanding and the varying maturity dates, coupons and risk factors
applicable to each issuer's books, no readily available market quotations exist
for most municipal securities.
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Trading in securities in most foreign markets is normally completed
before trading in U.S. markets and may also take place on days on which the U.S.
markets are closed. If events materially affecting the value of securities occur
between the time when the market in which they are traded closes and the time
when a Portfolio's net asset value is calculated, such securities will be valued
at fair value in accordance with procedures established by and under the general
supervision of the Trustees.
EQUITY, CAPITAL APPRECIATION, INTERNATIONAL EQUITY, EMERGING MARKETS
EQUITY AND DIVERSIFIED FUNDS. In the case of the Equity Portfolios, the value of
investments listed on a domestic securities exchange, other than options on
stock indexes, is based on the last sale prices on the New York Stock Exchange
at 4:00 P.M. or, in the absence of recorded sales, at the average of readily
available closing bid and asked prices on such exchange. Securities listed on a
foreign exchange are valued at the last quoted sale price available before the
time when net assets are valued. Unlisted securities are valued at the average
of the quoted bid and asked prices in the over-the-counter market. The value of
each security for which readily available market quotations exist is based on a
decision as to the broadest and most representative market for such security.
For purposes of calculating net asset value all assets and liabilities initially
expressed in foreign currencies will be converted into U.S. dollars at the
prevailing market rates available at the time of valuation.
Options on stock indexes traded on national securities exchanges are
valued at the close of options trading on such exchanges which is currently 4:10
P.M., New York time. Stock index futures and related options, which are traded
on commodities exchanges, are valued at their last sales price as of the close
of such commodities exchanges which is currently 4:15 P.M., New York time.
Securities or other assets for which market quotations are not readily available
are valued at fair value in accordance with procedures established by and under
the general supervision and responsibility of the Trustees. Such procedures
include the use of independent pricing services which use prices based upon
yields or prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. Short-term
investments which mature in 60 days or less are valued at amortized cost if
their original maturity was 60 days or less, or by amortizing their value on the
61st day prior to maturity, if their original maturity when acquired by the
Portfolio was more than 60 days, unless this is determined not to represent fair
value by the Trustees.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the New York Stock Exchange
and may also take place on days on which the New York Stock Exchange is closed.
If events
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materially affecting the value of securities occur between the time when the
exchange on which they are traded closes and the time when a Portfolio's net
asset value is calculated, such securities will be valued at fair value in
accordance with procedures established by and under the general supervision of
the Trustees.
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of yield,
actual distributions, total return or capital appreciation in reports, sales
literature and advertisements published by the Trust. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See "Additional
Information" in the Prospectus.
YIELD QUOTATIONS. As required by regulations of the SEC, current yield
for the Money Market, Tax Exempt Money Market and Treasury Money Market Funds is
computed by determining the net change exclusive of capital changes in the value
of a hypothetical pre-existing account having a balance of one share at the
beginning of a seven-day calendar period, dividing the net change in account
value of the account at the beginning of the period, and multiplying the return
over the seven-day period by 365/7. For purposes of the calculation, net change
in account value reflects the value of additional shares purchased with
dividends from the original share and dividends declared on both the original
share and any such additional shares, but does not reflect realized gains or
losses or unrealized appreciation or depreciation. Effective yield for the Money
Market, Tax Exempt Money Market and Treasury Money Market Funds is computed by
annualizing the seven-day return with all dividends reinvested in additional
Fund shares. In the case of the Tax Exempt Money Market Fund, the tax equivalent
yield is computed by first computing the yield as discussed above. Then the
portion of the yield attributable to securities the income of which was exempt
for federal income tax purposes is determined. This portion of the yield is then
divided by one minus the stated assumed federal income tax rate for individuals
and then added to the portion of the yield that is not attributable to
securities, the income of which was not tax exempt.
As required by regulations of the SEC, the annualized yield for the
Bond, Tax Exempt Bond, 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
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bond-equivalent basis assuming semi-annual reinvestment and compounding of net
investment income, as described under "Additional Information" in the
Prospectus.
Historical performance for periods prior to the establishment of the
Money Market, Tax Exempt Money Market, Bond, and Tax Exempt Bond Funds will be
that of the respective predecessor free-standing fund and will be presented in
accordance with applicable SEC staff interpretations.
Below is set forth historical yield information for the Funds or their
predecessors for the periods indicated:
MONEY MARKET FUND (5/31/95): 7-day current yield: 5.72%; 7-day
effective yield: 5.88%.
TAX EXEMPT MONEY MARKET FUND (8/31/95): 7-day current
yield: 3.28%; 7-day tax equivalent yield at 39% tax
rate: 5.38%; 7-day effective yield: 3.33%.
TREASURY MONEY MARKET FUND (4/30/95): 7-day current yield: 5.67%;
7-day effective yield: 5.83%.
SHORT TERM BOND FUND (4/30/95): 30-day yield: 5.93%.
BOND FUND (4/30/95): 30-day yield: 6.87%.
TAX EXEMPT BOND FUND (8/31/95): 30-day yield:
4.63%; 30-day tax equivalent yield at 39% tax rate: 7.59%.
NEW YORK TOTAL RETURN BOND FUND (9/30/95): 30-day yield:
4.72%; 30-day tax equivalent yield at 39% tax rate:
7.74%.
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, Equity, Capital Appreciation, International Equity,
Emerging Markets Equity and Diversified Funds for a period is computed by
assuming a hypothetical initial payment of $1,000. It is then assumed that all
of the dividends and distributions by the Fund over the period are reinvested.
It is then assumed that at the end of the period, the entire amount is redeemed.
The annualized total return is then calculated by determining the annual rate
required for the initial payment to grow to the amount which would have been
received upon redemption.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
Historical performance information for periods prior to the
establishment of the Bond, Tax Exempt Bond, Equity, Capital Appreciation and
International Equity Funds will be that of the respective predecessor
free-standing fund and will be presented in accordance with applicable SEC staff
interpretations.
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Below is set forth historical return information for the Funds or their
predecessors for the periods indicated:
MONEY MARKET FUND (5/31/95): Average annual total return, 1 year:
5.05%; average annual total return, 5 years: 4.71%; average
annual total return, 10 years: 6.08%; aggregate total return, 1
year: 5.05%; aggregate total return, 5 years: 25.88%; aggregate
total return, 10 years: 80.44%.
TAX EXEMPT MONEY MARKET FUND (8/31/95): Average annual
total return, 1 year: 3.41%; Average annual total return, 5
years: 3.12%; average annual total return, 10 years:
4.07%; aggregate total return, 1 year: 3.41%; aggregate
total return, 5 years: 16.63%; aggregate total return, 10
years: 48.96%.
TREASURY MONEY MARKET FUND (4/30/95): Average annual total
return, 1 year: 4.71%; average annual total return, 5 years: N/A;
average annual total return, commencement of operations(*) to
period end: 3.55%; aggregate total return, 1 year: 4.71%;
aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 8.17%.
SHORT TERM BOND FUND (4/30/95): Average annual total return, 1
year: 5.33%; average annual total return, 5 years: N/A; average
annual total return, commencement of operations(*) to period end:
3.16%; aggregate total return, 1 year: 5.33%; aggregate total
return, 5 years: N/A; aggregate total return, commencement of
operations(*) to period end: 5.60%.
BOND FUND (4/30/95): Average annual total return, 1 year: 6.57%;
average annual total return, 5 years: 8.23%; average annual total
return, commencement of operations(*) to period end: 7.79%;
aggregate total return, 1 year: 6.51%; aggregate total return, 5
years: 48.50%; aggregate total return, commencement of
operations(*) to period end: 70.12%.
TAX EXEMPT BOND FUND (8/31/95): Average annual total
return, 1 year: 7.63%; average annual total return, 5
years: 7.75%; average annual total return, 10 years:
7.83%; aggregate total return, 1 year: 7.63%; aggregate
total return, 5 years: 45.21%; aggregate total return, 10
years: 112.59%.
NEW YORK TOTAL RETURN BOND FUND (9/30/95): Average annual total return, 1 year:
8.98%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 7.14%; aggregate total return, 1
year: 8.98%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 10.44%.
DIVERSIFIED FUND (6/30/95): Average annual total return, 1 year:
17.08%; average annual total return, 5 years: N/A; average annual
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total return, commencement of operations(*) to period end: 9.25%;
aggregate total return, 1 year: 17.08%; aggregate total return, 5
years: N/A; aggregate total return, commencement of operations(*)
to period end: 16.74%.
EQUITY FUND (5/31/95): Average annual total return, 1 year:
15.11%; average annual total return, 5 years: 12.58%; average
annual total return, commencement of operations (*) to period
end: 14.26%; aggregate total return, 1 year: 15.11%; aggregate
total return, 5 years: 80.84%; aggregate total return,
commencement of oeprations (*) to period end: 275.07%.
CAPITAL APPRECIATION FUND (5/31/95): Average annual total return,
1 year: 12.28%; average annual total return, 5 years: 9.25%;
average annual total return, commencement of operations (*) to
period end: 11.98%; aggregate total return, 1 year: 12.28%;
aggregate total return, 5 years: 55.63%; aggregate total return,
commencement of operations (*) to period end: 207.12%.
INTERNATIONAL EQUITY FUND (4/30/95): Average annual total return,
1 year: 0.32%; average annual total return, 5 years: N/A; average
annual total return, commencement of operations(*) to period end:
3.85%; aggregate total return, 1 year: 0.32%; aggregate total
return, 5 years: N/A; aggregate total return, commencement of
operations(*) to period end: 20.41%.
EMERGING MARKETS EQUITY FUND (4/30/95): Average annual total
return, 1 year: 9.73%; average annual total return, 5
years: N/A; average annual total return, commencement of
operations(*) to period end: 2.98%; aggregate total
return, 1 year: 9.73%; aggregate total return, 5 years:
N/A; aggregate total return, commencement of operations(*) to
period end: 4.20%.
- -------------------------------------
* The Treasury Money Market, Short Term Bond, Bond, New York Total Return Bond,
Diversified, Equity, Capital Appreciation, International Equity, and Emerging
Markets Equity Funds commenced operations on January 4, 1993, July 8, 1993,
March 11, 1988, April 11, 1994, December 15, 1993, June 27 1985, June 27, 1985,
June 1, 1990, and November 15, 1993, 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 data from Lipper
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Analytical Services, Inc., Micropal, Inc., Ibbotson Associates,
Morningstar Inc., the Dow Jones Industrial Average, any of the industry averages
or indices discussed under "Investment Advisor" above 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 Broad Brothers Investment Grade Bond Index, the Frank Russell 2000 and
2500 Indexes, and the EAFE Index. The quoted performance will illustrate what
results could have been achieved had the Fund invested specified percentages of
the Fund's assets in classes of securities that would have produced a return
equal to the relevant index over the time period at issue.
From time to time, the Funds may quote performance in terms of yield,
actual distributions, total return, or capital appreciation in reports, sales
literature, and advertisements published by the Funds. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See "Additional
Information" in the Prospectus.
PORTFOLIO TRANSACTIONS
J.P. Morgan Investment Management Inc., acting as agent for
Morgan, places orders for all Portfolios for all purchases and
sales of portfolio securities. Morgan enters into repurchase
agreements and reverse repurchase agreements and executes loans
of portfolio securities on behalf of all the Portfolios. See
"Investment Objectives and Policies."
Fixed income and debt securities and municipal bonds and notes are
generally traded at a net price with dealers acting as principal for their own
accounts without a stated commission. The price of the security usually includes
profit to the dealers.
In underwritten offerings, securities are purchased at a fixed price which
includes an amount of compensation to the underwriter, generally referred to as
the underwriter's concession or discount. On occasion, certain securities may be
purchased directly from an issuer, in which case no commissions or discounts are
paid.
MONEY MARKET, TAX EXEMPT MONEY MARKET, TREASURY MONEY MARKET, BOND,
SHORT TERM BOND, TAX EXEMPT BOND AND NEW YORK TOTAL RETURN BOND FUNDS. Portfolio
transactions for the Portfolios corresponding to the Money Market, Tax Exempt
Money Market, Treasury Money Market, Bond, Short Term Bond, Tax Exempt Bond and
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New York Total Return Bond Funds will be undertaken principally to accomplish a
Portfolio's objective in relation to expected movements in the general level of
interest rates. The Portfolios corresponding to the Money Market, Treasury Money
Market, Bond, Tax Exempt Bond, New York Total Return Bond and Short Term Bond
Funds may engage in short-term trading consistent with their objectives. The Tax
Exempt Money Market Portfolio will not seek profits through short-term trading,
but the Portfolio may dispose of any portfolio security prior to its maturity if
it believes such disposition is appropriate even if this action realizes profits
or losses.
In connection with portfolio transactions for the
Portfolios, J.P. Morgan Investment Management Inc. intends to
seek best price and execution on a competitive basis for both
purchases and sales of securities.
The Portfolios corresponding to the Money Market, Tax Exempt Money
Market and Treasury Money Market Funds have a policy of investing only in
securities with maturities of less than thirteen months, which policy will
result in high portfolio turnovers. The Portfolio corresponding to the Short
Term Bond Fund has a policy of maintaining a short duration, which policy will
also result in a high portfolio turnover. Since brokerage commissions are not
normally paid on investments which the Portfolios make, turnover resulting from
such investments should not adversely affect the net asset value or net income
of the Portfolios.
EQUITY, CAPITAL APPRECIATION, INTERNATIONAL EQUITY, EMERGING
MARKETS EQUITY AND DIVERSIFIED FUNDS. In connection with
portfolio transactions for the Equity Portfolios, the overriding
objective is to obtain the best possible execution of purchase
and sale orders.
