<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........................ 35
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
11
<PAGE>
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
12
<PAGE>
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, to a lesser extent, in obligations
of the U.S. Government agencies described below. The Portfolio maintains a
dollar-weighted average portfolio maturity of not more than 90 days and invests
in the following securities which have effective maturities of not more than
thirteen months.
TREASURY SECURITIES; CERTAIN U.S. GOVERNMENT AGENCY OBLIGATIONS. The
Portfolio will invest in Treasury Bills, Notes, and Bonds, all of which are
backed as to principal and interest payments by the full faith and credit of the
United States ("Treasury Securities"). Treasury Bills have initial maturities of
one year or less; Treasury Notes have initial maturities of one to ten years;
and Treasury Bonds generally have initial maturities of greater than ten years.
During ordinary market conditions at least 65% of the Portfolio's net assets
will be invested in Treasury Securities and repurchase agreements collateralized
by Treasury Securities. The balance of the Portfolio may be invested in
obligations issued by the following U.S. Government agencies where the Portfolio
must look to the issuing agency for ultimate repayment: the Federal Farm Credit
System and the Federal Home Loan Banks ("Permitted Agency Securities"). Each
such obligation must have a remaining maturity of thirteen months or less at the
time of purchase by the Portfolio.
The market value of obligations in which the Portfolio invests is not
guaranteed and may rise and fall in response to changes in interest rates.
Neither the shares of the Fund nor the interests in the Portfolio are guaranteed
or insured by the U.S. Government.
The Portfolio also may purchase Treasury Securities and Permitted Agency
Securities on a when-issued or delayed delivery basis and may engage in
repurchase and reverse repurchase agreement transactions involving such
securities. For a discussion of these transactions, see Additional Investment
Information and Risk Factors.
THE 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
13
<PAGE>
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.
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
se-
14
<PAGE>
curities 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 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.
15
<PAGE>
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 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.
16
<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 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
17
<PAGE>
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 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
corpo-
18
<PAGE>
rations. 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-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.
19
<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-
20
<PAGE>
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
21
<PAGE>
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
22
<PAGE>
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 Treasury Securities
and Permitted Agency Securities and under ordinary market conditions does not
expect to enter into repurchase agreements involving more than 5% of its net
assets. The term of these agreements is usually from overnight to one week. A
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.
23
<PAGE>
REVERSE REPURCHASE AGREEMENTS. Each of the Portfolios is permitted to enter
into reverse repurchase agreements. In a reverse repurchase agreement, the
Portfolio sells a security and agrees to repurchase it at a mutually agreed upon
date and price, reflecting the interest rate effective for the term of the
agreement. For purposes of the 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
spon-
24
<PAGE>
sored 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 contractual 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
25
<PAGE>
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 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-
26
<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,
29
<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 Guaranty's 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-
30
<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
31
<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. Under the terms of the agreements, Morgan
Guaranty may delegate one or more of its responsibilities to other entities, at
Morgan Guaranty's expense.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02101, serves as the Funds' and the Portfolios' Custodian and
Transfer and Dividend Disbursing Agent.
EXPENSES. In addition to the fees payable to Morgan 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-
39
<PAGE>
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
40
<PAGE>
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.
41
<PAGE>
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.
42
<PAGE>
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
43
<PAGE>
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.
44
<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.
