PIERPONT FUNDS, 485BPOS, 1996-09-11

PIERPONT FUNDS
485BPOS, 1996-09-11

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As filed with the Securities and Exchange Commission on September 11, 1996
Registration Nos. 33-54632 and 811-7340

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 25

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 26

The Pierpont Funds
(Exact Name of Registrant as Specified in Charter)

60 State Street, Suite 1300, Boston, Massachusetts 02109
(Address of Principal Executive Offices)

Registrant's Telephone Number, including Area Code: (617) 557-0700

John E. Pelletier
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Name and Address of Agent for Service)

Copy to:
Stephen K. West, Esq.
Sullivan & Cromwell
125 Broad Street, New York, New York 10004

It is proposed that this filing will become effective (check appropriate box):

[X] Immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

The Registrant has previously registered an indefinite number of its shares
under the Securities Act of 1933, as amended, pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. The Registrant has filed Rule 24f-2
notices with respect to its series as follows: Tax Exempt Money Market and Tax
Exempt Bond Funds (for their fiscal years ended August 31, 1995) on October 30,
1995; Treasury Money Market, Short Term Bond, Bond, Emerging Markets Equity and
International Equity Funds (for their fiscal years ended October 31, 1995) on
November 17, 1995; Money Market Fund (for its fiscal year ended November 30,
1995) on January 29, 1996; New York Total Return Bond Fund (for its fiscal year
ended March 31, 1996) on May 30, 1996; Equity and Capital Appreciation Funds
(for their fiscal years ended May 31,

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1996) on July 30, 1996; and Diversified Fund (for its fiscal year ended June 30,
1996) on August 28, 1996. Registrant expects to file Rule 24f-2 notices with
respect to the European Equity, Japan Equity and Asia Growth Funds (for their
fiscal years ending December 31, 1996) on or about February 28, 1997.

The Money Market Portfolio, The Tax Exempt Money Market Portfolio, The Treasury
Money Market Portfolio, The Short Term Bond Portfolio, The U.S. Fixed Income
Portfolio, The Tax Exempt Bond Portfolio, The Selected U.S. Equity Portfolio,
The U.S. Small Company Portfolio, The Non-U.S. Equity Portfolio, The Diversified
Portfolio, The Emerging Markets Equity Portfolio, The New York Total Return Bond
Portfolio and The Series Portfolio have also executed this Registration
Statement.

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THE PIERPONT FUNDS
CROSS-REFERENCE SHEET
(As Required by Rule 495)

PART A ITEM NUMBER: Prospectus Headings.

1. COVER PAGE: Cover Page.

2. SYNOPSIS: Investors for Whom the Funds are Designed.

3. CONDENSED FINANCIAL INFORMATION: Financial Highlights.

4. GENERAL DESCRIPTION OF REGISTRANT: Cover Page; Investors for Whom the
Funds are Designed; Investment Objectives and Policies; Additional
Investment Information; Investment Restrictions; Special Information
Concerning Investment Structure; Organization; Appendix.

5. MANAGEMENT OF THE FUND: Management of the Trust and the Portfolios;
Shareholder Servicing; Additional Information.

5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE: Not Applicable.

6. CAPITAL STOCK AND OTHER SECURITIES: Special Information Concerning
Investment Structure; Shareholder; Servicing; Net Asset Value;
Purchase of Shares; Taxes; Dividends and Distributions; Organization.

7. PURCHASE OF SECURITIES BEING OFFERED: Purchase of Shares; Exchange of
Shares; Investors for Whom the Funds are Designed; Dividends and
Distributions; Net Asset Value.

8. REDEMPTION OR REPURCHASE: Redemption of Shares; Exchange of Shares;
Net Asset Value.

9. PENDING LEGAL PROCEEDINGS: Not Applicable.

PART B ITEM NUMBER: Statement of Additional Information Headings.

10. COVER PAGE: Cover Page.

11. TABLE OF CONTENTS: Table of Contents.

12. GENERAL INFORMATION AND HISTORY: General.

13. INVESTMENT OBJECTIVES AND POLICIES: Investment Objectives and
Policies; Additional Investments; Investment Restrictions; Quality
and Diversification Requirements; Appendices A, B and C.

14. MANAGEMENT OF THE FUND: Trustees and Officers.

15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES: Description of
Shares.

16. INVESTMENT ADVISORY AND OTHER SERVICES: Investment Advisor;
Co-Administrator and Distributor; Administrative Services Agent;
Custodian; Shareholder Servicing; Independent Accountants; Expenses.

17. BROKERAGE ALLOCATION AND OTHER PRACTICES: Portfolio Transactions.

18. CAPITAL STOCK AND OTHER SECURITIES: Massachusetts Trust; Description
of Shares.

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19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED: Net
Asset Value; Purchase of Shares; Redemption of Shares; Exchange of
Shares; Dividends and Distributions.

20. TAX STATUS: Taxes.

21. UNDERWRITERS: Co-Administrator and Distributor.

22. CALCULATION OF PERFORMANCE DATA: Performance Data.

23. FINANCIAL STATEMENTS: Financial Statements.

PART C. Information required to be included in Part C is set forth under the
appropriate items, so numbered, in Part C of this Registration Statement.

<PAGE>
EXPLANATORY NOTE

This post-effective amendment no. 25 (the "Amendment") to the
Registrant's registration statement (File no. 33-54632) on Form N-1A (the
"Registration Statement") is being filed pursuant to the Registrant's
undertaking to file a post-effective amendment to the Registration Statement,
using financials which need not be certified, within four to six months
following the date of commencement of public investment operations of the
following three series of shares of the Registrant: The Pierpont European
Equity, The Pierpont Japan Equity Fund and The Pierpont Asia Growth Fund.
Each of the Registrant's currently effective prospectuses for each other
series of shares of the Registrant is incorporated herein by reference as
most recently filed pursuant to Rule 497 under the Securities Act of 1933, as
amended.

<PAGE>
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PROSPECTUS
The Pierpont European Equity Fund

60 State Street

Boston, Massachusetts 02109

For information call (800) 521-5411

The Pierpont European Equity Fund (the "Fund") seeks to provide a high total
return from a portfolio of equity securities of European companies. The Fund is
designed for investors who want an actively managed portfolio of European equity
securities that seeks to outperform the Morgan Stanley Capital International
Europe Index which is comprised of more than 500 companies in fourteen European
countries.

The Fund is a diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The Pierpont
Funds, an open-end management investment company organized as a Massachusetts
business trust (the "Trust").

UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO
OF SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING
ALL OF ITS INVESTABLE ASSETS IN THE EUROPEAN EQUITY PORTFOLIO (THE "PORTFOLIO"),
A CORRESPONDING DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT COMPANY HAVING THE
SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND INVESTS IN THE PORTFOLIO THROUGH
A TWO-TIER MASTER-FEEDER INVESTMENT FUND STRUCTURE. SEE SPECIAL INFORMATION
CONCERNING INVESTMENT STRUCTURE ON PAGE 3.

The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or the "Advisor").

This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and it should be retained
for future reference. Additional information about the Fund has been filed with
the Securities and Exchange Commission in a Statement of Additional Information
dated September 11, 1996 (as supplemented from time to time). This information
is incorporated herein by reference and is available without charge upon written
request from the Fund's Distributor, Funds Distributor Inc. ("FDI"), 60 State
Street, Suite 1300, Boston, Massachusetts 02109, Attention: The Pierpont Funds,
or by calling (800) 221-7930.

INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK. SHARES
OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE
HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

THE DATE OF THIS PROSPECTUS IS SEPTEMBER 11, 1996

<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund is Designed............... 1
Financial Highlights.................................. 3
Special Information Concerning Investment
Structure........................................... 3
Investment Objective and Policies..................... 4
Additional Investment Information and Risk
Factors............................................. 6
Investment Restrictions............................... 11
Management of the Trust and the Portfolio............. 12
Shareholder Servicing................................. 14

Purchase of Shares.................................... 14
Redemption of Shares.................................. 16
Exchange of Shares.................................... 16
Dividends and Distributions........................... 17
Net Asset Value....................................... 17
Organization.......................................... 17
Taxes................................................. 18
Additional Information................................ 20
Appendix.............................................. A-1
</TABLE>

<PAGE>
The Pierpont European Equity Fund

INVESTORS FOR WHOM THE FUND IS DESIGNED

The Fund is designed for investors who want an actively managed portfolio of
European equity securities. The Fund seeks to achieve its investment objective
by investing all of its investable assets in The European Equity Portfolio, a
diversified open-end management investment company having the same investment
objective as the Fund. Since the investment characteristics and experience of
the Fund will correspond directly with those of the Portfolio, the discussion in
this Prospectus focuses on the investments and investment policies of the
Portfolio. The net asset value of shares in the Fund fluctuates with changes in
the value of the investments in the Portfolio.

The Portfolio may make various types of investments in seeking its objective.
Among the permissible investments and investment techniques for the Portfolio
are futures contracts, options and forward contracts on foreign currencies. The
potential risks of investing in these derivative instruments are discussed in
Additional Investment Information and Risk Factors and the Appendix. The
Portfolio may also purchase certain privately placed securities. The Portfolio's
investments in securities of foreign issuers, including issuers in emerging
markets, involve foreign investment risks and may be more volatile and less
liquid than domestic securities. For further information about these
investments, see Investment Objective and Policies below.

The Fund requires a minimum initial investment of $100,000, except that for
investors who were shareholders of a Pierpont Fund as of September 29, 1995, the
minimum investment is $10,000. Certain omnibus accounts require a minimum
initial investment of $250,000. The minimum subsequent investment is $5,000. See
Purchase of Shares. If a shareholder reduces his or her investment in the Fund
to less than the applicable minimum investment, the investment is subject to
mandatory redemption. See Redemption of Shares--Mandatory Redemption by the
Fund.

This Prospectus describes the investment objective and policies, management and
operation of the Fund to enable investors to decide if the Fund suits their
needs. The Fund operates in a two-tier master-feeder investment fund structure.
The Trustees believe that the Fund may achieve economies of scale over time by
utilizing this investment structure.

The following table illustrates that investors in the Fund incur no shareholder
transaction expenses; their investment in the Fund is subject only to the
operating expenses set forth below for the Fund and the Portfolio, as a
percentage of average net assets of the Fund. The Trustees of the Trust believe
that the aggregate per share expenses of the Fund and the Portfolio will be
approximately equal to and may be less than the expenses that the Fund would
incur if it retained the services of an investment adviser and invested its
assets directly in portfolio securities. Fund and Portfolio expenses are
discussed below under the headings Management of the Trust and the Portfolio and
Shareholder Servicing.

<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases............................................................. None
Sales Load Imposed on Reinvested Dividends.................................................. None
Deferred Sales Load......................................................................... None
Redemption Fees............................................................................. None
Exchange Fees............................................................................... None
</TABLE>

1
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EXPENSE TABLE

ANNUAL OPERATING EXPENSES*

<TABLE>
<S> <C>
Advisory Fees............................................................................. 0.65%
Rule 12b-1 Fees........................................................................... None
Other Expenses (after expense reimbursement).............................................. 0.77%
---------
Total Operating Expenses (after expense reimbursement).................................... 1.42%
</TABLE>

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* These expenses are based on estimated expenses of the Fund and the Portfolio
and estimated average net assets for the Fund's first fiscal year, after any
applicable expense reimbursement. Without such reimbursement, Other Expenses and
Total Operating Expenses would be equal on an annual basis to 1.80% and 2.45%,
respectively, of the estimated average daily net assets of the Fund. See
Management of the Trust and the Portfolio.

EXAMPLE

An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:

1 Year................................................................ $14
3 Years............................................................... $45

The above expense table is designed to assist investors in understanding the
various direct and indirect costs and expenses that investors in the Fund bear.
The fees and expenses included in Other Expenses are the fees paid to Morgan
under the Administrative Services and the Shareholder Servicing Agreements,
organizational expenses, the fees paid to Pierpont Group, Inc. under the Fund
Services Agreements, the fees paid to FDI under the Co-Administration
Agreements, the fees paid to State Street Bank and Trust Company as custodian
and transfer agent, and other usual and customary expenses of the Fund and the
Portfolio. For a more detailed description of contractual fee arrangements,
including expense reimbursements, see Management of the Trust and the Portfolio
and Shareholder Servicing. In connection with the above example, please note
that $1,000 is less than the Fund's minimum investment requirement and that
there are no redemption or exchange fees of any kind. See Purchase of Shares and
Redemption of Shares. THE EXAMPLE IS HYPOTHETICAL; IT IS INCLUDED SOLELY FOR
ILLUSTRATIVE PURPOSES. IT SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
PERFORMANCE; ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.

2
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FINANCIAL HIGHLIGHTS

The following table presents selected financial information about the Fund
including outstanding per share data, expense ratios and other data based on the
Fund's average net assets during the period indicated. This information should
be read in conjunction with the financial statements and notes thereto which are
part of the Statement of Additional Information.

<TABLE>
<CAPTION>
For the Period
May 13, 1996
(commencement of
operations)
through
June 30, 1996
(unaudited)
-----------------
<S> <C>
Net Asset Value, Beginning of Period.................................................................... $ 10.00
Income from Investment Operations:
Net Investment Income................................................................................. 0.02
Net Realized and Unrealized Gain on Investments....................................................... 0.31
------
Total from Investment Operations........................................................................ 0.33
------
Net Asset Value, End of Period.......................................................................... $ 10.33
------
------
Total Return............................................................................................ 3.30%(a)
Ratios and Supplemental Data:
Net Assets, End of Period (in Thousands).............................................................. $ 15
------
------
Ratios to Average Net Assets:
Expenses............................................................................................ 1.36%(b)
Net Investment Income............................................................................... 2.85%(b)
Decrease Reflected in Expense Ratio due to Expense Reimbursement.................................... 1.14%(b)(c)
</TABLE>

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(a) Not Annualized.

(b) Annualized.

SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE

Unlike other mutual funds which directly acquire and manage their own portfolio
of securities, the Fund is an open-end management investment company which seeks
to achieve its investment objective by investing all of its investable assets in
the Portfolio, a separate registered investment company with the same investment
objective as the Fund. The investment objective of the Fund or Portfolio may be
changed only with the approval of the holders of the outstanding shares of the
Fund and the Portfolio. The master-feeder investment fund structure has been
developed relatively recently, so shareholders should carefully consider this
investment approach.