In selecting a broker, J.P. Morgan Investment Management
Inc. considers a number of factors including: the price per unit
of the security; the broker's reliability for prompt, accurate
confirmations and on-time delivery of securities; the firm's
financial condition; as well as the commissions charged. A
broker may be paid a brokerage commission in excess of that which
another broker might have charged for effecting the same
transaction if, after considering the foregoing factors, J.P.
Morgan Investment Management Inc. decides that the broker chosen
will provide the best possible execution. J.P. Morgan Investment
Management Inc. and Morgan monitor the reasonableness of the
brokerage commissions paid in light of the execution received.
The Trustees of each Portfolio review regularly the
reasonableness of commissions and other transaction costs
incurred by the Portfolios in light of facts and circumstances
deemed relevant from time to time, and, in that connection, will
receive reports from the Advisor and published data concerning
transaction costs incurred by institutional investors generally.
Research services provided by brokers to which J.P. Morgan
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Investment Management Inc. has allocated brokerage business in the past include
economic statistics and forecasting services, industry and company analyses,
portfolio strategy services, quantitative data, and consulting services from
economists and political analysts. Research services furnished by brokers are
used for the benefit of all the Advisor's clients and not solely or necessarily
for the benefit of an individual Portfolio. The Advisor believes that the value
of research services received is not determinable and does not significantly
reduce its expenses. The Portfolios do not reduce their fee to the Advisor by
any amount that might be attributable to the value of such services.
The Portfolios or their predecessors corresponding to the Equity,
Capital Appreciation, International Equity, Emerging Markets Equity and
Diversified Funds paid the following approximate brokerage commissions for the
indicated fiscal years:
DIVERSIFIED FUND (June): 1995: $145,589; 1994: $78,737; 1993:
N/A.
EQUITY FUND (May): 1995: $1,179,132; 1994: $744,676; 1993:
$293,698.
CAPITAL APPRECIATION FUND (May): 1995: $1,217,016; 1994:
$1,760,320; 1993: $142,310.
INTERNATIONAL EQUITY FUND (October): 1994: $1,413,238; 1993:
$639,000; 1992: $157,000.
EMERGING MARKETS EQUITY FUND (October): 1994: $1,262,905; 1993:
N/A; 1992: N/A.
The increases in brokerage commissions reflected above were due to
increased portfolio activity and an increase in net investments by shareholders
in a Portfolio or its predecessor.
Subject to the overriding objective of obtaining the best possible
execution of orders, J.P. Morgan Investment Management Inc. may allocate a
portion of a Portfolio's brokerage transactions to affiliates of Morgan. In
order for affiliates of Morgan to effect any portfolio transactions for a
Portfolio, the commissions, fees or other remuneration received by such
affiliates must be reasonable and fair compared to the commissions, fees, or
other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. Furthermore, the
Trustees of each Portfolio, including a majority of the Trustees who are not
"interested persons," have adopted procedures which are reasonably designed to
provide that any commissions, fees, or other remuneration paid to such
affiliates are consistent with the foregoing standard.
Portfolio securities will not be purchased from or through
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or sold to or through the Portfolios' Administrator, Distributor or Advisor or
any "affiliated person" (as defined in the 1940 Act) of the Administrator,
Distributor or Advisor when such entities are acting as principals, except to
the extent permitted by law. In addition, the Portfolios will not purchase
securities during the existence of any underwriting group relating thereto of
which the Advisor or an affiliate of the Advisor is a member, except to the
extent permitted by law.
On those occasions when Morgan deems the purchase or sale of a security
to be in the best interests of a Portfolio as well as other customers including
other Portfolios, J.P. Morgan Investment Management Inc. to the extent permitted
by applicable laws and regulations, may, but is not obligated to, aggregate the
securities to be sold or purchased for a Portfolio with those to be sold or
purchased for other customers in order to obtain best execution, including lower
brokerage commissions if appropriate. In such event, allocation of the
securities so purchased or sold as well as any expenses incurred in the
transaction will be made by J.P. Morgan Investment Management Inc. in the manner
it considers to be most equitable and consistent with Morgan's fiduciary
obligations to a Portfolio. In some instances, this procedure might adversely
affect a Portfolio.
If a Portfolio that writes options effects a closing purchase
transaction with respect to an option written by it, normally such transaction
will be executed by the same broker-dealer who executed the sale of the option.
The writing of options by a Portfolio will be subject to limitations established
by each of the exchanges governing the maximum number of options in each class
which may be written by a single investor or group of investors acting in
concert, regardless of whether the options are written on the same or different
exchanges or are held or written in one or more accounts or through one or more
brokers. The number of options which a Portfolio may write may be affected by
options written by the Advisor for other investment advisory clients. An
exchange may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which each Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case
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for a corporation. However, the Trust's Declaration of Trust provides that the
shareholders shall not be subject to any personal liability for the acts or
obligations of any Fund and that every written agreement, obligation, instrument
or undertaking made on behalf of any Fund shall contain a provision to the
effect that the shareholders are not personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by the Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Funds.
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of a Fund is liable to a
Fund or to a shareholder, and that no Trustee, officer, employee, or agent is
liable to any third persons in connection with the affairs of a Fund, except as
such liability may arise from his or its own bad faith, willful misfeasance,
gross negligence or reckless disregard of his or its duties to such third
persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of a
Fund. With the exceptions stated, the Trust's Declaration of Trust provides that
a Trustee, officer, employee, or agent is entitled to be indemnified against all
liability in connection with the affairs of a Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which each Fund represents a separate series of
shares of beneficial interest.
See "Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide
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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 twelve series
described in this Statement of Additional Information have been authorized and
are available for sale to the public. Each share represents an equal
proportional interest in a Fund with each other share. Upon liquidation of a
Fund, holders are entitled to share pro rata in the net assets of a Fund
available for distribution to such shareholders. See "Massachusetts Trust."
Shares of a Fund have no preemptive or conversion rights and are fully paid and
nonassessable. The rights of redemption and exchange are described in the
Prospectus and elsewhere in this Statement of Additional Information.
The shareholders of the Trust are entitled to a full vote for each full
share held and to a fractional vote for each fractional share. Subject to the
1940 Act, the Trustees themselves have the power to alter the number and the
terms of office of the Trustees, to lengthen their own terms, or to make their
terms of unlimited duration subject to certain removal procedures, and appoint
their own successors, PROVIDED, HOWEVER, that immediately after such appointment
the requisite majority of the Trustees have been elected by the shareholders of
the Trust. The voting rights of shareholders are not cumulative so that holders
of more than 50% of the shares voting can, if they choose, elect all Trustees
being selected while the shareholders of the remaining shares would be unable to
elect any Trustees. It is the intention of the Trust not to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for action
by shareholder vote as may be required by either the 1940 Act or the Trust's
Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication
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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 twelve series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see
"Redemption of Shares" in the
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Prospectus.
As of December 4, 1995, the following owned of record or, to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of:
Short Term Bond Fund--Estate of A. Marek (6%), Barnett
Newman Foundation (5%), Waller
Trust B (7%), E.C. Chang (15%); Morgan as Agent for L. H.
Johnson IRA (21%);
Bond Fund--B. Spitzer (8%); Boston & Co. (7%);
New York Total Return Bond Fund-- J. Simon PAAS account
(6%), M. Barron (8%);
Diversified Fund--Wheels, Inc. 401K Retirement Savings Plan
(6%), Gantrade Corporation Retirement Plan (5%);
E.S. Gordon Company 401K (5%), New York Zoological
Society d/b/a Wildlife Conservation Society (7%), S.
Ginkel (5%).
Treasury Money Market--JP Morgan Delaware Agent for TR Co
Omnibus Acct (5%); and
Capital Appreciation--Forest Laboratories, Inc. (5%).
Unless otherwise noted, the address of each owner listed above is c/o
Morgan, 522 Fifth Avenue, New York, New York 10036. As of the date of this
Statement of Additional Information, the officers and Trustees as a group owned
less than 1% of the shares of each Fund.
TAXES
Each Fund qualifies and intends to remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, a Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities or
foreign currency and other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency; (b) derive less than
30% of its gross income from the sale or other disposition of stock, securities,
options, futures or forward contracts (other than options, futures or forward
contracts on foreign currencies) held less than three months, or foreign
currencies (or options, futures or forward contracts on foreign currencies), but
only if such currencies (or options, futures or forward contracts on foreign
currencies) are not directly related to a Fund's principal business of investing
in stocks or securities (or options and futures with respect to stocks or
securities); and (c) diversify its holdings so that, at
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the end of each fiscal quarter, (i) at least 50% of the value of the Fund's
total assets is represented by cash, U.S. Government securities,investments in
other regulated investment companies and other securities limited, in respect of
any one issuer, to an amount not greater than 5% of the Fund's total assets, and
10% of the outstanding voting securities of such issuer, and (ii) not more than
25% of the value of its total assets is invested in the securities of any one
issuer (other than U.S. Government securities). As a regulated investment
company, a Fund (as opposed to its shareholders) will not be subject to federal
income taxes on the net investment income and capital gains that it distributes
to its shareholders, provided that at least 90% of its net investment income and
realized net short-term capital gains in excess of net long-term capital losses
for the taxable year is distributed.
Under the Code, a Fund will be subject to a 4% excise tax on a portion
of its undistributed income if it fails to meet certain distribution
requirements by the end of the calendar year. Each Fund intends to make
distributions in a timely manner and accordingly does not expect to be subject
to the excise tax.
For federal income tax purposes, dividends that are declared by a Fund
in October, November or December as of a record date in such month and actually
paid in January of the following year will be treated as if they were paid on
December 31 of the year declared. Therefore, such dividends will generally be
taxable to a shareholder in the year declared rather than the year paid.
The Tax Exempt Money Market, Tax Exempt Bond and New York Total Return
Bond Funds intend to qualify to pay exempt-interest dividends to their
respective shareholders by having, at the close of each quarter of their
respective taxable years, at least 50% of the value of their respective total
assets consist of tax exempt securities. An exempt-interest dividend is that
part of dividend distributions made by the Funds which consists of interest
received by the Funds on tax exempt securities. Shareholders will not incur any
federal income tax on the amount of exempt-interest dividends received by them
from the Funds, other than the alternative minimum tax under certain
circumstances. In view of each Fund's investment policies, it is expected that a
substantial portion of all dividends will be exempt-interest dividends, although
the Funds may from time to time realize and distribute net short-term capital
gains and may invest limited amounts in taxable securities under certain
circumstances. See "Investment Objective(s) and Policies" in the Prospectus.
Distributions of net investment income and realized net short-term
capital gains in excess of net long-term capital losses (other than exempt
interest dividends) are generally taxable to shareholders of the Funds as
ordinary income whether such distributions are taken in cash or reinvested in
additional shares. The Equity, Capital Appreciation and Diversified Funds
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expect that a portion of these distributions to corporate shareholders will be
eligible for the dividends-received deduction. Distributions to corporate
shareholders of the Money Market, Tax Exempt Money Market, Treasury Money
Market, Tax Exempt Bond, New York Total Return Bond, Bond, Short Term Bond,
International Equity and Emerging Markets Equity Funds are not eligible for the
dividends received deduction. Distributions of net long-term capital gains
(i.e., net long-term capital gains in excess of net short-term capital losses)
are taxable to shareholders of a Fund as long-term capital gains, regardless of
whether such distributions are taken in cash or reinvested in additional shares
and regardless of how long a shareholder has held shares in the Fund. See
"Taxes" in the Prospectus for a discussion of the federal income tax treatment
of any gain or loss realized on the redemption or exchange of a Fund's shares.
Additionally, any loss realized on a redemption or exchange of shares of a Fund
will be disallowed to the extent the shares disposed of are replaced within a
period of 61 days beginning 30 days before such disposition, such as pursuant to
reinvestment of a dividend in shares of the Fund.
To maintain a constant $1.00 per share net asset value, the Trustees of
the Money Market, Tax Exempt Money Market and Treasury Money Market Funds may
direct that the number of outstanding shares be reduced pro rata. If this
adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses. The adjustment may result in a shareholder
having more dividend income than net income in his account for a period. When
the number of outstanding shares of a Fund is reduced, the shareholder's basis
in the shares of the Fund may be adjusted to reflect the difference between
taxable income and net dividends actually distributed. This difference may be
realized as a capital loss when the shares are liquidated.
See "Net Asset Value."
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, a put is acquired or a
call option is written thereon. Other gains or losses on the sale of securities
will be short-term capital gains or losses. Gains and losses on the sale, lapse
or other termination of options on securities will be treated as gains and
losses from the sale of securities. If an option written by a Portfolio lapses
or is terminated through a closing transaction, such as a repurchase by the
Portfolio of the option from its holder, the Portfolio will realize a short-term
capital gain or loss, depending on whether the premium income is greater or less
than the amount paid by the Portfolio in the closing transaction. If securities
are purchased by a Portfolio pursuant to the exercise of a put option written by
it, the Portfolio will subtract the premium received from its cost basis in the
securities purchased.
Under the Code, gains or losses attributable to disposition
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of foreign currency or to foreign currency contracts, or to fluctuations in
exchange rates between the time a Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time a
Portfolio actually collects such income or pays such liabilities, are treated as
ordinary income or ordinary loss. Similarly, gains or losses on the disposition
of debt securities held by a Portfolio, if any, denominated in foreign currency,
to the extent attributable to fluctuations in exchange rates between the
acquisition and disposition dates are also treated as ordinary income or loss.
Forward currency contracts, options and futures contracts entered into
by a Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by the
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities. Straddles may also result in the loss of the holding
period of underlying securities for purposes of the 30% of gross income test
described above, and therefore, a Portfolio's ability to enter into forward
currency contracts, options and futures contracts may be limited.