In addition to selling a beneficial interest to the Fund, the Portfolio may sell
beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
bear a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Fund. Such different pricing structures may
result in differences in returns experienced by investors in other funds that
invest in the Portfolio. Such differences in returns are not uncommon and are
present in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from Morgan at (800) 521-5411.

3
<PAGE>
The Trust may withdraw the investment of the Fund from the Portfolio at any time
if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described below with respect to the Portfolio.

Certain changes in the Portfolio's investment objective, policies or
restrictions, or a failure by the Fund's shareholders to approve a change in the
Portfolio's investment objective or restrictions, may require withdrawal of the
Fund's interest in the Portfolio. Any such withdrawal could result in a
distribution in kind of portfolio securities (as opposed to a cash distribution)
from the Portfolio which may or may not be readily marketable. The distribution
in kind may result in the Fund having a less diversified portfolio of
investments or adversely affect the Fund's liquidity, and the Fund could incur
brokerage, tax or other charges in converting the securities to cash.
Notwithstanding the above, there are other means for meeting shareholder
redemption requests, such as borrowing.

Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, because the Portfolio would become smaller, it may become less
diversified, resulting in potentially increased portfolio risk (however, these
possibilities also exist for traditionally structured funds which have large or
institutional investors who may withdraw from a fund). Also, funds with a
greater pro rata ownership in the Portfolio could have effective voting control
of the operations of the Portfolio. Whenever the Fund is requested to vote on
matters pertaining to the Portfolio (other than a vote by the Fund to continue
the operation of the Portfolio upon the withdrawal of another investor in the
Portfolio), the Trust will hold a meeting of shareholders of the Fund and will
cast all of its votes proportionately as instructed by the Fund's shareholders.
The Trust will vote the shares held by Fund shareholders who do not give voting
instructions in the same proportion as the shares of Fund shareholders who do
give voting instructions. Shareholders of the Fund who do not vote will have no
effect on the outcome of such matters.

For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Additional Investment
Information and Risk Factors and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment
Restrictions.

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund and the Portfolio is described below,
together with the policies they employ in their efforts to achieve this
objective. Additional information about the investment policies of the Fund and
the Portfolio appears in the Statement of Additional Information under
Investment Objectives and Policies. There can be no assurance that the
investment objective of the Fund or the Portfolio will be achieved.

The Fund's investment objective is to provide a high total return from a
portfolio of equity securities of European 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 European Equity Portfolio, a diversified open-end management
investment company having the same investment objective as the Fund.

4
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The Fund is designed for investors who want an actively managed portfolio of
European equity securities that seeks to outperform the Morgan Stanley Capital
International Europe Index which is comprised of more than 500 companies in
fourteen European countries. THE FUND DOES NOT REPRESENT A COMPLETE INVESTMENT
PROGRAM NOR IS THE FUND SUITABLE FOR ALL INVESTORS.

The Portfolio seeks to achieve its investment objective through country
allocation and stock valuation and selection. Based on fundamental research,
quantitative valuation techniques, and experienced judgment, Morgan uses a
structured decision-making process to allocate the Portfolio across European
countries, consisting of Austria, Belgium, Denmark, Germany, Finland, France,
Ireland, Italy, the Netherlands, Norway, Spain, Sweden, Switzerland and the
United Kingdom.

A European company is one that: (i) has its principal securities trading market
in a European country; or (ii) is organized under the laws of a European
country; or (iii) derives 50% or more of its total revenue and/or profits from
either goods produced, sales made or services performed in European countries;
or (iv) has at least 50% of its assets located in European countries.

Using a dividend discount model and based on analysts' industry expertise,
companies in each country are ranked within industrial sectors according to
their relative value. Based on this valuation, Morgan selects the companies
which appear the most attractive for the Portfolio. Morgan believes that under
normal market conditions, industrial sector weightings generally will be similar
to those of the Morgan Stanley Capital International Europe Index.

The Portfolio's investments are primarily denominated in foreign currencies but
it may also invest in securities denominated in the U.S. dollar or multinational
currency units such as the ECU. The Advisor will not routinely attempt to hedge
the Portfolio's foreign currency exposure. However, the Advisor may from time to
time engage in foreign currency exchange transactions if, based on fundamental
research, technical factors, and the judgment of experienced currency managers,
it believes the transactions would be in the Portfolio's best interest. For
further information on foreign currency exchange transactions, see Additional
Investment Information and Risk Factors.

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. To the extent the Portfolio engages in
short-term trading, it may realize short-term capital gains or losses and incur
increased transaction costs. See Taxes below. The estimated annual portfolio
turnover rate for the Portfolio is generally not expected to exceed 100%.

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 European companies consisting of common stocks
and other securities with equity characteristics comprised of preferred stock,
warrants, rights, convertible securities, trust certificates, limited
partnership interests and equity participations. The Portfolio's primary equity
investments are the common stock of companies based in the developed countries
of Europe. Such investments will be made in at least three European countries.
The common stock in which the Portfolio may invest includes the common stock of
any class or series or any similar equity interest, such as trust or limited
partnership interests. These equity investments may or may not pay dividends and
may or may not carry voting rights. In addition to its equity investments in
European companies, the Portfolio may invest up to 5% of its assets in equity
securities of issuers in emerging European markets such as Eastern European
countries and Turkey. See Additional Investment

5
<PAGE>

Information and Risk Factors. The Portfolio invests in securities listed on
foreign or domestic securities exchanges and securities traded in foreign or
domestic over-the-counter (OTC) markets, and may invest in certain restricted or
unlisted securities.

The Portfolio may also invest in money market instruments and bonds denominated
in U.S. dollars and other currencies, purchase securities on a when-issued or
delayed delivery basis, enter into repurchase and reverse repurchase agreements,
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 indexes of securities, futures
contracts and options on futures contracts for hedging and risk management
purposes. Forward foreign currency exchange contracts, options and futures
contracts are derivative instruments. For a discussion of these investments and
investment techniques, see Additional Investment Information and Risk Factors.

ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS

FOREIGN INVESTMENT INFORMATION. The Portfolio invests primarily in foreign
securities. Investment in securities of foreign issuers involves somewhat
different investment risks from those affecting securities of U.S. domestic
issuers. There may be limited publicly available information with respect to
foreign issuers, and foreign issuers are not generally subject to uniform
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 the Portfolio by domestic companies.

Investors should realize that the value of the 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 Portfolio must be made in compliance
with U.S. and foreign currency restrictions and tax laws restricting the amounts
and types of foreign investments.

In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, the 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 invests primarily in securities of established issuers in
developed European countries, it may also invest in equity securities of
companies in European emerging market countries. Investments in securities of
issuers in European emerging market countries may involve a high degree of risk
and many may be considered

6
<PAGE>
speculative. These investments carry all of the risks of investing in securities
of foreign issuers outlined in this section to a heightened degree. These
heightened risks include (i) greater risks of expropriation, confiscatory
taxation, nationalization, and less social, political and economic stability;
(ii) the small current size of the markets for securities of emerging markets
issuers and the currently low or nonexistent volume of trading, resulting in
lack of liquidity and in price volatility; (iii) certain national policies which
may restrict the Portfolio's 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.

The Portfolio may invest in securities of foreign issuers directly or in the
form of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") or other similar securities of foreign issuers. These securities may
not necessarily be denominated in the same currency as the securities they
represent. ADRs are receipts typically issued by a U.S. bank or trust company
evidencing ownership of the underlying foreign securities. Certain such
institutions issuing ADRs may not be sponsored by the issuer of the underlying
foreign securities. A non-sponsored depository may not provide the same
shareholder information that a sponsored depository is required to provide under
its 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.

Since the Portfolio's investments in foreign securities involve foreign
currencies, the value of its assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. See Foreign Currency Exchange
Transactions.

FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and sells
securities and receives interest and dividends in currencies other than the U.S.
dollar, the Portfolio may enter from time to time into foreign currency exchange
transactions. The Portfolio either enters into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market or uses forward contracts to purchase or sell foreign currencies. The
cost of the 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 Portfolio 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.

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<PAGE>
foreign currency in which the investment is denominated or principally traded in
exchange for U.S. dollars or in exchange for another foreign currency. The
Portfolio will only enter into forward contracts to sell a 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 against the hedged currency
and the U.S. dollar. The precise matching of the forward contract amounts and
the value of the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of such securities between the date
the forward contract is entered into and the date it matures. The projection of
currency market movements is extremely difficult, and the successful execution
of a hedging strategy is highly uncertain.

CONVERTIBLE SECURITIES. The convertible securities in which the Portfolio may
invest include any debt securities or preferred stock which may be converted
into common stock or which carry the right to purchase common stock. 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.

COMMON STOCK WARRANTS. The Portfolio may invest in common stock warrants that
entitle the holder to buy common stock from the issuer of the warrants at a
specific price (the strike price) for a specific period of time. The market
price of warrants may be lower than the current market price of the underlying
common stock, yet warrants are subject to similar price fluctuations. As a
result, warrants may be more volatile investments than the underlying common
stock.

Warrants generally do not entitle the holder to dividends or voting rights with
respect to the underlying stock and do not represent any rights in the assets of
the issuer company. A warrant will expire worthless if it is not exercised on or
prior to the expiration date.

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
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. The
Portfolio maintains with the Custodian a separate account with a segregated
portfolio of securities in an amount at least equal to these commitments. When
entering into a when-issued or delayed delivery transaction, the Portfolio will
rely on the other party to consummate the transaction; if the other party fails
to do so, the Portfolio may be disadvantaged. It is the current policy of the
Portfolio not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.

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<PAGE>
Portfolio to the seller. The Portfolio always receives securities as collateral
with a market value at least equal to the purchase price plus accrued interest
and this value is maintained during the term of the agreement. If the seller
defaults and the collateral value declines, the Portfolio might incur a loss. If
bankruptcy proceedings are commenced with respect to the seller, the Portfolio's
realization upon the disposition of collateral may be delayed or limited.
Investments in certain repurchase agreements and certain other investments which
may be considered illiquid are limited. See Illiquid Investments; Privately
Placed and other Unregistered Securities below.

LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in an amount up to 33 1/3% of
the value of the Portfolio's net assets. The Portfolio may lend its securities
if such loans are secured continuously by cash or equivalent collateral or by a
letter of credit in favor of the Portfolio at least equal at all times to 100%
of the market value of the securities loaned, plus accrued interest. While such
securities are on loan, the borrower will pay the Portfolio any income accruing
thereon. Loans will be subject to termination by the Portfolio in the normal
settlement time, generally three business days after notice, or by the borrower
on one day's notice. Borrowed securities must be returned when the loan is
terminated. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the Portfolio and its
respective investors. The Portfolio may pay reasonable finders' and custodial
fees in connection with a loan. In addition, the Portfolio will consider all
facts and circumstances, including the creditworthiness of the borrowing
financial institution, and the Portfolio will not make any loans in excess of
one year.

Loans of portfolio securities may be considered extensions of credit by the
Portfolio. The risks to the Portfolio with respect to borrowers of its portfolio
securities are similar to the risks to the Portfolio with respect to sellers in
repurchase agreement transactions. See Repurchase Agreements above. The
Portfolio will not lend its securities to any officer, Trustee, Director,
employee or other affiliate of the Portfolio, the Advisor or the Distributor,
unless otherwise permitted by applicable law.

REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase it at a mutually agreed upon date and price,
reflecting the interest rate effective for the term of the agreement. For the
purposes of the Investment Company Act of 1940 (the "1940 Act"), it is
considered a form of borrowing by the Portfolio and, therefore, is a form of
leverage. Leverage may cause any gains or losses of the Portfolio to be
magnified. See Investment Restrictions for investment limitations applicable to
reverse repurchase agreements and other borrowings. For more information, see
Investment Objectives and Policies in the Statement of Additional Information.

ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may not acquire any illiquid securities if, as a result thereof, more
than 15% of the market value of the Portfolio's net assets would be in illiquid
investments. Subject to this non-fundamental policy limitation, the Portfolio
may acquire investments that are illiquid or have limited liquidity, such as
private placements or investments that are not registered under the Securities
Act of 1933, as amended (the "1933 Act"), and cannot be offered for public sale
in the United States without first being registered under the 1933 Act. An
illiquid investment is any investment that cannot be disposed of within seven
days in the normal course of business at approximately the amount at which it is
valued by the Portfolio. The price the Portfolio pays for illiquid securities or
receives upon resale may be lower than the price paid or received for similar
securities with a more liquid market. Accordingly the valuation of these
securities will reflect any limitations on their liquidity.

9
<PAGE>
The Portfolio may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's
implementation of these guidelines on a periodic basis.

FUTURES AND OPTIONS TRANSACTIONS. The Portfolio may (a) purchase and sell
(write) exchange traded and OTC put and call options on equity securities or
indexes of equity securities, (b) purchase and sell futures contracts on indexes
of equity securities, and (c) purchase and sell (write) put and call options on
futures contracts on indexes of equity securities. Each of these instruments is
a derivative instrument as its value derives from the underlying asset or index.

The Portfolio may use futures contracts and options for hedging and risk
management purposes. The Portfolio may not use futures contracts and options for
speculation.

The Portfolio may utilize options and futures contracts to manage its exposure
to changing interest rates and/or security prices. Some options and futures
strategies, including selling futures contracts and buying puts, tend to hedge
the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Advisor and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.

The use of options and futures is a highly specialized activity which involves
investment strategies and risks different from those associated with ordinary
portfolio securities transactions, and there can be no guarantee that their use
will increase the Portfolio's return. While the use of these instruments by the
Portfolio may reduce certain risks associated with owning its portfolio
securities, these techniques themselves entail certain other risks. If the
Advisor applies a strategy at an inappropriate time or judges market conditions
or trends incorrectly, options and futures strategies may lower the Portfolio's
return. Certain strategies limit the Portfolio's possibilities to realize gains
as well as limiting its exposure to losses. The Portfolio could also experience
losses if the prices of its options and futures positions were poorly correlated
with its other investments or if it could not close out its positions because of
an illiquid secondary market. In addition, the Portfolio will incur transaction
costs, including trading commissions and option premiums, in connection with its
futures and options transactions and these transactions could significantly
increase the Portfolio's turnover rate.

The Portfolio may purchase put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts, only
if such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Portfolio's net assets, and (ii) the aggregate margin deposits required on all
such futures or options thereon held at any time do not exceed 5% of the
Portfolio's total assets. In addition, the Portfolio will not purchase or sell
(write) futures contracts, options on futures contracts or commodity options for
risk management purposes if, as a result, the aggregate initial margin and
options premiums required to establish these positions exceed 5% of the net
asset value of the Portfolio. For more detailed information about these
transactions, see the Appendix to this Prospectus and Investment Objectives and
Policies--Risk Management in the Statement of Additional Information.

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<PAGE>
FIXED INCOME INVESTMENTS. The Portfolio is permitted to invest in money market
instruments and bonds although it intends to stay invested in equity securities
to the extent practical in light of its objective. The Portfolio may invest in
fixed income instruments of foreign or domestic issuers denominated in U.S.
dollars and other currencies. Under normal circumstances the Portfolio will
purchase money market instruments to invest temporary cash balances or to
maintain liquidity to meet redemptions. However, the Portfolio may also invest
in money market instruments and bonds without limitation as a temporary
defensive measure taken in the Advisor's judgment during, or in anticipation of,
adverse market conditions. For more detailed information about these
investments, see Investment Objectives and Policies in the Statement of
Additional Information.

INVESTMENT RESTRICTIONS

As a diversified investment company, 75% of the assets of the Portfolio are
subject to the following fundamental limitations: (a) the Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except U.S. government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer.

The investment objective of the Fund and the Portfolio, together with the
investment restrictions described below and in the Statement of Additional
Information, except as noted, are deemed fundamental policies, i.e., they may be
changed only with the approval of the holders of a majority of the outstanding
voting securities of the Fund and the Portfolio. The Fund has the same
investment restrictions as the Portfolio, except that the Fund may invest all of
its investable assets in another open-end investment company with the same
investment objective and restrictions (such as the Portfolio). References below
to the Portfolio's investment restrictions also include the Fund's investment
restrictions.

The Portfolio may not purchase securities or other obligations of issuers
conducting their principal business activity in the same industry if 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. In addition, the Portfolio may not 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); and the Portfolio may not issue senior securities except as
permitted by the 1940 Act or any rule, order or interpretation thereunder. See
Additional Investment Information and Risk Factors--Loans of Portfolio
Securities and Reverse Repurchase Agreements.

For a more detailed discussion of the above investment restrictions, as well as
a description of certain other investment restrictions, see Investment
Restrictions in the Statement of Additional Information.

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MANAGEMENT OF THE TRUST AND THE PORTFOLIO

TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the
Portfolio, the Trustees decide upon matters of general policy and review the
actions of the Advisor and other service providers. The Trustees of the Trust
and of the Portfolio are identified below.

<TABLE>
<S> <C>
Frederick S. Addy.................................. Former Executive Vice President and Chief
Financial Officer, Amoco Corporation
William G. Burns................................... Former Vice Chairman of the Board and Chief
Financial Officer, NYNEX Corporation
Arthur C. Eschenlauer.............................. Former Senior Vice President, Morgan Guaranty
Trust Company of New York
Matthew Healey..................................... Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi................................ Former Senior Vice President, Capital Cities/
ABC, Inc. and President, Broadcast Group
</TABLE>

A majority of the disinterested Trustees have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust, the Portfolio and
The JPM Institutional Funds, up to and including creating a separate board of
trustees. See Trustees and Officers in the Statement of Additional Information
for more information about the Trustees and Officers of the Fund and the
Portfolio.

The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pierpont
Group, Inc. in providing these services. Pierpont Group, Inc. was organized in
1989 at the request of the Trustees of The Pierpont Family of Funds for the
purpose of providing these services at cost to those funds. See Trustees and
Officers in the Statement of Additional Information. The principal offices of
Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017.

ADVISOR. The Fund has not retained the services of an investment adviser because
the Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. The Portfolio has retained the services of
Morgan as Investment Advisor. Morgan, with principal offices at 60 Wall Street,
New York, New York 10260, is a New York trust company which conducts a general
banking and trust business. Morgan is a wholly owned subsidiary of J.P. Morgan &
Co. Incorporated ("J.P. Morgan"), a bank holding company organized under the
laws of Delaware. Through offices in New York City and abroad, J.P. Morgan,
through the Advisor and other subsidiaries, offers a wide range of services to
governmental, institutional, corporate and individual customers and acts as
investment adviser to individual and institutional clients with combined assets
under management of over $179 billion (of which the Advisor advises over $28
billion). Morgan provides investment advice and portfolio management services to
the Portfolio. Subject to the supervision of the Portfolio's Trustees, Morgan
makes the Portfolio's day-to-day investment decisions, arranges for the
execution of portfolio transactions and generally manages the Portfolio's
investments. See Investment Advisor in the Statement of Additional Information.

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<PAGE>
Morgan uses a sophisticated, disciplined, collaborative process for managing all
asset classes. For equity portfolios, this process utilizes fundamental
research, systematic stock selection, disciplined portfolio construction and, in
the case of foreign equities, country exposure and currency management. Morgan
has managed portfolios of equity securities of international, including
European, companies on behalf of its clients since 1974. The portfolio managers
making investments in European equity securities work in conjunction with
Morgan's European equity analysts, as well as capital market, credit and
economic research analysts, traders and administrative officers. The European
equity analysts, located in London, each cover a different industry, monitoring
a universe of approximately 600 companies in Europe.

The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio (the inception date of
each person's responsibility for the Portfolio and his business experience for
the past five years is indicated parenthetically): Paul A. Quinsee, Vice
President (since March, 1995, employed by Morgan since February, 1992 and by
Citibank, N.A. prior to 1992 as a portfolio manager of international equity
investments) and Rudolph Leuthold, Managing Director (since March, 1995,
employed by Morgan since prior to 1991 as a portfolio manager of international
equity investments).

As compensation for the services rendered and related expenses borne by Morgan
under the Investment Advisory Agreement with the Portfolio, the Portfolio has
agreed to pay Morgan a fee, which is computed daily and may be paid monthly, at
the annual rate of 0.65% of the Portfolio's average daily net assets.

Under separate agreements, Morgan also provides administrative and related
services to the Fund and the Portfolio and shareholder services to shareholders
of the Fund. See Administrative Services Agent and Shareholder Servicing below.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.

CO-ADMINISTRATOR AND DISTRIBUTOR. Under Co-Administration Agreements with the
Trust and the Portfolio, FDI serves as the Co-Administrator for the Trust and
the Portfolio, and in that capacity FDI (i) provides office space, equipment and
clerical personnel for maintaining the organization and books and records of the
Trust and the Portfolio; (ii) provides officers for the Trust and the Portfolio;
(iii) prepares and files documents required in connection with the Trust's state
securities law registrations; (iv) reviews and files Trust marketing and sales
literature; (v) files Portfolio regulatory documents and mails Portfolio
communications to Trustees and investors; and (vi) maintains related books and
records. See Administrative Services Agent below.

FDI, a registered broker-dealer, also serves as the Distributor of shares of the
Fund and exclusive placement agent for the Portfolio. FDI is a wholly owned
indirect subsidiary of Boston Institutional Group, Inc. FDI currently provides
administration and distribution services for a number of other registered
investment companies.

ADMINISTRATIVE SERVICES AGENT. Under Administrative Services Agreements with the
Trust and the Portfolio, Morgan is responsible for administrative and related
services provided to the Fund and the Portfolio, including services related to
taxes, financial statements, calculation of performance data, oversight of
service providers and certain regulatory and Board of Trustees matters. Under
the Administrative Services Agreements and the Co-Administration Agreements,
each of the Fund and the Portfolio has agreed to pay Morgan and FDI fees equal
to its allocable share of an annual complex-wide charge. This charge is
calculated daily based on the aggregate net assets of the Portfolio and the
other portfolios (collectively the "Master Portfolios") in which series of the
Trust, The

13
<PAGE>

JPM Institutional Funds or The JPM Advisor Funds invest in accordance with the
following annual schedule: 0.09% on the first $7 billion of the Master
Portfolios' aggregate average daily net assets, and 0.04% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion.

CUSTODIAN. State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Fund's and the Portfolio's
Custodian and Transfer Agent and the Fund's Dividend Disbursing Agent. State
Street also keeps the books of account for the Fund and the Portfolio.

EXPENSES. In addition to the fees payable to Morgan, FDI and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor,
Co-Administrator and Distributor, and Administrative Services Agent above and
Shareholder Servicing below, the Fund and the Portfolio are responsible for
usual and customary expenses associated with their respective operations. Such
expenses include organization expenses, legal fees, accounting expenses,
insurance costs, the compensation and expenses of the Trustees, registration
fees under federal securities laws, and extraordinary expenses applicable to the
Fund or the Portfolio. For the Fund, such expenses also include transfer,
registrar and dividend disbursing costs, the expenses of printing and mailing
reports, notices and proxy statements to Fund shareholders, and registration
fees under state securities laws. For the Portfolio, such expenses also include
registration fees under foreign securities laws, custodian fees and brokerage
expenses.

Morgan has agreed that it will reimburse the Fund through at least April 30,
1997 to the extent necessary to maintain the Fund's total operating expenses
(which includes expenses of the Fund and the Portfolio) at the annual rate of
1.42% of the Fund's average daily net assets. This limit does not cover
extraordinary expenses during the period. There is no assurance that Morgan will
continue this waiver beyond the specified period, except as required by the
following sentence. Morgan has agreed to waive fees as necessary if in any
fiscal year the sum of the Fund's expenses exceeds the limits set by applicable
regulations of state securities commissions. Such annual limits are currently
2.5% of the first $30 million of average net assets, 2% of the next $70 million
of such net assets and 1.5% of such net assets in excess of $100 million for any
fiscal year.

SHAREHOLDER SERVICING

Pursuant to a Shareholder Servicing Agreement with the Trust, Morgan acts as
shareholder servicing agent for its customers and other Fund investors who are
customers of an eligible institution which is a customer of Morgan (an "Eligible
Institution"). The Fund pays Morgan for these services at an annual rate
(expressed as a percentage of the average daily net asset values of Fund shares
owned by or for shareholders for whom Morgan is acting as shareholder servicing
agent) of 0.25% of the Fund's average daily net assets. Under the terms of the
Shareholder Servicing Agreement with the Fund, Morgan may delegate one or more
of its responsibilities to other entities at Morgan's expense.

Shareholders should address all inquiries to J.P. Morgan Funds Services, Morgan
Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York 10036
or call (800) 521-5411.

The business days of the Fund and the Portfolio are the days the New York Stock
Exchange is open.

PURCHASE OF SHARES

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<PAGE>
to accept any instructions relating to a Fund account from Morgan as agent for
the customer. All purchase orders must be accepted by the Fund's Distributor.
Investors must be customers of Morgan or an Eligible Institution. Investors may
also be employer-sponsored retirement plans that have designated the Fund as an
investment option for the plans. Prospective investors who are not already
customers of Morgan may apply to become customers of Morgan for the sole purpose
of Fund transactions. There are no charges associated with becoming a Morgan
customer for this purpose. Morgan reserves the right to determine the customers
that it will accept, and the Fund reserves the right to determine the purchase
orders that it will accept.

The Fund requires a minimum initial investment of $100,000, except that for
investors who were shareholders of another Pierpont Fund as of September 29,
1995, the minimum initial investment in the Fund is $10,000. The minimum
subsequent investment for all investors is $5,000. These minimum investment
requirements may be waived for investors for whom the Advisor is a fiduciary or
who are employees of the Advisor, or who maintain related accounts with The
Pierpont Funds or the Advisor or maintain investments in The Pierpont Funds
(other than the money market funds) when such accounts and/or investments total
$500,000 or more.

For investors such as investment advisors, trust companies and financial
advisors who make investments for a group of clients, the minimum investment in
the Fund is (i) $100,000 per individual client or (ii) $250,000 for an
aggregated purchase order for more than one client. The Fund may permit an
investor who is investing for a group of clients to attain the $250,000 minimum
investment within a reasonable period of time that will be no longer than
thirteen months after opening its account. An employer-sponsored retirement plan
opening an account in the Fund will be required to attain a minimum balance of
$250,000 within thirteen months of opening the account.

PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value per share next determined after
receipt of an order. Prospective investors may purchase shares with the
assistance of an Eligible Institution that may establish its own terms,
conditions and charges.

To purchase shares in the Fund, investors should request their Morgan
representative (or a representative of their Eligible Institution) to assist
them in placing a purchase order with the Fund's Distributor and to transfer
immediately available funds to the Fund's Distributor on the next business day.
Any shareholder may also call J.P. Morgan Funds Services at (800) 521-5411 for
assistance in placing an order for Fund shares. If the Fund receives a purchase
order prior to 4:00 P.M. New York time on any business day, the purchase of Fund
shares is effective and is made at the net asset value determined that day, and
the purchaser generally becomes a holder of record on the next business day upon
the Fund's receipt of payment. If the Fund or its agent receives a purchase
order after 4:00 P.M. New York time, the purchase is effective and is made at
the net asset value determined on the next business day, and the purchaser
becomes a holder of record on the following business day upon the Fund's receipt
of payment.

ELIGIBLE INSTITUTIONS. The services provided by Eligible Institutions may
include establishing and maintaining shareholder accounts, processing purchase
and redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the Eligible Institution, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as Morgan or the

15
<PAGE>
Eligible Institution's clients may reasonably request and agree upon with the
Eligible Institution. Eligible Institutions may separately establish their own
terms, conditions and charges for providing the aforementioned services and for
providing other services.

REDEMPTION OF SHARES

METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
Morgan or his Eligible Institution, as appropriate, to submit a redemption
request to the Fund or may telephone J.P. Morgan Funds Services directly at
(800) 521-5411 and give the Shareholder Service Representative a preassigned
shareholder Personal Identification Number and the amount of the redemption. The
Fund executes effective redemption requests at the next determined net asset
value per share. See Net Asset Value. See Additional Information below for an
explanation of the telephone redemption policy of The Pierpont Funds.

A redemption request received by the Fund or its agent prior to 4:00 P.M. New
York time is effective on that day. A redemption request received after that
time becomes effective on the next business day. Proceeds of an effective
redemption are generally deposited the next business day in immediately
available funds to the shareholder's account at Morgan or at his Eligible
Institution or, in the case of certain Morgan customers, are mailed by check or
wire transferred in accordance with the customer's instructions, and, subject to
Further Redemption Information below, in any event are paid within seven days.

MANDATORY REDEMPTION BY THE FUND. If the value of a shareholder's holdings in
the Fund falls below the applicable minimum investment amount for more than 30
days because of a redemption of shares, or a shareholder's account balance does
not achieve the required minimum investment within the prescribed time period,
the Fund may redeem the remaining shares in the account 60 days after written
notice to the shareholder unless the account is increased to the minimum
investment amount or more. Investors who were shareholders of a Pierpont Fund as
of September 29, 1995 are required to maintain an investment of $10,000 in the
Fund.

FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions from
the Fund may not be processed if a redemption request is not submitted in proper
form. To be in proper form, the Fund must have received the shareholder's
taxpayer identification number and address. As discussed under Taxes below, the
Fund may be required to impose "back-up" withholding of federal income tax on
dividends, distributions and redemption proceeds when non-corporate investors
have not provided a certified taxpayer identification number. In addition, if a
shareholder sends a check for the purchase of Fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days.

The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other
periods as the 1940 Act or the Securities and Exchange Commission may permit.
See Redemption of Shares in the Statement of Additional Information.

EXCHANGE OF SHARES

16
<PAGE>
investment amount for each of those funds. Shares are exchanged on the basis of
relative net asset value per share. Exchanges are in effect redemptions from one
fund and purchases of another fund and the usual purchase and redemption
procedures and requirements are applicable to exchanges. See Purchase of Shares
and Redemption of Shares in this Prospectus and in the prospectuses for the
other Pierpont Funds and The JPM Institutional Funds. See also Additional
Information below for an explanation of the telephone exchange policy of The
Pierpont Funds.

Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income tax
purposes. The Fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state
securities laws may restrict the availability of the exchange privilege.

DIVIDENDS AND DISTRIBUTIONS

Dividends consisting of substantially all of the Fund's net investment income,
if any, are declared and paid annually. The Fund may also declare an additional
dividend of net investment income in a given year to the extent necessary to
avoid the imposition of federal excise tax on the Fund.

Substantially all the realized net capital gains, if any, of the Fund are
declared and paid on an annual basis, except that an additional capital gains
distribution may be made in a given year to the extent necessary to avoid the
imposition of federal excise tax on the Fund. Declared dividends and
distributions are payable to shareholders of record on the record date.

Dividends and capital gains distributions paid by the Fund are automatically
reinvested in additional shares of the Fund unless the shareholder has elected
to have them paid in cash. Dividends and distributions to be paid in cash are
credited to the shareholder's account at Morgan or at his Eligible Institution
or, in the case of certain Morgan customers, are mailed by check in accordance
with the customer's instructions. The Fund reserves the right to discontinue,
alter or limit the automatic reinvestment privilege at any time.

NET ASSET VALUE

Net asset value per share for the Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in the
Portfolio and other assets) the amount of its liabilities and dividing the
remainder by the number of its outstanding shares, rounded to the nearest cent.
Expenses, including the fees payable to Morgan, are accrued daily. See Net Asset
Value in the Statement of Additional Information for information on valuation of
portfolio securities for the Portfolio.

The Fund computes its net asset value once daily at 4:15 P.M. New York time on
Monday through Friday, except that the net asset value is not computed for the
Fund on the holidays listed under Net Asset Value in the Statement of Additional
Information.

ORGANIZATION

17
<PAGE>
series of shares have been authorized and are available for sale to the public.
Only shares of the Fund are offered through this Prospectus. No series of shares
has any preference over any other series of shares. See Massachusetts Trust in
the Statement of Additional Information.

The Declaration of Trust for the Trust provides that no Trustee, shareholder,
officer, employee, or agent of the Fund shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the Fund, but
that the Trust property only shall be liable.

Shareholders of the Fund are entitled to one vote for each share and to the
appropriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and nonassessable by the Fund. The Trust does not intend to hold meetings of
shareholders annually. As of August 30, 1996, D. J. Fermo and L. Fermo and Eric
Boulot and Elisabeth Boulot beneficially owned a controlling interest (more than
25%) in the Fund's outstanding shares. The Trustees may call meetings of
shareholders for action by shareholder vote as may be required by either the
1940 Act or the Declaration of Trust. The Trustees will call a meeting of
shareholders to vote on removal of a Trustee upon the written request of the
record holders of ten percent of Trust shares and will assist shareholders in
communicating with each other as prescribed in Section 16(c) of the 1940 Act.
For further organization information, including certain shareholder rights, see
Description of Shares in the Statement of Additional Information.

The Portfolio in which all of the assets of the Fund are invested is a series
(subtrust) of The Series Portfolio, a trust organized under the laws of the
State of New York. The Series Portfolio's Declaration of Trust provides that the
Fund and other entities investing in the Portfolio (e.g., other investment
companies, insurance company separate accounts and common and commingled trust
funds) will each be liable for all obligations of the Portfolio. However, the
risk of the Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance existed and the
Portfolio itself was unable to meet its obligations. Accordingly, the Trustees
of the Trust believe that neither the Fund nor its shareholders will be
adversely affected by reason of the Fund's investing in the Portfolio.

TAXES

The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are subject
to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to federal
taxes and with respect to the applicability of state or local taxes. See Taxes
in the Statement of Additional Information. Annual statements as to the current
federal tax status of distributions, if applicable, are mailed to shareholders
after the end of the taxable year for the Fund.

The Trust intends to qualify the Fund as a separate regulated investment company
under Subchapter M of the Code. For the Fund to qualify as a regulated
investment company, the Portfolio, in addition to other requirements, limits its
investments so that at the close of each quarter of its taxable year (a) no more
than 25% of its total assets are invested in the securities of any one issuer,
except U.S. Government securities, and (b) with regard to 50% of its total
assets, no more than 5% of its total assets are invested in the securities of a
single issuer, except U.S. Government securities. As a regulated investment
company, the Fund should not be subject to federal income taxes or federal
excise taxes if substantially all of its net investment income and capital gains
less any available capital loss carryforwards are distributed to shareholders
within allowable time limits. The Portfolio intends to qualify as an

18
<PAGE>
association treated as a partnership for federal income tax purposes. As such,
the Portfolio should not be subject to tax. The Fund's status as a regulated
investment company is dependent on, among other things, the Portfolio's
continued qualification as a partnership for federal income tax purposes.

If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to non-corporate shareholders.

Distributions of net investment income and realized net short-term capital gains
in excess of net long-term capital losses are taxable as ordinary income to
shareholders of the Fund whether such distributions are taken in cash or
reinvested in additional shares. Distributions of this type to corporate
shareholders of the Fund will not qualify for the dividends-received deduction
because the income of the Fund will not consist of dividends paid by U.S.
corporations.

Distributions of net long-term capital gains in excess of net short-term capital
losses are taxable to shareholders of the Fund as long-term capital gains
regardless of how long a shareholder has held shares in the Fund and regardless
of whether taken in cash or reinvested in additional shares. Long-term capital
gains distributions to corporate shareholders are not eligible for the
dividends-received deduction.

Any distribution of net investment income or capital gains will have the effect
of reducing the net asset value of Fund shares held by a shareholder by the same
amount as the distribution. If the net asset value of the shares is 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.

The Fund is 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 and gross income
derived from sources within any foreign country or possession of the United
States, if any, to be treated as paid by the shareholders. If the Fund makes the
election, each shareholder will be required to include in income his
proportionate share of the amount of foreign income taxes paid by the Fund and
will be entitled to claim either a credit (which is subject to certain
limitations) or, if the shareholder itemizes deductions, a deduction for his
share of the foreign income taxes in computing his federal income tax liability.
(No deduction will be permitted to individuals in computing their alternative
minimum tax liability.)

Distributions of foreign exchange gains resulting from certain transactions,
including the sale of foreign currencies, are taxed as ordinary income.

19
<PAGE>
ADDITIONAL INFORMATION

The Fund sends to its shareholders annual and semiannual reports. The financial
statements appearing in annual reports are audited by independent accountants.
Shareholders also will be sent confirmations of each purchase and redemption and
monthly statements, reflecting all other account activity, including dividends
and any distributions reinvested in additional shares or credited as cash.

All shareholders are given the privilege to initiate transactions automatically
by telephone upon opening an account. However, an investor should be aware that
a transaction authorized by telephone and reasonably believed to be genuine by
the Fund, Morgan, his Eligible Institution or the Distributor may subject the
investor to risk of loss if such instruction is subsequently found not to be
genuine. The Fund will employ reasonable procedures, including requiring
investors to give their Personal Identification Number and tape recording of
telephone instructions, to confirm that instructions communicated from investors
by telephone are genuine; if it does not, the Fund, the Shareholder Servicing
Agent, or a shareholder's Eligible Institution may be liable for any losses due
to unauthorized or fraudulent instructions.

The Fund may make historical performance information available and may compare
its performance to other investments or relevant indexes, including data from
Lipper Analytical Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson
Associates, Standard & Poor's Composite Stock Price Index, the Dow Jones
Industrial Average, the Frank Russell Indexes, the Morgan Stanley Europe,
Australia and Far East Index, Morgan Stanley Capital International Europe Index,
the Financial Times World Stock Index and other industry publications.

The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of
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. This method of calculating total return is required by
regulations of the Securities and Exchange Commission. Total return data
similarly calculated, unless otherwise indicated, over other specified periods
of time may also be used. See Performance Data in the Statement of Additional
Information. All performance figures are based on historical earnings and are
not intended to indicate future performance. Shareholders may obtain performance
information by calling Morgan at (800) 521-5411.

20
<PAGE>
APPENDIX

OPTIONS

PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by
allowing it to expire or by exercising the option. The Portfolio may also close
out a put option position by entering into an offsetting transaction, if a
liquid market exists. If the option is allowed to expire, the Portfolio will
lose the entire premium it paid. If the Portfolio exercises a put option on a
security, it will sell the instrument underlying the option at the strike price.
If the Portfolio exercises an option on an index, settlement is in cash and does
not involve the actual sale of securities. If an option is American style, it
may be exercised on any day up to its expiration date. A European style option
may be exercised only on its expiration date.

The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).

The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the instrument underlying the option at the option's strike price. A
call buyer typically attempts to participate in potential price increases of the
instrument underlying the option with risk limited to the cost of the option if
security prices fall. At the same time, the buyer can expect to suffer a loss if
security prices do not rise sufficiently to offset the cost of the option.

SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put option,
it takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the instrument underlying the option if the other party to
the option chooses to exercise it. The Portfolio may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a put
option the Portfolio has written, however, the Portfolio must continue to be
prepared to pay the strike price while the option is outstanding, regardless of
price changes, and must continue to post margin as discussed below.

If the price of the underlying instrument rises, a put writer would generally
expect to profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it is likely
that the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would expect to
suffer a loss. This loss should be less than the loss from purchasing and
holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.

Writing a call option obligates the Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through

A-1
<PAGE>
receipt of the option premium a call writer offsets part of the effect of a
price decline. At the same time, because a call writer must be prepared to
deliver the underlying instrument in return for the strike price, even if its
current value is greater, a call writer gives up some ability to participate in
security price increases.

The writer of an exchange traded put or call option on a security, an index of
securities or a futures contract is required to deposit cash or securities or a
letter of credit as margin and to make mark to market payments of variation
margin as the position becomes unprofitable.

OPTIONS ON INDEXES. Options on securities indexes are similar to options on
securities, except that the exercise of securities index options is settled by
cash payment and does not involve the actual purchase or sale of securities. In
addition, these options are designed to reflect price fluctuations in a group of
securities or segment of the securities market rather than price fluctuations in
a single security. The Portfolio, in purchasing or selling index options, is
subject to the risk that the value of its portfolio securities may not change as
much as an index because the Portfolio's investments generally will not match
the composition of an index.

For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Portfolio may incur additional
losses if the counterparty is unable to perform.

FUTURES CONTRACTS

When the Portfolio purchases a futures contract, it agrees to purchase a
specified quantity of an underlying instrument at a specified future date or to
make a cash payment based on the value of a securities index. When the Portfolio
sells a futures contract, it agrees to sell a specified quantity of the
underlying instrument at a specified future date or to receive a cash payment
based on the value of a securities index. The price at which the purchase and
sale will take place is fixed when the Portfolio enters into the contract.
Futures can be held until their delivery dates or the position can be (and
normally is) closed out before then. There is no assurance, however, that a
liquid market will exist when the Portfolio wishes to close out a particular
position.

When the Portfolio purchases a futures contract, the value of the futures
contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase the Portfolio's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying instrument
directly. When the Portfolio sells a futures contract, by contrast, the value of
its futures position will tend to move in a direction contrary to the value of
the underlying instrument. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.

The purchaser or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, when the Portfolio buys or sells a futures contract it will be
required to deposit "initial margin" with its Custodian in a segregated account
in the name of its futures broker, known as a futures commission merchant (FCM).
Initial margin deposits are typically equal to a small percentage of the
contract's value. If the value of either party's position declines, that party
will be required to make additional "variation margin" payments equal to the
change in value on a daily basis. The party that has a gain may be entitled to
receive all or a portion of this amount. The Portfolio may be obligated to make
payments of variation margin at a time when it is disadvantageous to do so.
Furthermore, it may not always be possible for the Portfolio

A-2
<PAGE>
to close out its futures positions. Until it closes out a futures position, the
Portfolio will be obligated to continue to pay variation margin. Initial and
variation margin payments do not constitute purchasing on margin for purposes of
the Portfolio's investment restrictions. In the event of the bankruptcy of an
FCM that holds margin on behalf of the Portfolio, the Portfolio may be entitled
to return of margin owed to it only in proportion to the amount received by the
FCM's other customers, potentially resulting in losses to the Portfolio.

The Portfolio will segregate liquid assets in connection with its use of options
and futures contracts to the extent required by the staff of the Securities and
Exchange Commission. Securities held in a segregated account cannot be sold
while the futures contract or option is outstanding, unless they are replaced
with other suitable assets. As a result, there is a possibility that segregation
of a large percentage of the Portfolio's assets could impede portfolio
management or the Portfolio's ability to meet redemption requests or other
current obligations.

For further information about the Portfolio's use of futures and options and a
more detailed discussion of associated risks, see Investment Objectives and
Policies in the Statement of Additional Information.

A-3
<PAGE>

------------------------------------

The
Pierpont
European Equity
Fund

NO DEALER, SALESMAN OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFER CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY
THE TRUST OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER BY THE TRUST OR BY THE
DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY
ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL FOR
THE TRUST OR THE DISTRIBUTOR TO
MAKE SUCH OFFER IN SUCH
JURISDICTION.
PROS232-969 PROSPECTUS
MST608091 SEPTEMBER 11, 1996

<PAGE>
- --------------------------------------------------------------------------------

PROSPECTUS
The Pierpont Japan Equity Fund

60 State Street

Boston, Massachusetts 02109

For information call (800) 521-5411

The Pierpont Japan Equity Fund (the "Fund") seeks to provide a high total return
from a portfolio of equity securities of Japanese companies. The Fund is
designed for investors who want an actively managed portfolio of Japanese equity
securities that seeks to outperform the Tokyo Stock Price Index ("TOPIX"), a
composite market-capitalization weighted index of all common stocks listed on
the First Section of the Tokyo Stock Exchange.