Certain options, futures and foreign currency contracts held by a
Portfolio at the end of each fiscal year will be required to be "marked to
market" for federal income tax purposes -- i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long the Portfolio has held such options
or futures. Any gain or loss recognized on foreign currency contracts will be
treated as ordinary income.
The Equity Portfolios may invest in Equity Securities of foreign
issuers. If a Portfolio purchases shares in certain foreign investment funds
(referred to as passive foreign investment companies ("PFICs") under the Code),
the Portfolio may be subject to federal income tax on a portion of an "excess
distribution" from such foreign investment fund or gain from the disposition of
such shares, even though such income may have to be distributed as a taxable
dividend by the Fund to its shareholders. In addition, certain interest charges
may be imposed on a Fund or its shareholders in respect of unpaid taxes arising
from such distributions or gains. Alternatively, a Fund may each year include in
its income and distribute to shareholders a pro rata portion of the foreign
investment fund's income, whether or not distributed to the Fund.
Pursuant to proposed regulations, open-end regulated investment
companies such as the Portfolios would be entitled to elect to mark to market
their stock in certain PFICs. Marking to market in this context means
recognizing as gain for each taxable year the excess, as of the end of that
year, of the fair market
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value of each PFIC's stock over the owner's adjusted basis in that stock
(including mark to market gains of a prior year for which an election was in
effect).
FOREIGN SHAREHOLDERS. Dividends of net investment income and
distributions of realized net short-term gains in excess of net long-term losses
to a shareholder who, as to the United States, is a nonresident alien
individual, fiduciary of a foreign trust or estate, foreign corporation or
foreign partnership (a "foreign shareholder") will be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate) unless the dividends
are effectively connected with a U.S. trade or business of the shareholder, in
which case the dividends will be subject to tax on a net income basis at the
graduated rates applicable to U.S. individuals or domestic corporations.
Distributions of net long term capital gains to foreign shareholders will not be
subject to U.S. tax unless the distributions are effectively connected with the
shareholder's trade or business in the United States or, in the case of a
shareholder who is a nonresident alien individual, the shareholder was present
in the United States for more than 182 days during the taxable year and certain
other conditions are met.
In the case of a foreign shareholder who is a nonresident alien
individual and who is not otherwise subject to withholding as described above, a
Fund may be required to withhold U.S. federal income tax at the rate of 31%
unless IRS Form W-8 is provided. See "Taxes" in the Prospectus. 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 Equity, Capital Appreciation,
International Equity, Emerging Markets Equity and Diversified Funds may be
subject to foreign withholding taxes with respect to income received from
sources within foreign countries. In the case of the International Equity and
Emerging Markets Equity Funds, so long as more than 50% in value of the total
assets of the Fund's corresponding Portfolio at the close of any taxable year
consists of stock or securities of foreign corporations, the Fund may elect to
treat any foreign income taxes paid by it as paid directly by its shareholders.
These Funds will make such an election only if they deem it to be in the best
interest of their respective shareholders. The Funds will notify their
respective shareholders in writing each year if they make the election and of
the amount of foreign income taxes, if any, to be treated as paid by the
shareholders. If a Fund makes the election, each shareholder will be required to
include in his income his proportionate share of the amount of foreign income
taxes paid by the Fund and will be entitled to claim either a credit (subject to
the limitations discussed below) or, if he itemizes deductions, a deduction for
his share of the
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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 Equity and Emerging Markets Equity Funds from
its foreign source net investment income will be treated as foreign source
income. Each of these Funds' gains and losses from the sale of securities will
generally be treated as derived from U.S. sources, however, and certain foreign
currency gains and losses likewise will be treated as derived from U.S. sources.
The limitation on the foreign tax credit is applied separately to foreign source
"passive income," such as the portion of dividends received from the Fund which
qualifies as foreign source income. In addition, the foreign tax credit is
allowed to offset only 90% of the alternative minimum tax imposed on
corporations and individuals. Because of these limitations, shareholders may be
unable to claim a credit for the full amount of their proportionate shares of
the foreign income taxes paid by the International Equity and Emerging Markets
Equity Funds.
STATE AND LOCAL TAXES. Each Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of a Fund and its shareholders in those states which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
OTHER TAXATION. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor any Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that the
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolios are organized as New York trusts. The Portfolios are
not subject to any federal income taxation or income or franchise tax in the
State of New York or The Commonwealth of Massachusetts. The investment by a Fund
in its corresponding Portfolio does not cause the Fund to be liable for any
income or franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the
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Prospectus, the term "majority of the outstanding voting securities" means the
vote of (i) 67% or more of the Fund's shares or the Portfolio's outstanding
voting securities present at a meeting, if the holders of more than 50% of the
Fund's outstanding shares are present or represented by proxy, or (ii) more than
50% of the Fund's outstanding shares or the Portfolio's outstanding voting
securities, whichever is less.
Telephone calls to the Funds, Morgan or Eligible Institutions as
shareholder servicing agent may be tape recorded.
With respect to the securities offered hereby, this Statement of Additional
Information and the Prospectuses do not contain all the information included in
the Trust's Registration Statement filed with the SEC under the 1933 Act and the
Trust's and the Portfolios' Registration Statements filed under the 1940 Act.
Pursuant to the rules and regulations of the SEC, certain portions have been
omitted. The Registration Statements including the exhibits filed therewith may
be examined at the office of the SEC in Washington D.C.
Statements contained in this Statement of Additional Information and
the Prospectuses concerning the contents of any contract or other document are
not necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectuses and this Statement of Additional Information, in connection with
the offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Pierpont Funds or the Distributor. The Prospectus and this Statement
of Additional Information do not constitute an offer by any Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.
FINANCIAL STATEMENTS
Each of The Pierpont Funds' current reports to shareholders filed with
the SEC pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder are
hereby incorporated herein by reference. A copy of each such report will be
provided, without charge, to each person receiving this Statement of Additional
Information.
JPM491A
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APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
CORPORATE AND MUNICIPAL BONDS
AAA - Debt rated AAA has the highest ratings assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB - Debt rated BB is regarded as having less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
SHORT-TERM TAX-EXEMPT NOTES
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest rating
assigned by Standard & Poor's and has a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a
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satisfactory capacity to pay principal and interest.
MOODY'S
CORPORATE AND MUNICIPAL BONDS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
- - Leading market positions in well established industries.
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- - 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.
JPM491A
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APPENDIX B
ADDITIONAL INFORMATION CONCERNING NEW YORK MUNICIPAL OBLIGATIONS
The following information is a summary of special factors affecting
investments in New York municipal obligations. It does not purport to be a
complete description and is based on information from the Annual Information
Statement of the State of New York dated June 23, 1995.
GENERAL
New York (the "State") is the third most populous state in the nation
and has a relatively high level of personal wealth. The State's economy is
diverse with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location, air transport
facilities and natural harbors have made it an important link in international
commerce. Travel and tourism constitute an important part of the economy. The
State has a declining proportion of its work force engaged in manufacturing and
an increasing proportion engaged in service industries. This transition reflects
a national trend.
The State has historically been one of the wealthiest states in the
nation. For decades, however, the State economy has grown more slowly than that
of the nation as a whole, resulting in the gradual erosion of its relative
economic affluence. Statewide, urban centers have experienced significant
changes involving migration of the more affluent to the suburbs and an influx of
generally less affluent residents. Regionally, the older Northeast cities have
suffered because of the relative success that the South and the West have had in
attracting people and business. New York City (the "City") has also had to face
greater competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City.
Although industry and commerce are broadly spread across the State,
particular activities are concentrated in the following areas: Westchester
County -- headquarters for several major corporations; Buffalo -- diverse
manufacturing base; Rochester -- manufacture of photographic and optical
equipment; Syracuse and Utica-Rome area -- production of machinery and
transportation equipment; Albany-Troy-Schenectady -- government and education
center and production of electrical products; Binghampton -- original site of
the International Business Machines Corporation and continued concentration of
employment in computer and other high technology manufacturing; and New York
City -- headquarters for the nation's securities business and for a major
portion of the nation's major commercial banks, diversified financial
institutions and life insurance companies. In addition, the City
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houses the home offices of three major radio and television broadcasting
networks, most of the national magazines and a substantial portion of the
nation's book publishers. The City also retains leadership in the design and
manufacture of men's and women's apparel.
ECONOMIC OUTLOOK
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the Federal government, that
are not under the control of the State. The State Financial Plan is based upon
forecasts of national and State economic activity. Economic forecasts have
frequently failed to predict accurately the timing and magnitude of changes in
the national and the State economies. Many uncertainties exist in forecasts of
both the national and State economies, including consumer attitudes toward
spending, the extent of corporate and governmental restructuring, Federal
financial and monetary policies, the availability of credit, the level of
interest rates, and the condition of the world economy, which would have an
adverse effect on the State. There can be no assurance that the State economy
will not experience results in the current fiscal year that are worse than
predicted, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
The national economy began to expand in 1991, although the growth rate
for the first two years of the expansion was modest by historical standards. The
State economy remained in recession until 1993, when employment growth resumed.
Since November 1992, the State has added approximately 185,000 jobs. Employment
growth has been hindered during recent years by significant cutbacks in the
computer and instrument manufacturing, utility, and defense industries. Personal
income increased substantially in 1992 and 1993, aided significantly by large
bonus payments in banking and financial industries.
The national economy performed better in 1994 than in any year since
the recovery began in 1991. National job and income growth were substantial. In
response, the Federal Reserve Board shifted to a policy of monetary tightening
by raising interest rates throughout the year. As a result, the national
economic growth is expected to weaken, but not turn negative, during the course
of 1995 before beginning to rebound by the end of the year. This dynamic is
often described as a "soft landing." The overall rate of growth of the national
economy during calendar year 1995 will be slightly below the "consensus" of a
widely followed survey of national economic forecasters. Growth in the real
gross domestic product during 1995 is projected to be moderate (3.0 percent),
with declines in defense spending and net
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exports more than offset by increases in consumption and investment. Continuing
efforts by business and government to reduce costs are expected to exert a drag
on economic growth. Inflation, as measured by the Consumer Price Index, is
projected to remain about 3 percent due to moderate wage growth and foreign
competition. Personal income and wages are projected to increase by about 6
percent or more.
The State economy had a mixed performance during 1994. The moderate
employment growth that characterized 1993 continued into mid-1994, then
virtually ceased. New York's economy is expected to continue to expand modestly
during 1995, but there will be a pronounced slow-down during the course of the
year. Although industries that export goods and services abroad are expected to
benefit from the lower dollar, growth will be slowed by government cutbacks at
all levels. On an average annual basis, employment growth will be about the same
as 1994. Both personal income and wages are expected to record moderate gains in
1995. Bonus payments in the securities industry are expected to increase from
last year's depressed level. Personal income rose 4.0 percent in 1994.
The State has for many years had a very high State and local tax burden
relative to other States. The State and its localities have used these taxes to
develop and maintain their transportation networks, public schools and colleges,
public health systems, other social services and recreational facilities.
Despite these benefits, the burden of State and local taxation, in combination
with the many other causes of regional economic dislocation, may have
contributed to the decisions of some businesses and individuals to relocate
outside, or not locate within, the State.
To stimulate the State's economic growth, the State has developed
programs, including the provision of direct financial assistance, designed to
assist businesses to expand existing operations located within the State and to
attract new businesses to the State. Local industrial development agencies
raised an aggregate of approximately $7.8 billion in separate tax-exempt bond
issues through December 31, 1993. There are currently over 100 county, city,
town and village agencies. In addition, the New York State Urban Development
Corporation is empowered to issue, subject to certain State constitutional
restrictions and to approval by the Public Authorities Control Board, bonds and
notes on behalf of private corporations for economic development projects. The
State has also taken advantage of changes in Federal bank regulations to
establish a free international banking zone in the City.
In addition, the State has provided various tax incentives to encourage
business relocation and expansion. These programs include direct tax abatements
from local property taxes for new facilities (subject to locality approval) and
investment tax credits that are applied against the State corporation franchise
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tax. Furthermore, legislation passed in 1986 authorizes the creation of up to 40
"economic development zones" in economically distressed regions of the State.
Businesses in these zones are provided a variety of tax and other incentives to
create jobs and make investments in the zones.
STATE FINANCIAL PLAN
The State Constitution requires the Governor to submit to the
Legislature a balanced Executive Budget which contains a complete plan of
expenditures (the "State Financial Plan") for the ensuing fiscal year and all
moneys and revenues estimated to be available therefor, accompanied by bills
containing all proposed appropriations or reappropriations and any new or
modified revenue measures to be enacted in connection with the Executive Budget.
A final budget must be approved before the statutory deadline of April 1. The
State Financial Plan is updated quarterly pursuant to law.
The State's fiscal year, which commenced on April 1, 1995, and ends on
March 31, 1996, is referred to herein as the State's 1995-96 fiscal year.
The State's budget for the 1995-96 fiscal year was enacted by the
Legislature on June 7, 1995, more than two months after the start of the fiscal
year. Prior to adoption of the budget, the Legislature enacted appropriations
for disbursements considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt service. The State
Financial Plan for the 1995-96 fiscal year was formulated on June 20, 1995, and
is based on the State's budget as enacted by the Legislature and signed into law
by the Governor. The State Financial Plan will be updated quarterly pursuant to
law in July, October and January.
The 1995-96 budget is the first to be enacted in the administration of
the Governor, who assumed office on January 1. It is the first budget in over
half a century which proposed and, as enacted, projects an absolute
year-over-year decline in General Fund disbursements. Spending for State
operations is projected to drop even more sharply, by 4.6 percent. Nominal
spending from all State funding sources (I.E., excluding Federal aid) is
proposed to increase by only 2.5 percent from the prior fiscal year, in contrast
to the prior decade when such spending growth averaged more than 6.0 percent
annually.