The Fund is a non-diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The Pierpont
Funds, an open-end management investment company organized as a Massachusetts
business trust (the "Trust").

UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO
OF SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING
ALL OF ITS INVESTABLE ASSETS IN THE JAPAN EQUITY PORTFOLIO (THE "PORTFOLIO"), A
CORRESPONDING NON-DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT COMPANY HAVING THE
SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND INVESTS IN THE PORTFOLIO THROUGH
A TWO-TIER MASTER-FEEDER INVESTMENT FUND STRUCTURE. SEE SPECIAL INFORMATION
CONCERNING INVESTMENT STRUCTURE ON PAGE 3.

The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or the "Advisor").

This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and it should be retained
for future reference. Additional information about the Fund has been filed with
the Securities and Exchange Commission in a Statement of Additional Information
dated September 11, 1996 (as supplemented from time to time). This information
is incorporated herein by reference and is available without charge upon written
request from the Fund's Distributor, Funds Distributor, Inc. ("FDI"), 60 State
Street, Suite 1300, Boston, Massachusetts 02109, Attention: The Pierpont Funds,
or by calling (800) 221-7930.

THE DATE OF THIS PROSPECTUS IS SEPTEMBER 11, 1996

<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund is Designed............... 1
Financial Highlights.................................. 3
Special Information Concerning Investment
Structure........................................... 3
Investment Objective and Policies..................... 4
Additional Investment Information and Risk
Factors............................................. 6
Investment Restrictions............................... 11
Management of the Trust and the Portfolio............. 11
Shareholder Servicing................................. 14

Purchase of Shares.................................... 14
Redemption of Shares.................................. 15
Exchange of Shares.................................... 16
Dividends and Distributions........................... 16
Net Asset Value....................................... 17
Organization.......................................... 17
Taxes................................................. 18
Additional Information................................ 19
Appendix.............................................. A-1
</TABLE>

<PAGE>
The Pierpont Japan Equity Fund

INVESTORS FOR WHOM THE FUND IS DESIGNED

The Fund is designed for investors who seek to broaden their investments by
adding exposure to Japanese equity securities. The Fund seeks to achieve its
investment objective by investing all of its investable assets in The Japan
Equity Portfolio, a non-diversified open-end management investment company
having the same investment objective as the Fund. Since the investment
characteristics and experience of the Fund will correspond directly with those
of the Portfolio, the discussion in this Prospectus focuses on the investments
and investment policies of the Portfolio. The net asset value of shares in the
Fund fluctuates with changes in the value of the investments in the Portfolio.

The Portfolio may make various types of investments in seeking its objective.
Among the permissible investments and investment techniques for the Portfolio
are futures contracts, options and forward contracts on foreign currencies. The
potential risks of investing in these derivative instruments are discussed in
Additional Investment Information and Risk Factors and the Appendix. The
Portfolio may also purchase certain privately placed securities. The Portfolio's
investments in securities of Japanese issuers involve foreign investment risks
and may be more volatile and less liquid than domestic securities. For further
information about these investments, see Investment Objective and Policies
below.

1
<PAGE>
EXPENSE TABLE

ANNUAL OPERATING EXPENSES*

<TABLE>
<S> <C>
Advisory Fees............................................... 0.65%
Rule 12b-1 Fees............................................. None
Other Expenses (after expense reimbursement)................ 0.77%
-------
Total Operating Expenses (after expense reimbursement)...... 1.42%
</TABLE>

- ---------

* These expenses are based on estimated expenses of the Fund and the Portfolio
and estimated average net assets for the Fund's first fiscal year, after any
applicable expense reimbursement. Without such reimbursement, Other Expenses and
Total Operating Expenses would be equal on an annual basis to 1.72% and 2.37%,
respectively, of the estimated average daily net assets of the Fund. See
Management of the Trust and the Portfolio.

EXAMPLE

An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:

1 Year................................................................ $14
3 Years............................................................... $45

2
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
FOR THE PERIOD MAY 6,
1996
(COMMENCEMENT OF
OPERATIONS)
THROUGH
JUNE 30, 1996
(UNAUDITED)
----------------------
<S> <C>
Net Asset Value, Beginning of Period........................ $ 10.00
------
Loss from Investment Operations:
Net Investment Loss....................................... (.01)
Net Realized and Unrealized Loss on Investments and
Foreign Currency......................................... (.34)
------
Total from Investment Operations.......................... (.35)
------
Net Asset Value, End of Period.............................. $ 9.65
------
------
Total Return................................................ (3.50)%(a)
------
------
Ratios and Supplemental Data:
Net Assets, End of Period (in thousands).................. $ 338
Ratios to Average Net Assets:
Expenses................................................ 1.42%(b)
Net Investment Loss..................................... (1.19)%(b)
Decrease Reflected in Expense Ratio due to Expense
Reimbursement.......................................... 1.08%(b)(c)
</TABLE>

- ---------

(a) Not Annualized.

(b) Annualized.

SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE

3
<PAGE>

structures may result in differences in returns experienced by investors in
other funds that invest in the Portfolio. Such differences in returns are not
uncommon and are present in other mutual fund structures. Information concerning
other holders of interests in the Portfolio is available from Morgan at (800)
521-5411.

The Trust may withdraw the investment of the Fund from the Portfolio at any time
if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described below with respect to the Portfolio.

INVESTMENT OBJECTIVE AND POLICIES

4
<PAGE>
The Fund's investment objective is to provide a high total return from a
portfolio of equity securities of Japanese companies. Total return will consist
of realized and unrealized capital gains and losses plus income. The Fund
attempts to achieve its investment objective by investing all of its investable
assets in The Japan Equity Portfolio, a non-diversified open-end management
investment company having the same investment objective as the Fund.

The Fund is designed for investors who want an actively managed portfolio of
Japanese equity securities that seeks to outperform the Tokyo Stock Price Index
(TOPIX), a composite market-capitalization weighted index of all common stocks
listed on the First Section of the Tokyo Stock Exchange. The Fund does not
represent a complete investment program nor is the Fund suitable for all
investors.

A Japanese company is one that: (i) has its principal securities trading market
in Japan; or (ii) is organized under the laws of Japan; or (iii) derives 50% or
more of its total revenues and/or profits from either goods produced, sales made
or services performed in Japan; or (iv) has at least 50% of its assets located
in Japan.

Morgan seeks to enhance the Portfolio's total return relative to that of the
TOPIX through fundamental research, stock valuation and the exploitation of
underlying market inefficiencies. Based on internal fundamental research, Morgan
uses a proprietary valuation model to establish the relative valuation of
individual Japanese companies within industrial sectors. Morgan then buys and
sells securities within each industrial sector based on this valuation process.
In addition to stocks, the Advisor actively uses convertible securities and
warrants to seek to enhance overall portfolio performance.

In addition, Morgan uses a disciplined portfolio construction process to seek to
reduce the Portfolio's volatility relative to the TOPIX. Morgan attempts to keep
the industrial sector weightings, the average market capitalization and other
broad characteristics of the Portfolio comparable to those of the TOPIX.

The Portfolio's equity investments will be primarily denominated in yen, but the
Portfolio may also invest in securities denominated in other foreign currencies,
the U.S. dollar or multinational currency units such as the ECU. The Advisor
will not routinely attempt to hedge the Portfolio's foreign currency exposure.
However, the Advisor may from time to time engage in foreign currency exchange
transactions if, based on fundamental research, technical factors, and the
judgment of experienced currency managers, it believes the transactions would be
in the Portfolio's best interest. For further information on foreign currency
exchange transactions, see Additional Investment Information and Risk Factors.

EQUITY INVESTMENTS. In normal circumstances, the Advisor intends to keep the
Portfolio essentially fully invested with at least 65% of the Portfolio's total
assets invested in equity securities of Japanese companies consisting of common
stocks and other securities with equity characteristics comprised of preferred
stock, warrants, rights, convertible securities, trust certificates, limited
partnership interests and equity participations. The Portfolio's primary equity
investments are the common stock of established Japanese companies. The common
stock in which the Portfolio may invest includes the common stock of any class
or series or any similar equity interest, such as

5
<PAGE>

trust or limited partnership interests. These equity investments may or may not
pay dividends and may or may not carry voting rights. The Portfolio invests in
securities listed on foreign or domestic securities exchanges and securities
traded in foreign or domestic over-the-counter (OTC) markets, and may invest in
certain restricted or unlisted securities.

NON-DIVERSIFICATION. The Portfolio is registered as a non-diversified investment
company which means that the Portfolio is not limited by the Investment Company
Act of 1940, as amended (the "1940 Act"), in the proportion of its assets that
may be invested in the obligations of a single issuer. Thus, the Portfolio may
invest a greater proportion of its assets in the securities of a smaller number
of issuers and, as a result, may be subject to greater risk with respect to its
portfolio securities. The Portfolio, however, will comply with the
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company. See
Taxes below.

The Portfolio may also invest in money market instruments denominated in U.S.
dollars and other currencies, purchase securities on a when-issued or delayed
delivery basis, enter into repurchase and reverse repurchase agreements, 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 indexes of securities, futures contracts and
options on futures contracts for hedging and risk management purposes. Forward
foreign currency exchange contracts, options and futures contracts are
derivative instruments. For a discussion of these investments and investment
techniques, see Additional Investment Information and Risk Factors.

ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS

INVESTING IN JAPAN. Investing in Japanese securities may involve the risks
associated with investing in foreign securities generally. See Other Foreign
Investment Information. In addition, because the Portfolio invests primarily in
Japan, it will be subject to the general economic and political conditions in
Japan.

Despite recent increases, prices for exchange-listed and OTC stocks of Japanese
companies are currently depressed in comparison to their historical peaks in
1989 and 1990. Nevertheless, Japanese stocks continue to trade at high price
earnings ratios relative to stocks of U.S. companies. In addition, differences
in accounting methods make it difficult to compare the earnings of Japanese
companies with those of U.S. companies. Because most of the Portfolio's
investments are denominated in yen, changes in currency exchange rates will
affect the U.S. dollar value of the Portfolio's assets. The Japanese economy has
experienced a substantial reduction in its rate of growth. Economic growth and
the prices of Japanese stocks could be adversely affected by a reversal of
Japan's historical success in exporting its products and maintaining low
inflation and interest rates. Recent political instability and any resulting
delay in implementing regulatory reforms could also have a negative effect on
Japanese stock prices. For additional information, see Appendix C--Investing in
Japan and Asian Growth Markets--Japan and its Securities Markets in the
Statement of Additional Information.

OTHER FOREIGN INVESTMENT INFORMATION. The Portfolio invests primarily in foreign
securities. Investment in securities of foreign issuers involves somewhat
different investment risks from those affecting securities of U.S. domestic
issuers. There may be limited publicly available information with respect to
foreign issuers, and foreign issuers are not generally subject to uniform
accounting, auditing and financial standards and requirements comparable to
those applicable to domestic companies. Interest paid by foreign issuers may be
subject to withholding and other foreign taxes which may decrease the net return
on foreign investments as compared to interest paid to the Portfolio by domestic
companies.

6
<PAGE>
Investors should realize that the value of the 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 Portfolio must be made in compliance
with U.S. and foreign currency restrictions and tax laws restricting the amounts
and types of foreign investments.

FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and sells
securities and receives interest and dividends in currencies other than the U.S.
dollar--principally yen--the Portfolio may enter from time to time into foreign
currency exchange transactions. The Portfolio either enters into these
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or uses forward contracts to purchase or sell
foreign currencies. The cost of the Portfolio's spot currency exchange
transactions is generally the difference between the bid and offer spot rate of
the currency being purchased or sold.

7
<PAGE>
anticipated securities transactions. The Portfolio may also enter into forward
contracts to hedge against a change in foreign currency exchange rates that
would cause a decline in the value of existing investments denominated or
principally traded in a foreign currency. To do this, the Portfolio would enter
into a forward contract to sell the foreign currency in which the investment is
denominated or principally traded in exchange for U.S. dollars or in exchange
for another foreign currency. The 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.

COMMON STOCK WARRANTS. The Portfolio may invest in common stock warrants that
entitle the holder to buy common stock from the issuer of the warrant at a
specific price (the strike price) for a specific period of time. The market
price of warrants may be substantially lower than the current market price of
the underlying common stock, yet warrants are subject to similar price
fluctuations. As a result, warrants may be more volatile investments than the
underlying common stock.

Warrants generally do not entitle the holder to dividends or voting rights with
respect to the underlying common stock and do not represent any rights in the
assets of the issuer company. A warrant will expire worthless if it is not
exercised on or prior to the expiration date.

8
<PAGE>
Portfolio buys a security from a seller that has agreed to repurchase it at a
mutually agreed upon date and price, reflecting the interest rate effective for
the term of the agreement. The term of these agreements is usually from
overnight to one week. A repurchase agreement may be viewed as a fully
collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities as collateral with a market value at least equal to
the purchase price plus accrued interest and this value is maintained during the
term of the agreement. If the seller defaults and the collateral value declines,
the Portfolio might incur a loss. If bankruptcy proceedings are commenced with
respect to the seller, the Portfolio's realization upon the disposition of
collateral may be delayed or limited. Investments in certain repurchase
agreements and certain other investments which may be considered illiquid are
limited. See Illiquid Investments; Privately Placed and other Unregistered
Securities below.

REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase it at a mutually agreed upon date and price,
reflecting the interest rate effective for the term of the agreement. For the
purposes of the 1940 Act, it is considered a form of borrowing by the Portfolio
and, therefore, is a form of leverage. Leverage may cause any gains or losses of
the Portfolio to be magnified. See Investment Restrictions for investment
limitations applicable to reverse repurchase agreements and other borrowings.
For more information, see Investment Objectives and Policies in the Statement of
Additional Information.

The Portfolio may use futures contracts and options for hedging and risk
management purposes. The Portfolio may not use futures contracts and options for
speculation.

10
<PAGE>
MONEY MARKET INSTRUMENTS. The Portfolio is permitted to invest in money market
instruments although it intends to stay invested in equity securities to the
extent practical in light of its objective. The Portfolio may invest in money
market instruments of foreign or domestic issuers denominated in U.S. dollars
and other currencies. Under normal circumstances the Portfolio will purchase
these securities to invest temporary cash balances or to maintain liquidity to
meet redemptions. However, the Portfolio may also invest in money market
instruments without limitation as a temporary defensive measure taken in the
Advisor's judgment during, or in anticipation of, adverse market conditions. For
more detailed information about these money market investments, see Investment
Objectives and Policies in the Statement of Additional Information.