In his Executive Budget, the Governor indicated that in the 1995-96
fiscal year, the State Financial Plan, based on then-current law governing
spending and revenues, would be out of balance by almost $4.7 billion, as a
result of the projected structural deficit resulting from the ongoing disparity
between sluggish growth in receipts, the effect of prior-year tax changes, and
the rapid acceleration of spending growth; the impact of unfunded 1994-95
initiatives, primarily for local aid
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programs; and the use of one-time solutions, primarily surplus funds from the
prior year, to fund recurring spending in the 1994-95 budget. The Governor
proposed additional tax cuts, to spur economic growth and provide relief for
low- and middle-income tax payers, which were larger than those ultimately
adopted, and which added $240 million to the then projected imbalance or budget
gap, bringing the total to approximately $5 billion.
This gap is projected to be closed in the 1995-96 State Financial Plan
based on the enacted budget, through a series of actions, mainly spending
reductions and cost containment measures and certain reestimates that are
expected to be recurring, but also through the use of one-time solutions. The
State Financial Plan projects (i) nearly $1.6 billion in savings from cost
containment, disbursement reestimates, and other savings in social welfare
programs, including Medicaid, income maintenance and various child and family
care programs; (ii) $2.2 billion in savings from State agency actions to reduce
spending on the State work force, SUNY and CUNY, mental hygiene programs,
capital projects, the prison system and fringe benefits; (iii) $300 million in
savings from local assistance reforms, including actions affecting school aid
and revenue sharing while proposing program legislation to provide relief from
certain mandates that increase local spending; (iv) over $400 million in revenue
measures, primarily a new Quick Draw Lottery game, changes to tax payment
schedules, and the sale of assets; and (v) $300 million from reestimates in
receipts.
The Executive Budget indicates that for years State revenues have grown
at a slower rate than State spending, producing an increasing structural
deficit, and that as the Executive Budget is enacted, the State will start to
eliminate the structural imbalance that has characterized the State's fiscal
record. There can, however, be no assurances that the tax and spending cuts will
eliminate potential imbalances in future fiscal years. The Governor's
recommended multi-year personal income tax cuts are designed to reduce the yield
on that tax by about one-third by 1998, and could require significant additional
spending cuts in those years, increased economic growth to provide additional
revenues, additional revenue measures, or a combination of those factors.
GOVERNMENT FUNDS
The four governmental fund types that comprise the State Financial Plan
are the General Fund, the Special Revenue Funds, the Capital Projects Funds, and
the Debt Service Funds.
GENERAL FUND RECEIPTS
The General Fund is the principal operating fund of the State and is
used to account for all financial transactions, except those required to be
accounted for in another fund. It is
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the State's largest fund and receives almost all State taxes and other resources
not dedicated to particular purposes. In the State's 1995-96 fiscal year, the
General Fund is expected to account for approximately 49 percent of total
governmental-funded disbursements and 71 percent of total State-funded
disbursements. General Fund moneys are also transferred to other funds,
primarily to support certain capital projects and debt service on long-term
bonds, where these costs are not funded from other sources.
The Financial Plan for the 1995-96 fiscal year released on February 1,
1995, projects General Fund receipts, including transfers from other funds, of
$33.110 billion, a reduction of $48 million from the total receipts in the
1994-95 fiscal year. Tax receipts are projected at $29.793 billion for the
1995-96 fiscal year. Although growth in the base for tax receipts is expected to
accelerate during the 1995-96 fiscal year, tax receipts are expected to fall by
3.5 percent, principally due to the combined effect of implementing during the
1995-96 fiscal year (1) a portion of the tax reductions originally enacted in
1987 and deferred each year since 1990, (2) additional tax cuts to prevent tax
increases also originally enacted in 1987 from taking effect and (3) the
proposed employer day care credit ($5 million), together with the incremental
cost of the tax reductions enacted in 1994 (more than $500 million), which
effectively negate the effect of projected growth in the recurring revenue base.
In addition, certain nonrecurring revenues in the 1994-95 receipts base,
including the 1993-94 surplus of $1.026 billion, additional earmarking to
dedicated funds (more than $210 million) and other miscellaneous one-time
receipts (more than $100 million) are not available in the 1995-96 fiscal year,
thereby reducing potential year-over-year growth by another 4 percentage points.
The projected yield of personal income tax in the 1995-96 fiscal year
of $17.285 billion is a decrease of $305 million from reported collections in
the State's 1994-95 fiscal year. The decrease reflects both the effects of the
tax reductions and the fact that reported collections in the preceding year were
affected by net refund reserve transactions that buoyed collections in that year
by $862 million that will be unavailable in the current year. Without these
changes, the yield of the tax would have grown by more than $1.0 billion (6
percent), reflecting liability growth for the 1995 tax year projected at
approximately the same rate. The income base for the tax is projected to rise
approximately 5 percent for the 1995 tax year. Personal income tax receipts
showed a sharp increase in 1994-95 and are expected to decline in 1995-96.
Personal income tax reductions recommended in the Executive Budget are projected
to produce taxpayer savings of $720 million in calendar year 1995 reflecting the
scheduled implementation of the 1987 tax reductions. The tax reductions
recommended by the Governor are part of a multi-year program designed to reduce
the yield of the income tax by about one-third by 1998.
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Receipts in user taxes and fees in the State's 1995-96 fiscal year are
expected to total $6.697 billion, an increase of $73 million from reported
1994-95 results. Growth in user taxes and fees is expected to slow to about 1
percent in 1995-96, reflecting nearly $70 million of additional tax relief in
this category in the coming year resulting from tax reductions enacted in 1994,
the absence of extraordinary audit collections received in 1994-95, and a
slowdown in the underlying growth rate of sales and use tax collections, offset
by a projected improvement of $41 million as a result of recommended legislation
to enhance sales tax collection procedures. Business tax receipts are projected
at $4.709 billion, a decline of $360 million from reported 1994-95 results. The
decline in the 1995-96 fiscal year largely reflecting the effect of tax
reductions enacted in 1994.
Total receipts from other taxes in the State's 1995-96 fiscal year are
projected at $1.102 billion, $6 million less than in the preceding year. The
estimates reflect 1994 and 1995 legislation reducing the burden of the real
property gains tax and the estate tax as well as diversion of a portion of the
real estate transfer tax proceeds to the Environmental Protection Fund.
Miscellaneous receipts in the State's 1995-96 fiscal year are expected to total
$1.596 billion, an increase of $335 million above the amount received in the
prior State fiscal year. Growth in overall collections from miscellaneous
receipts in the coming fiscal year is expected to result largely from several
discrete actions involving settlement of environmental litigation, the
recommended merger of public authorities, and transactions with the Power
Authority, which together account for over $200 million of projected
miscellaneous receipts anticipated in 1995-96. Transfers from other funds
continue at prior year levels, with the addition of the transfer of $220 million
in excess funds from the Metropolitan Mass Transportation Operating Assistance
Fund.
GENERAL FUND DISBURSEMENTS
General Fund disbursements are projected to total $33.055 billion in
1995-96, a decrease of $344 million from the total amount disbursed in the prior
fiscal year. This decline reflects a broad agenda of cost containment actions,
more than offsetting modest increases for fixed costs, such as pensions, debt
service on bonds sold during the current year and capital projects under
construction.
Disbursements from grants to local governments are projected to total
$22.910 billion in the 1995-96 State Financial Plan, a decrease of $392 million
from 1994-95 levels. Although spending in this category is reduced, direct
payments to local governments, including school aid and revenue sharing are
maintained largely at last year's levels. This category of the State Financial
Plan includes $10.823 billion in aid for elementary, secondary, and higher
education. Costs for social services, such as Medicaid, income maintenance and
child support
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services account for $8.706 billion. Remaining disbursements primarily support
community-based mental hygiene programs, community and public health programs,
local transportation programs, and revenue sharing.
Significant decreases from the prior year result largely from cost
containment initiatives in Medicaid and other social welfare programs. Payments
for Medicaid from the General Fund are projected to be $506 million lower than
in 1994-95. $128 Million in operating aid to the New York City Transit Authority
will be eliminated, matching the reduction in New York City support of the
Authority.
Spending for State operations is projected at $6.020 billion, a
decrease of $288 million. Recommendations in the Executive Budget reduce the
work force by approximately 3,200 positions (most of which reduce disbursements
in this category).
Spending for general State charges is projected at $2.080 billion in
the 1995-96 State Financial Plan, and are virtually unchanged from the 1994-95
level. The budgeted amount for general State charges assumes the use of $110
million from a special reserve for pension supplementation, established in 1970
and funded through State and local employer contributions in the early 1970's,
to offset the State's pension contribution. The Comptroller, as sole trustee of
the Common Retirement Fund and administrative head of the Retirement System, is
in the process of reviewing the legislation that directs the use of these
reserves to determine whether or not to commence legal proceedings to prevent
such proposed use in the enacted 1995-96 State budget as a violation of the
State Constitution, and there is a substantial likelihood that he will do so.
The Executive considers the proposed use of these reserves to be a credit for
prior-year supplementation payments and, therefore, in compliance with the State
Constitution.
Debt service in the General Fund for 1995-96 reflects only the $9
million interest cost of the State's commercial paper program. No cost is
included for a TRAN borrowing, since none is expected to be undertaken. General
Fund debt service on short-term obligations of the State reflects the
elimination of the State's spring borrowing. Transfers in support of debt
service are projected to total $1.583 billion, and increase of $157 million.
This increase is heightened by the use of one-time reimbursements from other
funds in the 1994-95 fiscal year. Transfers in support of capital projects are
projected to total $375 million, an increase of $169 million, which reflects
significant investments in both new and ongoing capital programs. All other
transfers are projected to total $78 million, an increase of $9 million from
1994-95 levels.
The 1995-96 opening fund balance of $158 million includes $157 million
which is reserved in the Tax Stabilization Reserve Fund, as well as $1 million
which is reserved in the Contingency
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Reserve Fund. The Contingency Reserve Fund was established in 1993-94 to set
aside moneys to address adverse judgments or settlements resulting from
litigation against the State. The closing fund balance in the General Fund of
$213 million reflects a balance of $172 million in the Tax Stabilization Reserve
Fund, following an additional payment of $15 million during the year, and a
balance of $41 million in the Contingency Reserve Fund.
The 1995-96 Financial Plan includes over $600 million in non-recurring
resources. These actions include items discussed above, as well as retroactive
Federal reimbursements and some non-recurring social welfare cost containment
actions. The Budget Division believes that recommendations included in the
Executive Budget will provide fully annualized savings in 1996-97 that more than
offset the non-recurring resources used in 1995-96.
SPECIAL REVENUE FUNDS
Special Revenue Funds are used to account for the proceeds of specific
revenue sources such as Federal grants that are legally restricted, either by
the Legislature or outside parties, to expenditures for specified purposes. For
1995-96, the State Financial Plan projects disbursements of $26.002 billion from
these funds, an increase of $1.641 billion over 1994-95 levels. Disbursements
from Federal funds, primarily the Federal share of Medicaid and other social
services programs, are projected to total $19.209 billion in the 1995-96 fiscal
year. Remaining projected spending of $6.793 billion primarily reflects aid to
SUNY supported by tuition and dormitory fees, education aid funded from lottery
receipts, operating aid payments to the Metropolitan Transportation Authority
funded from the proceeds of dedicated transportation taxes, and costs of a
variety of self-supporting programs which deliver services financed by user
fees.
CAPITAL PROJECTS FUNDS
Capital Projects Funds are used to account for the financial resources
used for the acquisition, construction, or rehabilitation of major state capital
facilities and for capital assistance grants to certain local government or
public authorities. This fund type consists of the Capital Projects Fund, which
is supported by tax dollars transferred from the General Fund, and 37 other
capital funds established to distinguish specific capital construction purposes
supported by other revenues.
Disbursements from the Capital Projects Funds in 1995-96 are projected
at $4.160 billion, an increase of $541 million over prior-year levels. Spending
for capital projects will be financed through a combination of sources: Federal
grants, public authority bond proceeds, general obligation bond proceeds, and
current revenues. Total receipts in this fund type are projected at $4.170
billion, not including $364 million expected to be
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available from the proceeds of general obligation bonds.
DEBT SERVICE FUNDS
Debt Service Funds are used to account for the payment of principal of,
and interest on, long-term debt of the State and to meet commitments under
lease-purchase and other contractual-obligation financing arrangements.
Disbursements are estimated at $2.506 billion in the 1995-96 fiscal year, an
increase of $303 million from 1994-95. The transfer from the General Fund of
$1.583 billion is expected to finance 63 percent of these payments. The
remaining payments are expected to be financed by pledged revenues, including
$1.794 billion in taxes, $228 million in dedicated fees, and $2.200 billion in
patient revenues, including transfers of Federal reimbursements. After
impoundment for debt service, as required, $3.481 billion is expected to be
transferred to the General Fund and other funds in support of State operations.
The largest transfer - $1.761 billion - is made to the Special Revenue Fund
type, in support of operations of the mental hygiene agencies. Another $1.341
billion in excess sales taxes is expected to be transferred to the General Fund,
following payment of projected debt service on bonds of LGAC.
The increase in debt service costs recommended in the Executive Budget
primarily reflects prior capital commitments financed by bonds issued by the
State and State-supported debt issued by its public authorities, and the
completion of the LGAC program. The increase has been moderated by the
reductions to bond-financed capital spending as discussed above, and reflects
debt issuances in 1994-95 and 1995-96 which are lower than they would have been,
absent the Governor's review of capital spending.
CASH FLOW
For the second time in many years, the State will meet its cash flow
needs without relying on a spring borrowing. However, this achievement is
predicated on two actions: the issuance of all remaining LGAC bonds authorized
in the 1990 statute; and the passage of proposed legislation permitting the
State to use, for cash flow purposes only, balances in the Lottery Fund.
Temporary transfers will be returned within five months so that all available
Lottery moneys as well as advances of additional aid can be paid to school
districts in September.
The lingering impact of the 1994-95 receipts shortfall -- as well as
the impact of the potential $5 billion 1995-96 imbalance on cash operations --
exerts substantial pressures on the State's cash balance position in the first
three months of the fiscal year. These pressures are expected to abate later in
the 1995-96 fiscal year, as cash outlays decline from previous levels consistent
with cost-savings initiatives proposed in the Executive Budget.
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PRIOR FISCAL YEARS
New York State's financial operations have improved during recent
fiscal years. During the period 1989-90 through 1991-92, the State incurred
General Fund operating deficits that were closed with receipts from the issuance
of tax and revenue anticipation notes ("TRANs"). First, the national recession,
and then the lingering economic slowdown in the New York and regional economy,
resulted in repeated shortfalls in receipts and three budget deficits. For its
1992-93 and 1993-94 fiscal years, the State recorded balanced budgets on a cash
basis, with substantial fund balances in each year as described below.
1994-95 FISCAL YEAR
The State's budget for the 1994-95 fiscal year was enacted by the
Legislature on June 7, 1994, more than two months after the start of the fiscal
year. Prior to adoption of the budget, the Legislature enacted appropriations
for disbursements considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt service.
The 1994-95 budget contained a significant investment in efforts to
spur economic growth. The budget included provisions to reduce the level of
business taxation in New York, with cuts in the corporate tax surcharge, the
alternative minimum tax imposed on business and the petroleum business tax,
repeal of the State's hotel occupancy tax, and reductions in the real property
gains tax to stimulate construction and facilitate the real estate industry's
access to capital. Complementing the elimination of the hotel tax was a $10
million investment of State funds in the "I Love New York" program designed to
spur tourism activity throughout the State.
To help strengthen the State's economic recovery, the 1994-95 budget
also included more than $200 million in additional funding for economic
development programs. Special emphasis was placed on programs intended to enable
New York State to: (i) invest in high technology industries; (ii) expand access
to foreign markets; (iii) strengthen assistance to small businesses,
particularly those owned by women and minorities; (iv) retain and attract new
manufacturing jobs; (v) help companies and communities impacted by continued
cutbacks in Federal defense spending and ongoing corporate downsizings; and (vi)
bolster the tourism industry. In addition, the budget included increased levels
of support for programs to rebuild and maintain State infrastructure, and
provisions to create 21 new economic development zones.
New York State ended its 1994-95 fiscal year with the General Fund in
balance. The closing fund balance of $158 million reflects $157 million in the
Tax Stabilization Reserve Fund and
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<PAGE>
$1 million in the Contingency Reserve Fund ("CRF"). The CRF was established in
State Fiscal year 1993-94, funded partly with surplus moneys, to assist the
State in financing the 1994-95 fiscal year costs of extraordinary litigation
known or anticipated at that time; the opening fund balance in State fiscal year
1994-95 was $265 million. The $241 million change in the fund balance reflects
the use of $264 million in the CRF as planned, as well as the required deposit
of $23 million to the Tax Stabilization Reserve Fund. In addition, $278 million
was on deposit in the tax refund reserve account, $250 million of which was
deposited at the end of the State's 1994-95 fiscal year to continue the process
of restructuring the State's cash flow as part of the LGAC program.
Compared to the State Financial Plan for 1994-95 as formulated on June
16, 1994, reported receipts fell short of original projections by $1.163
billion, primarily in the categories of personal income and business taxes. Of
this amount, the personal income tax accounts for $800 million, reflecting weak
estimated tax collections and lower withholding due to reduced wage and salary
growth, more severe reductions in brokerage industry bonuses than projected
earlier, and deferral of capital gains realizations in anticipation of potential
Federal tax changes. Business taxes fell short by $373 million, primarily
reflecting lower payments from banks as substantial overpayments of 1993
liability depressed net collections in the 1994-95 fiscal year. These shortfalls
were offset by better performance in the remaining taxes, particularly the user
taxes and fees, which exceeded projections by $210 million. Of this amount, $227
million was attributable to certain restatements for accounting treatment
purposes pertaining to the CRF and LGAC; these restatements had no impact on
balance in the General Fund.
Disbursements were also reduced from original projections by $848
million. After adjusting for the net impact of restatements relating to the CRF
and LGAC which raised disbursements by $38 million, the variance is $886
million. Well over two-thirds of this variance is in the category of grants to
local governments, primarily reflecting the conservative nature of the original
estimates of projected costs for social services and other programs. Lower
education costs are attributable to the availability of $110 million in
additional lottery proceeds and the use of LGAC bond proceeds.
The spending reductions also reflect $188 million in actions initiated
in January 1995 by the Governor to reduce spending to avert a potential gap in
the 1994-95 State Financial Plan. These actions included savings from a hiring
freeze, halting the development of certain services, and the suspension of
non-essential capital projects. These actions, together with $71 million in
other measures comprised the Governor's $259 million gap-closing plan, submitted
to the Legislature in connection with the 1995-96 Executive Budget.
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<PAGE>
1993-94 FISCAL YEAR
The State ended its 1993-94 fiscal year with a balance of $1.140
billion in the tax refund reserve account, $265 million in its Contingency
Reserve Fund and $134 million in its Tax Stabilization Reserve Fund. These fund
balances were primarily the result of an improving national economy, State
employment growth, tax collections that exceeded earlier projections and
disbursements that were below expectations. Deposits to the personal income tax
refund reserve have the effect of reducing reported personal income tax receipts
in the fiscal year when made and withdrawals from such reserve increase receipts
in the fiscal year when made. The balance in the tax refund reserve account will
be used to pay taxpayer refunds, rather than drawing from 1994-95 receipts.
1992-93 FISCAL YEAR
The State ended its 1992-93 fiscal year with a balance of $671 million
in the tax refund reserve account and $67 million in the Tax Stabilization
Reserve Fund. The State's 1992-93 fiscal year was characterized by performance
that was better than projected for the national and regional economies. National
gross domestic product, State personal income, and State employment and
unemployment performed better than originally projected in April 1992. This
favorable economic performance, particularly at year end, combined with a
tax-induced acceleration of income into 1992, was the primary cause of the
General Fund surplus. Personal income tax collections were more than $700
million higher than originally projected (before reflecting the tax refund
reserve account transaction), primarily in the withholding and estimated payment
components of the tax. There were, however, large and mainly offsetting
variances in other categories of receipts.
CERTAIN LITIGATION
Certain litigation pending against New York or its officers or
employees could have a substantial or long-term adverse effect on New York
finances. Among the more significant of these cases are those that involve: (i)
the validity of agreements and treaties by which various Indian tribes
transferred to New York title to certain land in New York; (ii) certain aspects
of New York's Medicaid rates and regulations, including reimbursements to
providers of mandatory and optional Medicaid services, and the eligibility for
and nature of home care services; (iii) challenges to provisions of Section
2807-C of the Public Health Law, which impose a 13% surcharge on inpatient
hospital bills paid by commercial insurers and employee welfare benefit plans
and portions of Chapter 55 of the laws of 1992, which require hospitals to
impose and remit to the State an 11% surcharge on hospital bills paid by
commercial insurers and which require health maintenance organizations to remit
to the State a surcharge of up to 9%; (iv) an action against the State of New
York and New York City officials alleging that the present level
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<PAGE>
of shelter allowance for public assistance recipients is inadequate under
statutory standards to maintain proper housing; (v) challenges to the practice
of reimbursing certain Office of Mental Health patient care expenses from the
client's Social Security benefits; (vi) alleged responsibility of New York
officials to assist in remedying racial segregation in the City of Yonkers;
(vii) a challenge to the constitutionality of financing programs of the Thruway
Authority authorized by Chapters 166 and 410 of the Laws of 1991; and (viii) a
claim that the State's Department of Environmental Conservation prevented the
completion of a cogeneration facility by the projected date by failing to
provide data in a timely manner and that the plaintiff thereby suffered damages.
In addition, aspects of petroleum business taxes are the subject of
administrative claims and litigation.
THE CITY OF NEW YORK
The fiscal health of the State of New York is closely related to the
fiscal health of its localities, particularly the City, which has required and
continues to require significant financial assistance from New York. The City's
independently audited operating results for each of its 1981 through 1993 fiscal
years showed a General Fund surplus reported in accordance with GAAP. In
addition, the City's financial statements for the 1993 fiscal year received an
unqualified opinion from the City's independent auditors, the eleventh
consecutive year the City received such an opinion.
The 1996-1999 Financial Plan reflects a program of proposed actions by
the City to close the gaps between projected revenues and expenditures of $888
million, $1.5 billion and $1.4 billion for the 1997, 1998 and 1999 fiscal years,
respectively. These actions, a substantial number of which are not specified in
detail, include additional agency spending reductions, reduction in
entitlements, government procurement initiatives, revenue initiatives and the
availability of the general reserve.
The Office of the State Deputy Comptroller for the City of New York
(the "OSDC") and the State Financial Control Board continue their respective
budgetary oversight activities.
In response to the City's fiscal crisis in 1975, the State took action
to assist the City in returning to fiscal stability. Among those actions, the
State established the Municipal Assistance Corporation for the City of New York
(the "MAC") to provide financing assistance to the City; the New York State
Financial Control Board (the "Control Board") to oversee the City's financial
affairs; the Office of the State Deputy Comptroller for the City of New York to
assist the Control Board in exercising its powers and responsibilities; and a
"Control Period" from 1975 to 1986 during which the City was subject to certain
statutorily-prescribed fiscal-monitoring arrangements. Although the Control
Board terminated the Control Period in 1986
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<PAGE>
when certain statutory conditions were met, thus suspending certain Control
Board powers, the Control Board, MAC and OSDC continue to exercise various
fiscal-monitoring functions over the City, and upon the occurrence or
"substantial likelihood and imminence" of the occurrence of certain events,
including, but not limited to a City operating budget deficit of more than $100
million, the Control Board is required by law to reimpose a Control Period.
Currently, the City and its Covered Organizations (I.E., those which receive or
may receive monies from the City directly, indirectly or contingently) operate
under a four-year financial plan which the City prepares annually and
periodically updates.
The staffs of the OSDC and the Control Board issue periodic reports on
the City's financial plans, as modified, analyzing forecasts of revenues and
expenditures, cash flow, and debt service requirements, as well as compliance
with the financial plan, as modified, by the City and its Covered Organizations.
OSDC staff reports issued during the mid-1980's noted that the City's budgets
benefitted from a rapid rise in the City's economy, which boosted the City's
collection of property, business and income taxes. These resources were used to
increase the City's work force and the scope of discretionary and mandated City
services. Subsequent OSDC staff reports examined the 1987 stock market crash and
the 1989-92 recession, which affected the New York City region more severely
than the nation, and attributed an erosion of City revenues and increasing
strain on City expenditures to that recession. According to a recent OSDC staff
report, the City's economy is now slowly recovering, but the scope of that
recovery is uncertain and unlikely, in the foreseeable future, to match the
expansion of the mid-1980's. Also, staff reports of OSDC and the Control Board
have indicated that the City's recent balanced budgets have been accomplished,
in part, through the use of non-recurring resources, tax increases and
additional State assistance; that the City has not yet brought its long-term
expenditures in line with recurring revenues; and that the City is therefore
likely to continue to face future projected budget gaps requiring the City to
increase revenues and/or reduce expenditures. According to the most recent staff
reports of OSDC and the Control Board, during the four-year period covered by
the current financial plan, the City is relying on obtaining substantial
resources from initiatives needing approval and cooperation of its municipal
labor unions, Covered Organizations, and City Council, as well as the State and
Federal governments, among others.
The City requires significant amounts of financing for seasonal and
capital purposes. The City issued $1.75 billion of notes for seasonal financing
purposes during its fiscal year ending June 30, 1994. The City's capital
financing program projects long-term financing requirements of approximately $17
billion for the City's fiscal years 1995 through 1998. The major capital
requirements include expenditures for the City's water supply and sewage
disposal systems, roads, bridges, mass transit,
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<PAGE>
schools, hospitals and housing.
OTHER LOCALITIES
In addition to the City, certain localities, including the City of
Yonkers, could have financial problems leading to requests for additional State
assistance during the State's 1995-96 fiscal year and thereafter..
Municipalities and school districts have engaged in substantial short-term and
long-term borrowings. In 1993, the total indebtedness of all localities in the
State other than New York City was approximately $17.7 billion.
From time to time, Federal expenditure reductions could reduce, or in
some cases, eliminate, Federal funding of some local programs, and, accordingly,
might impose substantial increased expenditure requirements on affected
localities. If the State, the City or any of the public authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within the State could be adversely affected. Localities also face
anticipated and potential problems resulting from certain pending litigation,
judicial decisions and long-range economic trends. Long-range potential problems
of declining urban population, increasing expenditures and other economic trends
could adversely affect localities and require increasing State assistance in the
future.
AUTHORITIES
The fiscal stability of the State is related, in part, to the fiscal
stability of its public authorities. Public authorities are not subject to the
constitutional restrictions on the incurrence of debt which apply to the State
itself and may issue bonds and notes within the amounts, and as otherwise
restricted by, their legislative authorization. As of September 30, 1994, there
were 18 public authorities that had aggregate outstanding debt of $70.3 billion.
Some authorities also receive moneys from State appropriations to pay for the
operating costs of certain of their programs.