INVESTMENT RESTRICTIONS

MANAGEMENT OF THE TRUST AND THE PORTFOLIO

11
<PAGE>

<TABLE>
<S> <C>
Matthew Healey..................................... Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi................................ Former Senior Vice President, Capital Cities/
ABC, Inc. and President, Broadcast Group
</TABLE>

The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pierpont
Group, Inc. in providing these services. Pierpont Group, Inc. was organized in
1989 at the request of the Trustees of The Pierpont Family of Funds for the
purpose of providing these services at cost to these funds. See Trustees and
Officers in the Statement of Additional Information. The principal offices of
Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017.

Morgan uses a sophisticated, disciplined, collaborative process for managing all
asset classes. For equity portfolios, this process utilizes fundamental
research, systematic stock selection and disciplined portfolio construction.
Morgan has invested in equity securities of Japanese companies on behalf of its
clients for over a decade and has had a research team in Tokyo since 1972. The
portfolio managers making investments in Japanese equity securities work in
conjunction with Morgan's Japanese equity analysts, as well as capital market,
credit and economic research analysts, traders and administrative officers. The
Japanese equity analysts, located in Tokyo, each cover a different industry,
monitoring a universe of over 300 Japanese companies.

12
<PAGE>
Morgan Stanley prior to September, 1993 as a senior analyst covering Japanese
utilities and special situations) and Yukiko Sugimoto, Vice President (since
March, 1995, employed by Morgan since prior to 1991 as a portfolio manager of
Japanese equity investments).

ADMINISTRATIVE SERVICES AGENT. Under Administrative Services Agreements with the
Trust and the Portfolio, Morgan is responsible for administrative and related
services provided to the Fund and the Portfolio, including services related to
taxes, financial statements, calculation of performance data, oversight of
service providers and certain regulatory and Board of Trustees matters. Under
the Administrative Services Agreements and the Co-Administration Agreements each
of the Fund and the Portfolio has agreed to pay Morgan and FDI fees equal to its
allocable share of an annual complex-wide charge. This charge is calculated
daily based on the aggregate net assets of the Portfolio and the other
portfolios (collectively the "Master Portfolios") in which series of the Trust,
The JPM Institutional Funds or The JPM Advisor Funds invest in accordance with
the following annual schedule: 0.09% on the first $7 billion of the Master
Portfolios' aggregate average daily net assets, and 0.04% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion.

13
<PAGE>
transfer, registrar and dividend disbursing costs, the expenses of printing and
mailing reports, notices and proxy statements to Fund shareholders, and
registration fees under state securities laws. For the Portfolio, such expenses
also include registration fees under foreign securities laws, custodian fees and
brokerage expenses.

SHAREHOLDER SERVICING

Shareholders should address all inquiries to J.P. Morgan Funds Services, Morgan
Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York 10036
or call (800) 521-5411.

The business days of the Fund and the Portfolio are the days the New York Stock
Exchange is open.

PURCHASE OF SHARES

METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
as shareholder servicing agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as agent for the customer.
All purchase orders must be accepted by the Fund's Distributor. Investors must
be customers of Morgan or an Eligible Institution. Investors may also be
employer-sponsored retirement plans that have designated the Fund as an
investment option for the plans. Prospective investors who are not already
customers of Morgan may apply to become customers of Morgan for the sole purpose
of Fund transactions. There are no charges associated with becoming a Morgan
customer for this purpose. Morgan reserves the right to determine the customers
that it will accept, and the Fund reserves the right to determine the purchase
orders that it will accept.

14
<PAGE>
For investors such as investment advisors, trust companies and financial
advisors who make investments for a group of clients, the minimum investment in
the Fund is (i) $100,000 per individual client or (ii) $250,000 for an
aggregated purchase order for more than one client. The Fund may permit an
investor who is investing for a group of clients to attain the $250,000 minimum
investment within a reasonable period of time that will be no longer than
thirteen months after opening its account. An employer-sponsored retirement plan
opening an account in the Fund will be required to attain a minimum balance of
$250,000 within thirteen months of opening the account.

To purchase shares in the Fund, investors should request their Morgan
representative (or a representative of their Eligible Institution) to assist
them in placing a purchase order with the Fund's Distributor and to transfer
immediately available funds to the Fund's Distributor on the next business day.
Any shareholder may also call J.P. Morgan Funds Services at (800) 521-5411 for
assistance in placing an order for Fund shares. If the Fund or its agent
receives a purchase order prior to 4:00 P.M. New York time on any business day,
the purchase of Fund shares is effective and is made at the net asset value
determined that day, and the purchaser generally becomes a holder of record on
the next business day upon the Fund's receipt of payment. If the Fund receives a
purchase order after 4:00 P.M. New York time, the purchase is effective and is
made at the net asset value determined on the next business day, and the
purchaser becomes a holder of record on the following business day upon the
Fund's receipt of payment.

REDEMPTION OF SHARES

15
<PAGE>

account at Morgan or at his Eligible Institution or, in the case of certain
Morgan customers, are mailed by check or wire transferred in accordance with the
customer's instructions, and, subject to Further Redemption Information below,
in any event are paid within seven days.

EXCHANGE OF SHARES

An investor may exchange shares from the Fund into any other Pierpont Fund or
JPM Institutional Fund without charge. An exchange may be made so long as after
the exchange the investor has shares, in each fund in which he or she remains an
investor, with a value of at least that fund's minimum investment amount. See
Method of Purchase in the prospectuses for the other Pierpont Funds and The JPM
Institutional Funds for the minimum investment amount for each of those funds.
Shares are exchanged on the basis of relative net asset value per share.
Exchanges are in effect redemptions from one fund and purchases of another fund
and the usual purchase and redemption procedures and requirements are applicable
to exchanges. See Purchase of Shares and Redemption of Shares in this Prospectus
and in the prospectuses for the other Pierpont Funds and The JPM Institutional
Funds. See also Additional Information below for an explanation of the telephone
exchange policy of The Pierpont Funds.

DIVIDENDS AND DISTRIBUTIONS

16
<PAGE>
Substantially all the realized net capital gains, if any, of the Fund are
declared and paid on an annual basis, except that an additional capital gains
distribution may be made in a given year to the extent necessary to avoid the
imposition of federal excise tax on the Fund. Declared dividends and
distributions are payable to shareholders of record on the record date.

NET ASSET VALUE

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, fifteen series of shares have been authorized and are available
for sale to the public. Only shares of the Fund are offered through this
Prospectus. No series of shares has any preference over any other series of
shares. See Massachusetts Trust in the Statement of Additional Information.

Shareholders of the Fund are entitled to one vote for each share and to the
appropriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and nonassessable by the Fund. The Trust does not intend to hold meetings of
shareholders annually. As of August 30, 1996, Johol & Co. beneficially owned a
controlling interest (more than 25%) in the Fund's outstanding shares. 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

17
<PAGE>
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.

TAXES

18
<PAGE>
Distributions of net long-term capital gains in excess of net short-term capital
losses are taxable to shareholders of the Fund as long-term capital gains
regardless of how long a shareholder has held shares in the Fund and regardless
of whether taken in cash or reinvested in additional shares. Long-term capital
gains distributions to corporate shareholders are not eligible for the
dividends-received deduction.

Distributions of foreign exchange gains resulting from certain transactions,
including the sale of foreign currencies, are taxed as ordinary income.

ADDITIONAL INFORMATION

The Fund sends to its shareholders annual and semi-annual reports. The financial
statements appearing in annual reports are audited by independent accountants.
Shareholders also will be sent confirmations of each purchase and redemption and
monthly statements, reflecting all other account activity, including dividends
and any distributions reinvested in additional shares or credited as cash.

19
<PAGE>
The Fund may make historical performance information available and may compare
its performance to other investments or relevant indexes, including data from
Lipper Analytical Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson
Associates, the TOPIX, Standard & Poor's Composite Stock Price Index, the Dow
Jones Industrial Average, the Frank Russell Indexes, the Morgan Stanley Europe,
Australia and Far East Index, the Financial Times World Stock Index and other
industry publications.

20
<PAGE>

APPENDIX

OPTIONS

FUTURES CONTRACTS

A-3
<PAGE>
------------------------------------

The
Pierpont
Japan Equity
Fund

<PAGE>
- --------------------------------------------------------------------------------

PROSPECTUS
The Pierpont Asia Growth Fund

60 State Street

Boston, Massachusetts 02109

For information call (800) 521-5411

The Pierpont Asia Growth Fund (the "Fund") seeks to provide a high total return
from a portfolio of equity securities of companies in Asian growth markets. The
Fund is designed for long-term investors who want access to the rapidly growing
Asian markets.

UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO
OF SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING
ALL OF ITS INVESTABLE ASSETS IN THE ASIA GROWTH PORTFOLIO (THE "PORTFOLIO"), A
CORRESPONDING DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT COMPANY HAVING THE SAME
INVESTMENT OBJECTIVE AS THE FUND. THE FUND INVESTS IN THE PORTFOLIO THROUGH A
TWO-TIER MASTER-FEEDER INVESTMENT FUND STRUCTURE. SEE SPECIAL INFORMATION
CONCERNING INVESTMENT STRUCTURE ON PAGE 3.

The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or the "Advisor").

This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and it should be retained
for future reference. Additional information about the Fund has been filed with
the Securities and Exchange Commission in a Statement of Additional Information
dated September 11, 1996 (as supplemented from time to time). This information
is incorporated herein by reference and is available without charge upon written
request from the Fund's Distributor, Funds Distributor, Inc. ("FDI"), 60 State
Street, Suite 1300, Boston, Massachusetts 02109, Attention: The Pierpont Funds,
or by calling (800) 221-7930.

THE DATE OF THIS PROSPECTUS IS SEPTEMBER 11, 1996

<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund is Designed................ 1
Financial Highlights................................... 3
Special Information Concerning Investment
Structure............................................ 3
Investment Objective and Policies...................... 4
Additional Investment Information and Risk
Factors.............................................. 6
Investment Restrictions................................ 12
Management of the Trust and the Portfolio.............. 12
Shareholder Servicing.................................. 15

Purchase of Shares..................................... 15
Redemption of Shares................................... 16
Exchange of Shares..................................... 17
Dividends and Distributions............................ 17
Net Asset Value........................................ 18
Organization........................................... 18
Taxes.................................................. 19
Additional Information................................. 20
Appendix............................................... A-1
</TABLE>

<PAGE>
The Pierpont Asia Growth Fund

INVESTORS FOR WHOM THE FUND IS DESIGNED

The Fund is designed for long-term investors who want access to the rapidly
growing Asian markets. The Fund seeks to achieve its investment objective by
investing all of its investable assets in The Asia Growth Portfolio, a
diversified open-end management investment company having the same investment
objective as the Fund. Since the investment characteristics and experience of
the Fund will correspond directly with those of the Portfolio, the discussion in
this Prospectus focuses on the investments and investment policies of the
Portfolio. The net asset value of shares in the Fund fluctuates with changes in
the value of the investments in the Portfolio.

The Portfolio may make various types of investments in seeking its objective.
Among the permissible investments and investment techniques for the Portfolio
are futures contracts, options and forward contracts on foreign currencies. The
potential risks of investing in these derivative instruments are discussed in
Additional Investment Information and Risk Factors and the Appendix. The
Portfolio may also purchase certain privately placed securities. The Portfolio's
investments in securities of Asian growth markets involve foreign investment
risks and may be more volatile and less liquid than domestic securities. For
further information about these investments, see Investment Objective and
Policies below.

1
<PAGE>
EXPENSE TABLE

ANNUAL OPERATING EXPENSES*

<TABLE>
<S> <C>
Advisory Fees............................................................................. 0.80%
Rule 12b-1 Fees........................................................................... None
Other Expenses (after expense reimbursement).............................................. 0.80%
---------
Total Operating Expenses (after expense reimbursement).................................... 1.60%
</TABLE>

- ---------

* These expenses are based on estimated expenses of the Fund and the Portfolio
and estimated average net assets for the Fund's first fiscal year, after any
applicable expense reimbursement. Without such reimbursement, Other Expenses and
Total Operating Expenses (after application of state expense limitations) would
be equal on an annual basis to 1.70% and 2.50%, respectively, of the estimated
average daily net assets of the Fund. See Management of the Trust and the
Portfolio.

EXAMPLE

An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:

1 Year................................................................ $16
3 Years............................................................... $50

The above expense table is designed to assist investors in understanding the
various direct and indirect costs and expenses that investors in the Fund bear.
The fees and expenses included in Other Expenses are the fees paid to Morgan
under the Administrative Services and the Shareholder Servicing Agreements,
organizational expenses, the fees paid to Pierpont Group, Inc. under the Fund
Services Agreements, the fees paid to FDI under the Administration Agreements,
the fees paid to State Street Bank and Trust Company as custodian and transfer
agent, and other usual and customary expenses of the Fund and the Portfolio. For
a more detailed description of contractual fee arrangements, including expense
reimbursements, see Management of the Trust and the Portfolio and Shareholder
Servicing. In connection with the above example, please note that $1,000 is less
than the Fund's minimum investment requirement and that there are no redemption
or exchange fees of any kind. See Purchase of Shares and Redemption of Shares.
THE EXAMPLE IS HYPOTHETICAL; IT IS INCLUDED SOLELY FOR ILLUSTRATIVE PURPOSES. IT
SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE PERFORMANCE; ACTUAL EXPENSES
MAY BE MORE OR LESS THAN THOSE SHOWN.

2
<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
For the period
May 13, 1996
(commencement of
operations) through
June 30, 1996
(unaudited)
---------------------
<S> <C>
Net Asset Value, Beginning of Period................................................................ $10.00
------
Income from Investment Operations:
Net Investment Income............................................................................. 0.01
Net Realized and Unrealized Loss on Investment and Foreign Currency............................... (0.06)
------
Total from Investment Operations.................................................................. (0.05)
------
Net Asset Value, End of Period...................................................................... $ 9.95
------
------
Total Return........................................................................................ (0.50 )%(a)
------
------
Ratios and Supplemental Data:
Net Assets, End of Period (in thousands).......................................................... $ 78
Ratios to Average Net Assets:
Expenses........................................................................................ 1.60 %(b)
Net Investment Income........................................................................... 2.13 %(b)
Decrease Reflected in Expense Ratio due to Expense Reimbursement................................ 0.90 %(b)(c)
</TABLE>

- ---------

(a) Not Annualized.