The Metropolitan Transit Authority (the "MTA"), which receives the bulk
of the appropriated moneys from the State, oversees the operation of the City's
bus and subway system by its affiliates, the New York City Transit Authority and
Manhattan and Bronx Surface Transit Operating Authority (collectively, the
"TA"). The MTA has depended and will continue to depend upon Federal, state and
local government support to operate the transit system because fare revenues are
insufficient.
Over the past several years, the State has enacted several taxes
(including a surcharge on the profits of banks, insurance corporations and
general business corporations doing business in the 12-county region served by
the MTA and a special one-quarter
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of one percent regional sales and use tax) that provide additional revenues for
mass transit purposes, including assistance to the MTA. In addition, a
one-quarter of one percent regional mortgages recording tax paid on certain
mortgages creates an additional source of recurring revenues for the MTA.
Further, in 1993, the State dedicated a portion of the State petroleum business
tax to assist the MTA. For the 1995-96 State fiscal year, total State assistance
to the MTA is estimated at approximately $1.1 billion.
In 1993, State legislation authorized the funding of a five-year $9.56
billion MTA capital plan for the five-year period, 1992 through 1996 (the
"1992-96 Capital Program"). The MTA has received approval of the 1992-96 Capital
Program based on this legislation from the 1992-96 Capital Program Review Board,
as State law requires. This is the third five-year plan since the Legislature
authorized procedures for the adoption, approval and amendment of a five-year
plan in 1981 for a capital program designed to upgrade the performance of the
MTA's transportation systems and to supplement, replace and rehabilitate
facilities and equipment. The MTA, the Triborough Bridge and Tunnel Authority,
and the TA are collectively authorized to issue an aggregate of $3.1 billion of
bonds (net of certain statutory exclusions) to finance a portion of the 1992-96
Capital Program. The 1992-96 Capital Program is expected to be financed in
significant part through dedication of State petroleum business taxes referred
to above.
There can be no assurance that all the necessary governmental actions
for the Capital Program will be taken, that funding sources currently identified
will not be decreased or eliminated, or that the 1992-96 Capital Program, or
parts thereof, will not be delayed or reduced. Furthermore, the power of the MTA
to issue certain bonds expected to be supported by the appropriation of State
petroleum business taxes is currently the subject of a court challenge. If the
Capital Program is delayed or reduced, ridership and fare revenues may decline,
which could, among other things, impair the MTA's ability to meet its operating
expenses without additional State assistance.
JPM491A
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<PAGE>
- ------------------ COMPARISON OF FOOTNOTES ------------------
- -FOOTNOTE 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 or the SEC.
- -FOOTNOTE 1-
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.
- -FOOTNOTE 1-
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.
- -FOOTNOTE 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.
B-18
<PAGE>
PART C
Item 24. Financial Statements and Exhibits.
(a) Financial Statements
The following financial statements are included in Part A:
Financial Highlights -- The Pierpont Money Market Fund, The Pierpont Tax Exempt
Money Market Fund, The Pierpont Treasury Money Market Fund, The Pierpont Short
Term Bond Fund, The Pierpont Bond Fund, The Pierpont Tax Exempt Bond Fund, The
Pierpont Equity Fund, The Pierpont Capital Appreciation Fund, The Pierpont
International Equity Fund, The Pierpont Diversified Fund, The Pierpont Emerging
Markets Equity Fund and The Pierpont New York Total Return Bond Fund.
The following financial statements are included in Part B:
The Pierpont Money Market Fund
Statement of Assets and Liabilities at November 30, 1994
Statement of Operations for the fiscal year ended November 30, 1994
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements November 30, 1994
Statement of Assets and Liabilities at May 31, 1995 (unaudited)
Statement of Operations for the six months ended May 31, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements May 31, 1995 (unaudited)
The Money Market Portfolio
Schedule of Investments at November 30, 1994
Statement of Assets and Liabilities at November 30, 1994
Statement of Operations for the fiscal year ended November 30, 1994
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements November 30, 1994
Schedule of Investments at May 31, 1995 (unaudited)
Statement of Assets and Liabilities at May 31, 1995 (unaudited)
Statement of Operations for the six months ended May 31, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements May 31, 1995 (unaudited)
The Pierpont Tax Exempt Money Market Fund
Statement of Assets and Liabilities at August 31, 1995
Statement of Operations for the fiscal year ended August 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements August 31, 1995
The Tax Exempt Money Market Portfolio
Schedule of Investments at August 31, 1995
Statement of Assets and Liabilities at August 31, 1995
Statement of Operations for the fiscal year ended August 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements August 31, 1995
The Pierpont Treasury Money Market Fund
Statement of Assets and Liabilities at October 31, 1994
Statement of Operations for the fiscal year ended October 31, 1994
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1994
Statement of Assets and Liabilities at April 30, 1995 (unaudited)
Statement of Operations for the six months ended April 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1995 (unaudited)
The Treasury Money Market Portfolio
Schedule of Investments at October 31, 1994
Statement of Assets and Liabilities at October 31, 1994
Statement of Operations for the fiscal year ended October 31, 1994
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements October 31, 1994
Schedule of Investments at April 30, 1995 (unaudited)
Statement of Assets and Liabilities at April 30, 1995 (unaudited)
Statement of Operations for the six months ended April 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1995 (unaudited)
The Pierpont Short Term Bond Fund
Statement of Assets and Liabilities at October 31, 1994
Statement of Operations for the fiscal year ended October 31, 1994
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1994
Statement of Assets and Liabilities at April 30, 1995 (unaudited)
Statement of Operations for the six months ended April 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1995 (unaudited)
The Short Term Bond Portfolio
Schedule of Investments at October 31, 1994
Statement of Assets and Liabilities at October 31, 1994
Statement of Operations for the fiscal year ended October 31, 1994
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements October 31, 1994
Schedule of Investments at April 30, 1995 (unaudited)
Statement of Assets and Liabilities at April 30, 1995 (unaudited)
Statement of Operations for the six months ended April 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1995 (unaudited)
The Pierpont Bond Fund
Statement of Assets and Liabilities at October 31, 1994
Statement of Operations for the fiscal year ended October 31, 1994
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1994
Statement of Assets and Liabilities at April 30, 1995 (unaudited)
Statement of Operations for the six months ended April 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1995 (unaudited)
The U.S. Fixed Income Portfolio
Schedule of Investments at October 31, 1994
Statement of Assets and Liabilities at October 31, 1994
Statement of Operations for the fiscal year ended October 31, 1994
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements October 31, 1994
Schedule of Investments at April 30, 1995 (unaudited)
Statement of Assets and Liabilities at April 30, 1995 (unaudited)
Statement of Operations for the six months ended April 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1995 (unaudited)
The Pierpont Tax Exempt Bond Fund
Statement of Assets and Liabilities at August 31, 1995
Statement of Operations for the fiscal year ended August 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements August 31, 1995
The Tax Exempt Bond Portfolio
Schedule of Investments at August 31, 1995
Statement of Assets and Liabilities at August 31, 1995
Statement of Operations for the fiscal year ended August 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements August 31, 1995
The Pierpont Equity Fund
Statement of Assets and Liabilities at May 31, 1995
Statement of Operations for the Fiscal Year Ended May 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements May 31, 1995
The Selected U.S. Equity Portfolio
Schedule of Investments at May 31, 1995
Statement of Assets and Liabilities at May 31, 1995
Statement of Operations for the Fiscal Year Ended May 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements May 31, 1995
The Pierpont Capital Appreciation Fund
Statement of Assets and Liabilities at May 31, 1995
Statement of Operations for the Fiscal Year Ended May 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements May 31, 1995
The U.S. Small Company Portfolio
Schedule of Investments at May 31, 1995
Statement of Assets and Liabilities at May 31, 1995
Statement of Operations for the Fiscal Year Ended May 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements May 31, 1995
The Pierpont International Equity Fund
Statement of Assets and Liabilities at October 31, 1994
Statement of Operations for the fiscal year ended October 31, 1994
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1994
Statement of Assets and Liabilities at April 30, 1995 (unaudited)
Statement of Operations for the six months ended April 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1995 (unaudited)
The Non-U.S. Equity Portfolio
Schedule of Investments at October 31, 1994
Statement of Assets and Liabilities at October 31, 1994
Statement of Operations for the fiscal year ended October 31, 1994
Statement of Changes in Net Assets
Supplemantary Data
Notes to Financial Statements October 31, 1994
Schedule of Investments at April 30, 1995 (unaudited)
Statement of Assets and Liabilities at April 30, 1995 (unaudited)
Statement of Operations for the six months ended April 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1995 (unaudited)
The Pierpont Diversified Fund
Statement of Assets and Liabilities at June 30, 1995
Statement of Operations for the Fiscal Year Ended June 30, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements June 30, 1995
The Diversified Portfolio
Schedule of Investments at June 30, 1995
Statement of Assets and Liabilities at June 30, 1995
Statement of Operations for the Fiscal Year Ended June 30, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements June 30, 1995
The Pierpont Emerging Markets Equity Fund
Statement of Assets and Liabilities at October 31, 1994
Statement of Operations for the fiscal year ended October 31, 1994
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1994
Statement of Assets and Liabilities at April 30, 1995 (unaudited)
Statement of Operations for the six months ended April 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1995 (unaudited)
The Emerging Markets Equity Portfolio
Schedule of Investments at October 31, 1994
Statement of Assets and Liabilities at October 31, 1994
Statement of Operations for the fiscal year ended October 31, 1994
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statement October 31, 1994
Schedule of Investments at April 30, 1995 (unaudited)
Statement of Assets and Liabilities at April 30, 1995 (unaudited)
Statement of Operations for the six months ended April 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1995 (unaudited)
The Pierpont New York Total Return Bond Fund
Statement of Assets and Liabilities at March 31, 1995
Statement of Operations for the fiscal year ended March 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements March 31, 1995
Statement of Assets and Liabilities at September 30, 1995 (unaudited)
Statement of Operations for the six months ended September 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements September 30, 1995 (unaudited)
The New York Total Return Bond Portfolio
Schedule of Investments at March 31, 1995
Statement of Assets and Liabilities at March 31, 1995
Statement of Operations for the fiscal year ended March 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements March 31, 1995
Schedule of Investments at September 30, 1995 (unaudited)
Statement of Assets and Liabilities at September 30, 1995 (unaudited)
Statement of Operations for the six months ended September 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements September 30, 1995 (unaudited)
(b) Exhibits
Exhibit Number
1 Declaration of Trust, as amended was filed as Exhibit No. 1 to
Registrant's Post-Effective Amendment No. 14 to the Registration
Statement filed on July 28, 1995 ("Post-Effective Amendment No. 14").
2 Restated By-Laws was filed as Exhibit No. 1 to Registrant's
Post-Effective Amendment No. 14.
3 Not Applicable.
4 Not Applicable.
5 Not Applicable.
6 Distribution Agreement between Registrant and Signature Broker-Dealer
Services, Inc. ("SBDS") was filed as Exhibit No. 6 to Post-Effective
Amendment No. 12 to the Registration Statement filed on December 19,
1994 ("Post-Effective Amendment No. 12").
7 Not Applicable.
8 Custodian Contract between Registrant and State Street Bank and Trust
Company ("State Street") was filed as Exhibit No. 8 to Post-Effective
Amendment No. 12.
9(a) Restated Administration Agreement between Registrant and SBDS was
filed as Exhibit No. 9(a) to Post-Effective Amendment No. 12.
9(b) Restated Shareholder Servicing Agreement between Registrant and Morgan
Guaranty Trust Company of New York ("Morgan Guaranty") was filed as
Exhibit No. 9(b) to Post-Effective Amendment No. 12.
9(c) Transfer Agency and Service Agreement between Registrant and State
Street was filed as Exhibit No. 9(c) to Post-Effective Amendment No.
12.
9(d) Amended and Restated Fund Services Agreement between Registrant and
Pierpont Group, Inc. was filed as Exhibit No. 9(d) to Post-Effective
Amendment No. 12.
9(e) Restated Financial and Fund Accounting Services Agreement between
Registrant and Morgan Guaranty was filed as Exhibit No. 9(e) to Post-
Effective Amendment No. 12.
10 Opinion and consent of Sullivan & Cromwell was filed as Exhibit No. 10
to Registrant's Pre-Effective Amendment No. 1 to the Registration
Statement filed on December 30, 1992 ("Pre-Effective Amendment
No. 1").
11 Consents of independent accountants.*
12 Not Applicable.
13 Purchase Agreement was filed as Exhibit No. 13 to Pre-Effective
Amendment No. 1.
14 Not Applicable.
15 Not Applicable.
16 Schedule for computation of performance quotations was filed as
Exhibit No. 16 to Registrant's Post-Effective Amendment No. 9 to the
Registration Statement filed on June 1, 1994.
17 Financial Data Schedules.*
18 Powers of Attorney were filed as Exhibit No. 18 to Registrant's
Post-Effective Amendment No. 14.
___________________
* Filed herewith.
Item 25. Persons Controlled by or Under Common Control with Registrant.
Not applicable.
Item 26. Number of Holders of Securities.
Title of Class: Number of Record Holders as of November 30, 1995.
The Pierpont Money Market Fund: 3,664
The Pierpont Tax Exempt Money Market Fund: 1,863
The Pierpont Treasury Money Market Fund: 336
The Pierpont Short Term Bond Fund: 74
The Pierpont Bond Fund: 562
The Pierpont Tax Exempt Bond Fund: 1,047
The Pierpont New York Total Return Bond Fund: 118
The Pierpont Diversified Fund: 238
The Pierpont Equity Fund: 1,793
The Pierpont Capital Appreciation Fund: 1,528
The Pierpont International Equity Fund: 1,227
The Pierpont Emerging Markets Equity Fund: 1,010
Item 27. Indemnification.
Reference is made to Section 5.3 of Registrant's Declaration of Trust
and Article 4 of Registrant's Distribution Agreement.
Registrant, its Trustees and officers are insured against certain
expenses in connection with the defense of claims, demands, actions, suits, or
proceedings, and certain liabilities that might be imposed as a result of such
actions, suits or proceedings.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "1933 Act"), may be permitted to directors,
trustees, officers and controlling persons of the Registrant and the principal
underwriter pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1933 Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, trustee, officer, or controlling person of the
Registrant and the principal underwriter in connection with the successful
defense of any action, suite or proceeding) is asserted against the Registrant
by such director, trustee, officer or controlling person or principal
underwriter in connection with the shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser.
Not Applicable.
Item 29. Principal Underwriters.
(a) SBDS is the Distributor (the "Distributor") for the shares of the
Registrant. SBDS also serves as the principal underwriter or placement agent for
numerous other registered investment companies.
(b) The following are the directors and officers of the Distributor. The
principal business address of these individuals is 6 St. James Avenue, Suite
900, Boston, Massachusetts 02116 unless otherwise noted. Their respective
position and offices with the Registrant, if any, are also indicated.
Philip W. Coolidge: President, Chief Executive Officer and Director of SBDS.
President of Registrant.
John R. Elder: Assistant Treasurer of SBDS. Treasurer of the Registrant.
Barbara M. O'Dette: Assistant Treasurer of SBDS.
Linwood C. Downs: Treasurer of SBDS.
Thomas M. Lenz: Secretary of SBDS. Secretary of Registrant.
Molly S. Mugler: Assistant Secretary of SBDS. Assistant Secretary of Registrant.
Linda T. Gibson: Assistant Secretary of SBDS. Assistant Secretary of Registrant.
Beth A. Remy: Assistant Treasurer of SBDS.
Andres E. Saldana: Assistant Secretary of SBDS. Assistant Secretary of
Registrant.
Susan Jakuboski: Assistant Treasurer of SBDS.
Julie J. Wyetzner: Product Management Officer of SBDS.
Kate B.M. Bolsover: Director of SBDS; Signature Financial Group (Europe), Ltd.,
49 St. James's Street, London SW1A 1JT.
Robert G. Davidoff: Director of SBDS; CMNY Capital, L.P., 135 East 57th Street
New York, NY 10022.
Leeds Hackett: Director of SBDS; Hackett Associates Limited, 1260 Avenue of the
Americas, 12th Floor, New York, NY 10020
Laurence B. Levine: Director of SBDS; Blair Corporation, 250 Royal Palm Way,
Palm Beach, FL 33480
Donald S. Chadwick: Director of SBDS; 4609 Bayard Street, Apartment 411,
Pittsburgh, PA 15213.
(c) Not applicable.
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended, and the Rules
thereunder will be maintained at the offices of:
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, or 9 West 57th Street, New York, New York 10019 (records relating to
its functions as shareholder servicing agent, and services agent).
State Street Bank and Trust Company: 1776 Heritage Drive, North Quincy,
Massachusetts 02171 (records relating to its functions as custodian, transfer
agent and dividend disbursing agent).
Signature Broker-Dealer Services, Inc.: 6 St. James Avenue, Boston,
Massachusetts 02116 (records relating to its functions as distributor and
administrator).
Investors Bank and Trust Company: 1 First Canadian Place, Suite 5820, P.O. Box
231, Toronto, Ontario M5X1C8 (accounting records).
Item 31. Management Services.
Not Applicable.
Item 32. Undertakings.
(a) If the information called for by Item 5A of Form N-1A is contained in the
latest annual report to shareholders, the Registrant shall furnish each person
to whom a prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all the
requirements for effectiveness of this amendment to its Registration Statement
on Form N-1A ("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 20th day of December, 1995.
THE PIERPONT FUNDS
By /s/ THOMAS M. LENZ
Thomas M. Lenz
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on December 20, 1995.
MATTHEW HEALEY*
Matthew Healey
Chairman and Chief Executive Officer
PHILIP W. COOLIDGE*
Philip W. Coolidge
President
/s/ JOHN R. ELDER
John R. Elder
Treasurer and Principal Accounting and Financial Officer
F.S. ADDY*
F.S. Addy
Trustee
WILLIAM G. BURNS*
William G. Burns
Trustee
ARTHUR C. ESCHENLAUER*
Arthur C. Eschenlauer
Trustee
MICHAEL P. MALLARDI*
Michael P. Mallardi
Trustee
*By /s/ THOMAS M. LENZ
Thomas M. Lenz
As attorney-in-fact pursuant to a power of attorney previously filed.
<PAGE>
SIGNATURES
Each Portfolio has duly caused this Post-Effective Amendment to the
Registration Statement on Form N-1A ("Registration Statement") of The Pierpont
Funds (the "Trust") (File No. 33-54632) to be signed on its behalf by the
undersigned, thereto duly authorized, in George Town, Grand Cayman, Cayman
Islands, on the 20th day of December, 1995.
THE MONEY MARKET PORTFOLIO, THE TAX EXEMPT MONEY MARKET PORTFOLIO, THE TREASURY
MONEY MARKET PORTFOLIO, THE SHORT TERM BOND PORTFOLIO, THE U.S. FIXED INCOME
PORTFOLIO, THE TAX EXEMPT BOND PORTFOLIO, THE SELECTED U.S. EQUITY PORTFOLIO,
THE U.S. SMALL COMPANY PORTFOLIO, THE NON-U.S. EQUITY PORTFOLIO, THE DIVERSIFIED
PORTFOLIO, THE EMERGING MARKETS EQUITY PORTFOLIO AND THE NEW YORK TOTAL RETURN
BOND PORTFOLIO
By /s/ SUSAN JAKUBOSKI
Susan Jakuboski
Assistant Treasurer
Pursuant to the requirements of the Securities Act of 1933, the Trust's
Registration Statement has been signed below by the following persons in the
capacities indicated on December 20, 1995.
PHILIP W. COOLIDGE*
Philip W. Coolidge
President of the Portfolios
John R. Elder
Treasurer and Principal Accounting and Financial Officer of the Portfolios
MATTHEW HEALEY*
Matthew Healey
Chairman and Chief Executive Officer of the Portfolios
F.S. ADDY*
F.S. Addy
Trustee of the Portfolios
WILLIAM G. BURNS*
William G. Burns
Trustee of the Portfolios
ARTHUR C. ESCHENLAUER*
Arthur C. Eschenlauer
Trustee of the Portfolios
MICHAEL P. MALLARDI*
Michael P. Mallardi
Trustee of the Portfolios
*By /s/ SUSAN JAKUBOSKI
Susan Jakuboski
As attorney-in-fact pursuant to a power of attorney previously filed.
<PAGE>
SIGNATURES
Each Portfolio has duly caused this Post-Effective Amendment to the
Registration Statement on Form N-1A ("Registration Statement") of The Pierpont
Funds (the "Trust") (File No. 33-54632) to be signed on its behalf by the
undersigned, thereto duly authorized, in George Town, Grand Cayman, Cayman
Islands, on the 28th day of November, 1995.
THE MONEY MARKET PORTFOLIO, THE TAX EXEMPT MONEY MARKET PORTFOLIO, THE TREASURY
MONEY MARKET PORTFOLIO, THE SHORT TERM BOND PORTFOLIO, THE U.S. FIXED INCOME
PORTFOLIO, THE TAX EXEMPT BOND PORTFOLIO, THE SELECTED U.S. EQUITY PORTFOLIO,
THE U.S. SMALL COMPANY PORTFOLIO, THE NON-U.S. EQUITY PORTFOLIO, THE DIVERSIFIED
PORTFOLIO, THE EMERGING MARKETS EQUITY PORTFOLIO AND THE NEW YORK TOTAL RETURN
BOND PORTFOLIO
By
Susan Jakuboski
Assistant Treasurer
Pursuant to the requirements of the Securities Act of 1933, the Trust's
Registration Statement has been signed below by the following persons in the
capacities indicated on November 28, 1995.
Philip W. Coolidge
President of the Portfolios
/s/ JOHN R. ELDER
John R. Elder
Treasurer and Principal Accounting and Financial Officer of the Portfolios
Matthew Healey
Chairman and Chief Executive Officer of the Portfolios
F.S. Addy
Trustee of the Portfolios
William G. Burns
Trustee of the Portfolios
Arthur C. Eschenlauer
Trustee of the Portfolios
Michael P. Mallardi
Trustee of the Portfolios
*By
Susan Jakuboski
As attorney-in-fact pursuant to a power of attorney previously filed.
<PAGE>
THE PIERPONT FUNDS
INDEX TO EXHIBITS TO REGISTRATION STATEMENT ON FORM N-1A
Exhibit No. Description of Exhibit
11. Consents of independent accountants.
17. Financial Data Schedules.
CONSENTS OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 17 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated December 27, 1994, relating to the financial
statements and financial highlights of The Pierpont Treasury Money Market Fund,
The Pierpont Short Term Bond Fund, The Pierpont Bond Fund and The Pierpont
International Equity Fund and the Financial statements and supplementary data of
The Treasury Money Market Portfolio, The Short Term Bond Portfolio, The U.S.
Fixed Income Portfolio and The Non-U.S. Equity Portfolio appearing in the
October 31, 1994 Annual Reports, which are also incorporated by reference into
the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated December 30, 1994, relating to the financial
statements and financial highlights of The Pierpont Emerging Markets Equity Fund
and the financial statements and supplementary data of The Emerging Markets
Equity Portfolio appearing in the October 31, 1994 Annual Report, which is also
incorporated by reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated January 25, 1995, relating to the financial
statements and financial highlights of The Pierpont Money Market Fund and the
financial statements and supplementary data of The Money Market Portfolio
appearing in the November 30, 1994 Annual Report, which also incorporated by
reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated May 23, 1995, relating to the financial
statements and financial highlights of The Pierpont New York Total Return Bond
Fund and the financial statements and supplemental data of The New York Total
Return Bond Portfolio appearing in the March 31, 1995 Annual Report, which is
also incorporated by reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated July 26, 1995, relating to the financial
statements and financial highlights of The Pierpont Equity Fund and The Pierpont
Capital Appreciation Fund and the
<PAGE>
Consents of Independent Accountants
Page 2
financial statements and supplemental data of The Selected U.S. Equity Portfolio
and the U.S. Small Company Portfolio appearing in the May 31, 1995 Annual
Report, which is also incorporated by reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated August 28, 1995, relating to the financial
statements and financial highlights of The Pierpont Diversified Fund and the
financial statements and supplemental data of The Diversified Portfolio
appearing in the June 30, 1995 Annual Report, which is also incorporated by
reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated October 24, 1995, relating to the financial
statements and financial highlights of The Pierpont Tax Exempt Money Market Fund
and The Pierpont Tax Exempt Bond Fund and the financial statements and
supplemental data of The Tax Exempt Money Market Portfolio and The Tax Exempt
Bond Portfolio appearing in the August 31, 1995 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
December 21, 1995
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Hihglights" in the Prospectus and "Independent Accountants" in the Statement of
Additional Information in this Registration Statement (Form N-1A No. 33-54632,
1933 Act Port-Effective Amendment No. 17) of The Pierpont Funds.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, NY
December 19, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains summary financial information extracted from the May
31, 1995 The Pierpont Money Market Fund Semiannual Report and is qualified in
its entirety by reference to such Semiannual Report.
</LEGEND>
<CIK>0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 012
<NAME> THE PIERPONT MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 2,114,302,195
<INVESTMENTS-AT-VALUE> 2,114,302,195
<RECEIVABLES> 117,414
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 7,235
<TOTAL-ASSETS> 2,114,426,844
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,541,680
<TOTAL-LIABILITIES> 11,541,680
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,102,332,940
<SHARES-COMMON-STOCK> 2,101,982,124
<SHARES-COMMON-PRIOR> 2,003,390,083
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 552,224
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,102,885,164
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 62,532,572
<OTHER-INCOME> 0
<EXPENSES-NET> 2,340,721
<NET-INVESTMENT-INCOME> 58,159,946
<REALIZED-GAINS-CURRENT> 603,401
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 58,763,347
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 58,159,946
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,868,647,325
<NUMBER-OF-SHARES-REDEEMED> 6,823,339,171
<SHARES-REINVESTED> 53,283,887
<NET-CHANGE-IN-ASSETS> 99,195,442
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (51,177)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,390,195
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0278
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0278
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE PIERPONT TAX
EXEMPT MONEY MARKET FUND ANNUAL REPORT DATED AUGUST 31, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 007
<NAME> THE PIERPONT TAX EXEMPT MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 988,021,519
<INVESTMENTS-AT-VALUE> 988,021,519
<RECEIVABLES> 83,768
<ASSETS-OTHER> 2,586
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 988,107,873
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,039,173
<TOTAL-LIABILITIES> 3,039,173
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 985,354,911
<SHARES-COMMON-STOCK> 985,010,031
<SHARES-COMMON-PRIOR> 973,280,609
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (258,670)
<OVERDISTRIBUTION-GAINS> 27,541
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 985,068,700
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 40,965,514
<OTHER-INCOME> 0
<EXPENSES-NET> 5,411,378
<NET-INVESTMENT-INCOME> 35,554,136
<REALIZED-GAINS-CURRENT> (245,620)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 35,308,516
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 35,568,732
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,817,542,595
<NUMBER-OF-SHARES-REDEEMED> 3,838,123,338
<SHARES-REINVESTED> 32,310,165
<NET-CHANGE-IN-ASSETS> 11,469,206
<ACCUMULATED-NII-PRIOR> 14,596
<ACCUMULATED-GAINS-PRIOR> (13,050)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 27,541
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,442,349
<AVERAGE-NET-ASSETS> 1,060,926,324
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .03
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .51
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the April 30, 1995
The Pierpont Treasury Money Market Fund Semiannual Report and is qualified in
its entirety by reference to such Semiannual Report.