(b) Annualized.

SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE

INVESTMENT OBJECTIVE AND POLICIES

The Fund's investment objective is to achieve a high total return from a
portfolio of equity securities of companies in Asian growth markets. Total
return will consist of realized and unrealized capital gains and losses plus
income. The Fund attempts to achieve its investment objective by investing all
of its investable assets in The Asia Growth Portfolio, a diversified open-end
management investment company having the same investment objective as the Fund.

4
<PAGE>
The Fund is designed for long-term investors who want access to the rapidly
growing Asian markets. THE FUND DOES NOT REPRESENT A COMPLETE INVESTMENT PROGRAM
NOR IS THE FUND SUITABLE FOR ALL INVESTORS. MANY INVESTMENTS IN ASIAN GROWTH
MARKETS CAN BE CONSIDERED SPECULATIVE AND, THEREFORE, MAY OFFER HIGHER POTENTIAL
FOR GAINS AND LOSSES AND MAY BE MORE VOLATILE THAN INVESTMENTS IN THE DEVELOPED
MARKETS OF THE WORLD. See Additional Investment Information and Risk Factors.

The Advisor considers "Asian growth markets" to be Bangladesh, China, India,
Indonesia, Korea, Malaysia, Pakistan, the Philippines, Sri Lanka, Thailand,
Taiwan, Hong Kong, and Singapore.

A company in an Asian growth market is one that: (i) has its principal
securities trading market in an Asian growth market; or (ii) is organized under
the laws of an Asian growth market; or (iii) derives 50% or more of its total
revenue and/or profits from either goods produced, sales made or services
performed in Asian growth markets; or (iv) has at least 50% of its assets
located in Asian growth markets.

The Portfolio seeks to achieve its objective through country allocation and
company selection. Morgan uses a disciplined portfolio construction process to
seek to enhance returns and reduce volatility in the market value of the
Portfolio relative to its benchmark. The Portfolio's benchmark is a customized
index comprised of Morgan Stanley Capital International's indices for Hong Kong
and Singapore and the International Finance Corporation's Investable indices for
China, Indonesia, Malaysia, Philippines, South Korea, Taiwan and Thailand.

Based on fundamental research, quantitative valuation techniques and experienced
judgment, Morgan identifies those countries where economic and political
factors, including currency movements, are likely to produce above-average
returns. Drawing on this analysis, Morgan allocates the Portfolio among Asian
growth markets by overweighting or underweighting selected countries against the
benchmark. Currently, three Asian growth markets--Hong Kong, Malaysia and
Thailand--represent more than 60% of the market value of the benchmark and of
the Portfolio.

To select investments for the Portfolio, the Advisor ranks companies in each
Asian growth market within industrial sectors according to their relative value.
These valuations are based on the Advisor's fundamental research and use of
quantitative tools to project a company's long-term prospects for earnings
growth and its dividend paying capability. Based on this valuation, Morgan then
selects the companies which appear most attractive for the Portfolio. Typically,
the Portfolio's industrial sector weightings will be similar to those of its
benchmark.

The Portfolio's investments are primarily in securities denominated in foreign
currencies, but it may also invest in securities denominated in the U.S. dollar
or multinational currency units such as the ECU. The Advisor will not routinely
attempt to hedge the Portfolio's foreign currency exposure. However, the Advisor
may from time to time engage in foreign currency exchange transactions if, based
on fundamental research, technical factors, and the

5
<PAGE>
judgment of experienced currency managers, it believes the transactions would be
in the Portfolio's best interest. For further information on foreign currency
exchange transactions, see Additional Investment Information and Risk Factors.

EQUITY INVESTMENTS. In normal circumstances, the Advisor intends to keep the
Portfolio essentially fully invested with at least 65% of the value of its total
assets in equity securities of companies in Asian growth markets consisting of
common stocks and other securities with equity characteristics comprised of
preferred stock, warrants, rights, convertible securities, trust certificates,
limited partnership interests and equity participations. The Portfolio's primary
equity investments are the common stock of companies the Advisor has identified
as attractive in the Asian growth markets. Such investments will be made in at
least three different countries considered to be Asian growth markets. The
common stock in which the Portfolio may invest includes the common stock of any
class or series or any similar equity interest, such as trust or limited
partnership interests. These equity investments may or may not pay dividends and
may or may not carry voting rights. The Portfolio invests in securities listed
on foreign or domestic securities exchanges and securities traded in foreign or
domestic over-the-counter (OTC) markets, and may invest in certain restricted or
unlisted securities.

Certain Asian growth 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 Investment Company Act of 1940 (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.

ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS

INVESTING IN ASIAN GROWTH MARKETS. The Portfolio invests primarily in equity
securities of companies in Asian growth markets. Investments in securities of
issuers in Asian growth markets may involve a high degree of risk and many may
be considered speculative. These investments carry all of the risks of investing
in securities of foreign issuers described below to a heightened degree. These
heightened risks include (i) greater risks of expropriation, confiscatory
taxation, nationalization, and less social, political and economic stability;
(ii) the small current size of the markets for securities of Asian issuers and
the currently low or nonexistent volume of trading, resulting in lack of
liquidity and in price volatility; (iii) certain national policies which may
restrict the Portfolio's investment opportunities including restrictions on
investing in issuers or industries deemed sensitive to relevant national
interests; and (iv) the absence of developed legal structures governing private
or foreign investment and private property.

6
<PAGE>
Different combinations of the above risks exist in each Asian growth market. For
example, the People's Republic of China (the "PRC") continues to exercise
significant centralized control over the economy. A delay in implementing, or a
reversal of, economic reforms could adversely affect economic growth,
opportunities for foreign investment and the prospects of private sector
enterprises. Actions by the PRC with respect to Hong Kong, both before and after
the reversion to Chinese rule, could have a negative effect on business
confidence, the performance of Hong Kong companies and the prices of Hong Kong
stocks.

The value of the Portfolio's investments could also be unfavorably affected by
limitations on the foreign ownership of stock imposed by Indonesia, Malaysia,
Thailand and Taiwan; by substantial delays in the settlement (through physical
delivery) of stock transactions in India; and Thailand's border disputes with
Laos and Cambodia. In addition, all of these countries have experienced or may
experience a significant degree of political instability and volatility in the
prices of their respective currencies. For additional information, see Appendix
C--Investing in Japan and Asian Growth Markets in the Statement of Additional
Information.

OTHER FOREIGN INVESTMENT INFORMATION. Generally, investment in securities of
foreign issuers involves somewhat different investment risks from those
affecting securities of U.S. domestic issuers. There may be limited publicly
available information with respect to foreign issuers, and foreign issuers are
not generally subject to uniform 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 the Portfolio by domestic companies.

7
<PAGE>
typically issued by a U.S. bank or trust company evidencing ownership of the
underlying foreign securities. Certain such institutions issuing ADRs may not be
sponsored by the issuer of the underlying foreign securities. A non-sponsored
depository may not provide the same shareholder information that a sponsored
depository is required to provide under its 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.

The Portfolio may enter into foreign currency exchange transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or
anticipated securities transactions. The Portfolio may also enter into forward
contracts to hedge against a change in foreign currency exchange rates that
would cause a decline in the value of existing investments denominated or
principally traded in a foreign currency. To do this, the Portfolio would enter
into a forward contract to sell the foreign currency in which the investment is
denominated or principally traded in exchange for U.S. dollars or in exchange
for another foreign currency. The 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.

8
<PAGE>
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.

REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions with brokers, dealers or banks that meet the credit guidelines
established by the Portfolio's Trustees. In a repurchase agreement, the
Portfolio buys a security from a seller that has agreed to repurchase it at a
mutually agreed upon date and price, reflecting the interest rate effective for
the term of the agreement. The term of these agreements is usually from
overnight to one week. A repurchase agreement may be viewed as a fully
collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities as collateral with a market value at least equal to
the purchase price plus accrued interest and this value is maintained during the
term of the agreement. If the seller defaults and the collateral value declines,
the Portfolio might incur a loss. If bankruptcy proceedings are commenced with
respect to the seller, the Portfolio's realization upon the disposition of
collateral may be delayed or limited. Investments in certain repurchase
agreements and certain other investments which may be considered illiquid are
limited. See Illiquid Investments; Privately Placed and other Unregistered
Securities below.

9
<PAGE>
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in an amount up to 33 1/3% of
the value of the Portfolio's net assets. The Portfolio may lend its securities
if such loans are secured continuously by cash or equivalent collateral or by a
letter of credit in favor of the Portfolio at least equal at all times to 100%
of the market value of the securities loaned, plus accrued interest. While such
securities are on loan, the borrower will pay the Portfolio any income accruing
thereon. Loans will be subject to termination by the Portfolio in the normal
settlement time, generally three business days after notice, or by the borrower
on one day's notice. Borrowed securities must be returned when the loan is
terminated. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the Portfolio and its
respective investors. The Portfolio may pay reasonable finders' and custodial
fees in connection with a loan. In addition, the Portfolio will consider all
facts and circumstances, including the creditworthiness of the borrowing
financial institution, and the Portfolio will not make any loans in excess of
one year.

REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase it at a mutually agreed upon date and price,
reflecting the interest rate effective for the term of the agreement. For the
purposes of the 1940 Act, it is considered a form of borrowing by the Portfolio
and, therefore, is a form of leverage. Leverage may cause any gains or losses of
the Portfolio to be magnified. See Investment Restrictions for investment
limitations applicable to reverse repurchase agreements and other borrowings.
For more information, see Investment Objectives and Policies in the Statement of
Additional Information.

The Portfolio may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's
implementation of these guidelines on a periodic basis.

10
<PAGE>
indexes of equity securities, and (c) purchase and sell (write) put and call
options on futures contracts on indexes of equity securities. Each of these
instruments is a derivative instrument as its value derives from the underlying
asset or index.

The Portfolio may use futures contracts and options for hedging and risk
management purposes. The Portfolio may not use futures contracts and options for
speculation.

MONEY MARKET INSTRUMENTS. The Portfolio is permitted to invest in money market
instruments although it intends to stay invested in equity securities to the
extent practical in light of its objective. The Portfolio may invest in money
market instruments of foreign or domestic issuers denominated in U.S. dollars
and other currencies. Under normal circumstances the Portfolio will purchase
these securities to invest temporary cash balances or to maintain liquidity to
meet redemptions. However, the Portfolio may also invest in money market
instruments without limitation as a temporary defensive measure taken in the
Advisor's judgment during, or in anticipation of, adverse market conditions. For
more detailed information about these money market investments, see Investment
Objectives and Policies in the Statement of Additional Information.

11
<PAGE>
INVESTMENT RESTRICTIONS

MANAGEMENT OF THE TRUST AND THE PORTFOLIO

12
<PAGE>
A majority of the disinterested Trustees have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust, the Portfolio and
The JPM Institutional Funds, up to and including creating a separate board of
trustees. See Trustees and Officers in the Statement of Additional Information
for more information about the Trustees and Officers of the Fund and the
Portfolio.

The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pierpont
Group, Inc. in providing these services. Pierpont Group, Inc. was organized in
1989 at the request of the Trustees of The Pierpont Family of Funds for the
purpose of providing these services at cost to these funds. See Trustees and
Officers in the Statement of Additional Information. The principal offices of
Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017.

Morgan uses a sophisticated, disciplined, collaborative process for managing all
asset classes. For equity portfolios, this process utilizes fundamental
research, systematic stock selection, disciplined portfolio construction and, in
the case of foreign equities, country exposure and currency management. Morgan
has managed portfolios of equity securities of companies in emerging markets,
including Asian growth markets, since 1990. The portfolio managers making
investments in Asian growth markets work in conjunction with Morgan's equity
analysts focused on Asian growth markets, as well as capital market, credit and
economic research analysts, traders and administrative officers. The Asian
equity analysts, located in Singapore, each cover a different industry,
monitoring a universe of approximately 250 companies in the region.

The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio (the inception date of
each person's responsibility for the Portfolio and his business experience for
the past five years is indicated parenthetically): Steven T. Ho, Vice President
(since March, 1995, employed by Morgan since prior to 1991 as a portfolio
manager of Asian investments and as an investment research analyst prior to
1993) and Yuen-Peng Mok, Vice President (since March, 1995, employed by Morgan
since prior to 1991 as a portfolio manager of Southeast Asian equity
investments).

13
<PAGE>

ADMINISTRATIVE SERVICES AGENT. Under Administrative Services Agreements with the
Trust and the Portfolio, Morgan is responsible for certain administrative and
related services provided to the Fund and the Portfolio, including services
related to taxes, financial statements, calculation of performance data,
oversight of service providers and certain regulatory and Board of Trustees
matters. Under the Administrative Services Agreements and the Co-Administration
Agreements, each of the Fund and the Portfolio has agreed to pay Morgan and FDI
fees equal to its allocable share of an annual complex-wide charge. This charge
is calculated daily based on the aggregate net assets of the Portfolio and the
other portfolios (collectively the "Master Portfolios") in which series of the
Trust, The JPM Institutional Funds or The JPM Advisor Funds invest in accordance
with the following annual schedule: 0.09% on the first $7 billion of the Master
Portfolios' aggregate average daily net assets, and 0.04% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion.

14
<PAGE>
by the following sentence. Morgan has agreed to waive fees as necessary if in
any fiscal year the sum of the Fund's expenses exceeds the limits set by
applicable regulations of state securities commissions. Such annual limits are
currently 2.5% of the first $30 million of average net assets, 2% of the next
$70 million of such net assets and 1.5% of such net assets in excess of $100
million for any fiscal year.

SHAREHOLDER SERVICING

Shareholders should address all inquiries to J.P. Morgan Funds Services, Morgan
Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York 10036
or call (800) 521-5411.

The business days of the Fund and the Portfolio are the days the New York Stock
Exchange is open.

PURCHASE OF SHARES

15
<PAGE>
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value per share next determined after
receipt of an order. Prospective investors may purchase shares with the
assistance of an Eligible Institution that may establish its own terms,
conditions and charges.

REDEMPTION OF SHARES

16
<PAGE>
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions from
the Fund may not be processed if a redemption request is not submitted in proper
form. To be in proper form, the Fund must have received the shareholder's
taxpayer identification number and address. As discussed under Taxes below, the
Fund may be required to impose "back-up" withholding of federal income tax on
dividends, distributions and redemption proceeds when non-corporate investors
have not provided a certified taxpayer identification number. In addition, if a
shareholder sends a check for the purchase of Fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days.