</LEGEND>
<CIK>0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 001
<NAME> THE PIERPONT TREASURY MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> APR-30-1995
<INVESTMENTS-AT-COST> 155,861,325
<INVESTMENTS-AT-VALUE> 155,861,325
<RECEIVABLES> 33,341
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 39,835
<TOTAL-ASSETS> 155,934,501
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 808,302
<TOTAL-LIABILITIES> 808,302
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 155,099,379
<SHARES-COMMON-STOCK> 155,099,379
<SHARES-COMMON-PRIOR> 118,636,554
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 26,820
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 155,126,199
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,780,160
<OTHER-INCOME> 0
<EXPENSES-NET> 132,130
<NET-INVESTMENT-INCOME> 3,515,494
<REALIZED-GAINS-CURRENT> 32,687
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,548,181
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,515,494
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 608,375,006
<NUMBER-OF-SHARES-REDEEMED> 574,958,619
<SHARES-REINVESTED> 3,046,438
<NET-CHANGE-IN-ASSETS> 36,495,512
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (5,867)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 216,374
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0263
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0263
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains summary financial data extracted from the April 30, 1995
Pierpont Short Term Bond Fund Semiannual Report and is qualified in its entirety
by reference to such Semiannual Report.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 002
<NAME> THE PIERPONT SHORT TERM BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> APR-30-1995
<INVESTMENTS-AT-COST> 8,781,590
<INVESTMENTS-AT-VALUE> 8,761,551
<RECEIVABLES> 2,933
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 19,949
<TOTAL-ASSETS> 8,784,433
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 47,554
<TOTAL-LIABILITIES> 47,554
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,915,048
<SHARES-COMMON-STOCK> 902,944
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 348
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (158,478)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (20,039)
<NET-ASSETS> 8,736,879
<DIVIDEND-INCOME> 8,103
<INTEREST-INCOME> 261,955
<OTHER-INCOME> 0
<EXPENSES-NET> 11,458
<NET-INVESTMENT-INCOME> 254,582
<REALIZED-GAINS-CURRENT> (10,387)
<APPREC-INCREASE-CURRENT> 101,134
<NET-CHANGE-FROM-OPS> 333,871
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 243,087
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 682,109
<NUMBER-OF-SHARES-REDEEMED> 20,601
<SHARES-REINVESTED> 425,621
<NET-CHANGE-IN-ASSETS> 2,729,323
<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> 54,046
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 9.60
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> 0.08
<PER-SHARE-DIVIDEND> 0.29
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.68
<EXPENSE-RATIO> 67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the April 30, 1995
The Pierpont Bond Fund Semiannual Report and is qualified in its entirety
by reference to such Semiannual Report.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 003
<NAME> THE PIERPONT BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> APR-30-1995
<INVESTMENTS-AT-COST> 117,995,644
<INVESTMENTS-AT-VALUE> 118,765,695
<RECEIVABLES> 184,921
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 23,393
<TOTAL-ASSETS> 118,974,009
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 81,078
<TOTAL-LIABILITIES> 81,078
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 123,356,338
<SHARES-COMMON-STOCK> 11,982,710
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 7,423
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,240,881)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 770,051
<NET-ASSETS> 118,892,931
<DIVIDEND-INCOME> 13,929
<INTEREST-INCOME> 4,182,704
<OTHER-INCOME> 0
<EXPENSES-NET> 173,846
<NET-INVESTMENT-INCOME> 3,776,013
<REALIZED-GAINS-CURRENT> (816,912)
<APPREC-INCREASE-CURRENT> 4,159,694
<NET-CHANGE-FROM-OPS> 7,118,795
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,767,896
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,815,185
<NUMBER-OF-SHARES-REDEEMED> 1,828,813
<SHARES-REINVESTED> 370,140
<NET-CHANGE-IN-ASSETS> 6,843,797
<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> 179,151
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 9.64
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> 0.28
<PER-SHARE-DIVIDEND> 0.32
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.92
<EXPENSE-RATIO> 74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE PIERPONT TAX
EXEMPT BOND FUND ANNUAL REPORT DATED AUGUST 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 006
<NAME> THE PIERPONT TAX EXEMPT BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 336,185,486
<INVESTMENTS-AT-VALUE> 352,670,927
<RECEIVABLES> 18,269
<ASSETS-OTHER> 813
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 352,690,009
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 684,525
<TOTAL-LIABILITIES> 684,525
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 335,126,087
<SHARES-COMMON-STOCK> 29,997,369
<SHARES-COMMON-PRIOR> 34,286,820
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 393,956
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,485,484
<NET-ASSETS> 352,005,484
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 19,727,570
<OTHER-INCOME> 0
<EXPENSES-NET> 2,523,208
<NET-INVESTMENT-INCOME> 17,204,362
<REALIZED-GAINS-CURRENT> 292,405
<APPREC-INCREASE-CURRENT> 7,518,403
<NET-CHANGE-FROM-OPS> 25,015,170
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 17,204,362
<DISTRIBUTIONS-OF-GAINS> 273,413
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,491,547
<NUMBER-OF-SHARES-REDEEMED> 20,061,693
<SHARES-REINVESTED> 1,280,695
<NET-CHANGE-IN-ASSETS> (40,454,840)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 101,551
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,523,208
<AVERAGE-NET-ASSETS> 353,136,344
<PER-SHARE-NAV-BEGIN> 11.45
<PER-SHARE-NII> .55
<PER-SHARE-GAIN-APPREC> .29
<PER-SHARE-DIVIDEND> .55
<PER-SHARE-DISTRIBUTIONS> .01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.73
<EXPENSE-RATIO> .71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE MAY 31, 1995
ANNUAL REPORT FOR THE PIERPONT EQUITY FUND AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 010
<NAME> THE PIERPONT EQUITY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 238,907,519
<INVESTMENTS-AT-VALUE> 259,605,513
<RECEIVABLES> 70,174
<ASSETS-OTHER> 35,472
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 259,711,159
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 373,389
<TOTAL-LIABILITIES> 373,389
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 230,179,817
<SHARES-COMMON-STOCK> 13,351,259
<SHARES-COMMON-PRIOR> 11,935,399
<ACCUMULATED-NII-CURRENT> 1,519,203
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,940,756
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,697,994
<NET-ASSETS> 259,337,770
<DIVIDEND-INCOME> 5,653,593
<INTEREST-INCOME> 657,254
<OTHER-INCOME> 0
<EXPENSES-NET> 936,071
<NET-INVESTMENT-INCOME> 4,157,296
<REALIZED-GAINS-CURRENT> 18,152,807
<APPREC-INCREASE-CURRENT> 12,147,358
<NET-CHANGE-FROM-OPS> 34,457,461
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,793,004
<NUMBER-OF-SHARES-REDEEMED> 4,056,832
<SHARES-REINVESTED> 1,679,688
<NET-CHANGE-IN-ASSETS> 28,031,790
<ACCUMULATED-NII-PRIOR> 902,617
<ACCUMULATED-GAINS-PRIOR> 15,958,212
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,172,736
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 19.38
<PER-SHARE-NII> .32
<PER-SHARE-GAIN-APPREC> 2.17
<PER-SHARE-DIVIDEND> .28
<PER-SHARE-DISTRIBUTIONS> 2.17
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.42
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Data extracted from the April 30,1995
Pierpont International Equity Fund Semiannual Report and is qualified in its
entirety by reference to such Semiannual Report.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 004
<NAME> THE PIERPONT INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> APR-30-1995
<INVESTMENTS-AT-COST> 184,316,456
<INVESTMENTS-AT-VALUE> 195,209,272
<RECEIVABLES> 192,174
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 1,681
<TOTAL-ASSETS> 195,403,127
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 808,006
<TOTAL-LIABILITIES> 808,006
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 182,684,910
<SHARES-COMMON-STOCK> 17,937,005
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,796,950
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (779,555)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,892,816
<NET-ASSETS> 194,595,121
<DIVIDEND-INCOME> 1,283,988
<INTEREST-INCOME> 434,423
<OTHER-INCOME> 0
<EXPENSES-NET> 449,635
<NET-INVESTMENT-INCOME> 422,051
<REALIZED-GAINS-CURRENT> (153,384)
<APPREC-INCREASE-CURRENT> (3,190,738)
<NET-CHANGE-FROM-OPS> (2,922,071)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 8,815,321
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,778,370
<NUMBER-OF-SHARES-REDEEMED> 3,960,432
<SHARES-REINVESTED> 822,349
<NET-CHANGE-IN-ASSETS> (15,840,013)
<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> 450,907
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 11.50
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> (0.18)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.49
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.85
<EXPENSE-RATIO> 136
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE JUNE 30, 1995
PIERPONT DIVERSIFIED ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 008
<NAME> THE PIERPONT DIVERSIFIED FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 20,533,449
<INVESTMENTS-AT-VALUE> 22,407,100
<RECEIVABLES> 29,683
<ASSETS-OTHER> 23,750
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22,460,533
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 64,707
<TOTAL-LIABILITIES> 64,707
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20,232,093
<SHARES-COMMON-STOCK> 2,000,000
<SHARES-COMMON-PRIOR> 715,762
<ACCUMULATED-NII-CURRENT> 290,082
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 430,631
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,443,020
<NET-ASSETS> 22,395,826
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 543,223
<OTHER-INCOME> 0
<EXPENSES-NET> 48,086
<NET-INVESTMENT-INCOME> 495,137
<REALIZED-GAINS-CURRENT> 397,319
<APPREC-INCREASE-CURRENT> 1,718,483
<NET-CHANGE-FROM-OPS> 2,610,939
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 223,701
<DISTRIBUTIONS-OF-GAINS> 43,693
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,654,301
<NUMBER-OF-SHARES-REDEEMED> 395,709
<SHARES-REINVESTED> 25,646
<NET-CHANGE-IN-ASSETS> 15,372,421
<ACCUMULATED-NII-PRIOR> 53,855
<ACCUMULATED-GAINS-PRIOR> 42,677
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 228,482
<AVERAGE-NET-ASSETS> 14,620,766
<PER-SHARE-NAV-BEGIN> 9.81
<PER-SHARE-NII> .28
<PER-SHARE-GAIN-APPREC> 1.37
<PER-SHARE-DIVIDEND> .20
<PER-SHARE-DISTRIBUTIONS> .06
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.20
<EXPENSE-RATIO> .98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE APRIL 30, 1995
THE PIERPONT EMERGING MARKETS EQUITY FUND SEMIANNUAL REPORT AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH SEMIANNUAL REPORT
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 005
<NAME> THE PIERPONT EMERGING MARKETS EQUITY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> APR-30-1995
<INVESTMENTS-AT-COST> 53,765,028
<INVESTMENTS-AT-VALUE> 47,140,669
<RECEIVABLES> 64,995
<ASSETS-OTHER> 31,858
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 47,237,522
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 125,672
<TOTAL-LIABILITIES> 125,672
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56,089,268
<SHARES-COMMON-STOCK> 4,873,263
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 11,707
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,364,766)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (6,624,359)
<NET-ASSETS> 47,111,850
<DIVIDEND-INCOME> 360,155
<INTEREST-INCOME> 106,071
<OTHER-INCOME> 0
<EXPENSES-NET> 111,661
<NET-INVESTMENT-INCOME> 62,506
<REALIZED-GAINS-CURRENT> (2,364,751)
<APPREC-INCREASE-CURRENT> (8,668,773)
<NET-CHANGE-FROM-OPS> (10,971,018)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 127,754
<DISTRIBUTIONS-OF-GAINS> 594,019
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,797,137
<NUMBER-OF-SHARES-REDEEMED> 1,287,513
<SHARES-REINVESTED> 64,658
<NET-CHANGE-IN-ASSETS> (6,319,371)
<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> 421,011
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 12.43
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> (2.60)
<PER-SHARE-DIVIDEND> .03
<PER-SHARE-DISTRIBUTIONS> .14
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.67
<EXPENSE-RATIO> 1.82
<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 Pierpont
New York Total Return Bond Fund Semiannual Report dated September 30, 1995 and
is qualified in its entirety by reference to such Semiannual Report.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 013
<NAME> THE PIERPONT FUNDS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 43,745,449
<INVESTMENTS-AT-VALUE> 45,171,829
<RECEIVABLES> 6,218
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 9,954
<TOTAL-ASSETS> 45,188,001
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 145,705
<TOTAL-LIABILITIES> 145,705
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,508,807
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 107,109
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,426,380
<NET-ASSETS> 45,042,296
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,002,251
<OTHER-INCOME> 0
<EXPENSES-NET> 58,981
<NET-INVESTMENT-INCOME> 943,270
<REALIZED-GAINS-CURRENT> 209,735
<APPREC-INCREASE-CURRENT> 824,741
<NET-CHANGE-FROM-OPS> 1,977,746
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 943,270
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 818,595
<NUMBER-OF-SHARES-REDEEMED> 326,713
<SHARES-REINVESTED> 79,615
<NET-CHANGE-IN-ASSETS> 6,905,170
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (100,420)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 74,217
<AVERAGE-NET-ASSETS> 41,788,033
<PER-SHARE-NAV-BEGIN> 10.11
<PER-SHARE-NII> 0.23
<PER-SHARE-GAIN-APPREC> 0.26
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.23
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.37
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