EXCHANGE OF SHARES

DIVIDENDS AND DISTRIBUTIONS

17
<PAGE>
NET ASSET VALUE

ORGANIZATION

Shareholders of the Fund are entitled to one vote for each share and to the
appropriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and nonassessable by the Fund. The Trust does not intend to hold meetings of
shareholders annually. As of August 30, 1996, R. James and A. James beneficially
owned a controlling interest (more than 25%) in the Fund's outstanding shares.
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.

18
<PAGE>
TAXES

19
<PAGE>
shareholders and will notify shareholders in writing each year if it makes the
election and of the amount of foreign income taxes and gross income derived from
sources within any foreign country or possession of the United States, if any,
to be treated as paid by the shareholders. If the Fund makes the election, each
shareholder will be required to include in income his proportionate share of the
amount of foreign income taxes paid by the Fund and will be entitled to claim
either a credit (which is subject to certain limitations) or, if the shareholder
itemizes deductions, a deduction for his share of the foreign income taxes in
computing his federal income tax liability. (No deduction will be permitted to
individuals in computing their alternative minimum tax liability.)

Distributions of foreign exchange gains resulting from certain transactions,
including the sale of foreign currencies, are taxed as ordinary income.

ADDITIONAL INFORMATION

The Fund may make historical performance information available and may compare
its performance to other investments or relevant indexes, including data from
Lipper Analytical Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson
Associates, the Tokyo Stock Price Index, Standard & Poor's Composite Stock Price
Index, the Dow Jones Industrial Average, the Frank Russell Indexes, the Morgan
Stanley Capital International indices, the IFC Investable indices, the Financial
Times World Stock Index and other industry publications.

20
<PAGE>

APPENDIX

OPTIONS

FUTURES CONTRACTS

A-3
<PAGE>

------------------------------------

The
Pierpont
Asia Growth
Fund

NO DEALER, SALESMAN OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFER CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY
THE TRUST OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER BY THE TRUST OR BY THE
DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY
ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL FOR
THE TRUST OR THE DISTRIBUTOR TO
MAKE SUCH OFFER IN SUCH PROSPECTUS
JURISDICTION. SEPTEMBER 11, 1996
PROS230-969
MST608089

<PAGE>

THE PIERPONT FUNDS

THE PIERPONT MONEY MARKET FUND
THE PIERPONT TAX EXEMPT MONEY MARKET FUND
THE PIERPONT TREASURY MONEY MARKET FUND
THE PIERPONT SHORT TERM BOND FUND
THE PIERPONT BOND FUND
THE PIERPONT TAX EXEMPT BOND FUND
THE PIERPONT NEW YORK TOTAL RETURN BOND FUND
THE PIERPONT DIVERSIFIED FUND
THE PIERPONT EQUITY FUND
THE PIERPONT CAPITAL APPRECIATION FUND
THE PIERPONT INTERNATIONAL EQUITY FUND
THE PIERPONT EMERGING MARKETS EQUITY FUND
THE PIERPONT EUROPEAN EQUITY FUND
THE PIERPONT JAPAN EQUITY FUND
THE PIERPONT ASIA GROWTH FUND

STATEMENT OF ADDITIONAL INFORMATION

SEPTEMBER 11, 1996

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
FOR THE FUND OR FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO TIME, WHICH MAY
BE OBTAINED UPON REQUEST FROM FUNDS DISTRIBUTOR, INC., ATTENTION: THE PIERPONT
FUNDS; (800) 221-7930.
<PAGE>

Table of Contents

Page
----

General................................. 1
Investment Objectives and Policies...... 1
Investment Restrictions................. 28
Trustees and Officers................... 45
Investment Advisor...................... 49
Co-Administrator and Distributor........ 53
Services Agent.......................... 56
Custodian............................... 58
Shareholder Servicing................... 69
Independent Accountants................. 60
Expenses................................ 61
Purchase of Shares...................... 61
Redemption of Shares.................... 62
Exchange of Shares...................... 62
Dividends and Distributions............. 62
Net Asset Value......................... 63
Performance Data........................ 65
Portfolio Transactions.................. 68
Massachusetts Trust..................... 70
Description of Shares................... 71
Taxes................................... 74
Additional Information.................. 77
Financial Statements.................... 78
Appendix A - Description of Securities
Ratings................................ A-1
Appendix B - Additional Information
Concerning New York Municipal
Obligations............................ B-1
Appendix C - Investing in Japan
and Asian Growth Markets............... C-1

<PAGE>

GENERAL

The Pierpont Funds currently consist of fifteen funds: The Pierpont Money
Market Fund, The Pierpont Treasury Money Market Fund, The Pierpont Tax Exempt
Money Market Fund, The Pierpont Short Term Bond Fund, The Pierpont Bond Fund,
The Pierpont Tax Exempt Bond Fund, The Pierpont New York Total Return Bond Fund,
The Pierpont Equity Fund, The Pierpont Capital Appreciation Fund, The Pierpont
International Equity Fund, The Pierpont Emerging Markets Equity Fund, The
Pierpont Diversified Fund, The Pierpont European Equity Fund, The Pierpont Japan
Equity Fund and The Pierpont Asia Growth Fund (collectively, the "Funds"). Each
of the Funds is a series of shares of beneficial interest of The Pierpont Funds,
an open-end management investment company formed as a Massachusetts business
trust (the "Trust").

This Statement of Additional Information describes the financial history,
investment objectives and policies, management and operation of each of the
Funds to enable investors to select the Funds which best suit their needs. The
Pierpont Funds operate through a two-tier master-feeder investment fund
structure. Formerly, The Pierpont Money Market Fund, The Pierpont Tax Exempt
Money Market Fund, The Pierpont Bond Fund, The Pierpont Tax Exempt Bond Fund,
The Pierpont Equity Fund, The Pierpont Capital Appreciation Fund, and The
Pierpont International Equity Fund operated as free-standing mutual funds and
not through the master-feeder structure. Where indicated in this Statement of
Additional Information, historical information for each of these Funds includes
information for their respective predecessor entities.

This Statement of Additional Information provides additional information
with respect to the Funds and should be read in conjunction with the current
Prospectus. Capitalized terms not otherwise defined herein have the meanings
accorded to them in the Funds' Prospectus. The Funds' executive offices are
located at 60 State Street, Suite 1300, Boston, Massachusetts 02109.

INVESTMENT OBJECTIVES AND POLICIES

THE PIERPONT MONEY MARKET FUND (the "Money Market Fund") is designed to be
an economical and convenient means of making substantial investments in money
market instruments. The Money Market Fund's investment objective is to maximize
current income and maintain a high level of liquidity. The Fund attempts to
achieve this objective by investing all of its investable assets in The Money
Market Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Money Market Fund.

The Portfolio seeks to achieve its investment objective by maintaining a
dollar-weighted average portfolio maturity of not more than 90 days and by
investing in U.S. dollar denominated securities described in the Prospectus and
this Statement of Additional Information that meet certain rating criteria,
present minimal credit risk and have effective maturities of not more than
thirteen months. The Portfolio's ability to achieve maximum current income is
affected by its high quality standards. See "Quality and Diversification
Requirements."

THE PIERPONT TAX EXEMPT MONEY MARKET FUND (the "Tax Exempt Money Market
Fund") is designed to be an economical and convenient means of making
substantial investments in instruments that are exempt from federal income tax.
The Tax Exempt Money Market Fund's investment objective is to provide a high
level of current income that is exempt from federal income tax and maintain a
high level of liquidity. See "Taxes." The Fund attempts to achieve this
objective by investing all of its investable assets in The Tax Exempt Money
Market Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Tax Exempt Money Market
Fund.

1
<PAGE>

The Portfolio attempts to achieve its investment objective by maintaining a
dollar-weighted average portfolio maturity of not more than 90 days and by
investing in U.S. dollar-denominated securities described in the Prospectus and
this Statement of Additional Information that meet certain rating criteria,
present minimal credit risks, have effective maturities of not more than
thirteen months and earn interest wholly exempt from federal income tax in the
opinion of bond counsel for the issuer, but it may invest up to 20% of its total
assets in taxable obligations. See "Quality and Diversification Requirements."
Interest on these securities may be subject to state and local taxes. For more
detailed information regarding tax matters, including the applicability of the
alternative minimum tax, see "Taxes."

THE PIERPONT TREASURY MONEY MARKET FUND (the "Treasury Money Market Fund")
is designed to be an economical and convenient means of making substantial
investments primarily in short term direct obligations of the U.S. Government.
The Treasury Money Market Fund's investment objective is to provide current
income, maintain a high level of liquidity and preserve capital. The Fund
attempts to accomplish this objective by investing all of its investable assets
in The Treasury Money Market Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the
Treasury Money Market Fund.

The Portfolio attempts to achieve its investment objective by maintaining a
dollar-weighted average portfolio maturity of not more than 90 days and by
investing primarily in U.S. Treasury securities and by investing in certain U.S.
Treasury securities described in the Prospectus and in this Statement of
Additional Information that have effective maturities of not more than thirteen
months. See "Quality and Diversification Requirements."

THE PIERPONT SHORT TERM BOND FUND (the "Short Term Bond Fund") is designed
for investors who place a strong emphasis on conservation of capital but who
also want a return greater than that of a money market fund or other very low
risk investment vehicles. It is appropriate for investors who do not require
the stable net asset value typical of a money market fund but who want less
price fluctuation than is typical of a longer-term bond fund. The Short Term
Bond Fund's investment objective is to provide a high total return while
attempting to limit the likelihood of negative quarterly returns. The Short
Term Bond Fund seeks to achieve this high total return to the extent consistent
with modest risk of capital and the maintenance of liquidity. The Short Term
Bond Fund attempts to achieve its investment objective by investing all of its
investable assets in The Short Term Bond Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Short Term Bond Fund.

The Portfolio attempts to achieve its investment objective by investing
primarily in the corporate and government debt obligations and related
securities described in the Prospectus and this Statement of Additional
Information.

THE PIERPONT BOND FUND (the "Bond Fund") is designed to be an economical
and convenient means of making substantial investments in a broad range of
corporate and government debt obligations and related investments of domestic
and foreign issuers, subject to certain quality and other restrictions. See
"Quality and Diversification Requirements." The Bond Fund's investment
objective is to provide a high total return consistent with moderate risk of
capital and maintenance of liquidity. Although the net asset value of the Bond
Fund will fluctuate, the Bond Fund attempts to conserve the value of its
investments to the extent consistent with its objective. The Bond Fund attempts
to achieve its objective by investing all of its investable assets in The U.S.
Fixed Income Portfolio (the "Portfolio"), a diversified open-end management
investment company having the same investment objective as the Bond Fund.

2
<PAGE>

The Portfolio attempts to achieve its investment objective by investing in
high grade corporate and government debt obligations and related securities of
domestic and foreign issuers described in the Prospectus and this Statement of
Additional Information.

INVESTMENT PROCESS

Duration/yield curve management: Morgan's duration decision begins with an
analysis of real yields, which its research indicates are generally a reliable
indicator of longer term interest rate trends. Other factors Morgan studies in
regard to interest rates include economic growth and inflation, capital flows
and monetary policy. Based on this analysis, Morgan forms a view of the most
likely changes in the level and shape of the yield curve -- as well as the
timing of those changes -- and sets the Portfolio's duration and maturity
structure accordingly. Morgan typically limits the overall duration of the
Portfolio to a range between one year shorter and one year longer than that of
the Salomon Brothers Broad Investment Grade Bond Index, the benchmark index.

Sector allocations: Sector allocations are driven by Morgan's fundamental
and quantitative analysis of the relative valuation of a broad array of fixed
income sectors. Specifically, Morgan utilizes market and credit analysis to
assess whether the current risk-adjusted yield spreads of various sectors are
likely to widen or narrow. Morgan then overweights (underweights) those sectors
its analysis indicates offer the most (least) relative value, basing the speed
and magnitude of these shifts on valuation considerations.

Security selection: Securities are selected by the portfolio manager, with
substantial input from Morgan's fixed income analysts and traders. Using
quantitative analysis as well as traditional valuation methods, Morgan's applied
research analysts aim to optimize security selection within the bounds of the
Portfolio's investment objective. In addition, credit analysts -- supported by
Morgan's equity analysts -- assess the creditworthiness of issuers and
counterparties. A dedicated trading desk contributes to security selection by
tracking new issuance, monitoring dealer inventories, and identifying
attractively priced bonds. The traders also handle all transactions for the
Portfolio.

THE PIERPONT TAX EXEMPT BOND FUND (the "Tax Exempt Bond Fund") is designed
to be an economical and convenient means of making substantial investments in
debt obligations that are exempt from federal income tax. The Tax Exempt Bond
Fund's investment objective is to provide a high level of current income exempt
from federal income tax consistent with moderate risk of capital and maintenance
of liquidity. See "Taxes." The Fund attempts to achieve its investment
objective by investing all of its investable assets in The Tax Exempt Bond
Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Tax Exempt Bond Fund.

The Portfolio attempts to achieve its investment objective by investing
primarily in securities of states, territories and possessions of the United
States and their political subdivisions, agencies and instrumentalities, the
interest of which is exempt from federal income tax in the opinion of bond
counsel for the issuer, but it may invest up to 20% of its total assets in
taxable obligations. The Tax Exempt Bond Fund seeks to maintain a current yield
that is greater than that obtainable from a portfolio of short term tax exempt
obligations, subject to certain quality restrictions. See "Quality and
Diversification Requirements."

THE PIERPONT NEW YORK TOTAL RETURN BOND FUND (the "New York Total Return
Bond Fund") is designed to be an economical and convenient means of investing in
a portfolio consisting primarily of debt obligations that are exempt from
federal and New York State income taxes. The New York Total Return Bond Fund's
investment objective is to provide a high after tax total return for New York

3
<PAGE>

residents consistent with moderate risk of capital. Total return will consist
of income plus capital gains and losses. The Fund attempts to achieve its
objective by investing all of its investable assets in The New York Total Return
Bond Portfolio (the "Portfolio"), a non-diversified open-end management
investment company having the same investment objective as the Fund.

The Portfolio attempts to achieve its investment objective by investing
primarily in municipal securities issued by New York State and its political
subdivisions and by agencies, authorities and instrumentalities of New York and
its political subdivisions. These securities earn income exempt from federal
and New York State and local income taxes but, in certain circumstances, may be
subject to alternative minimum tax. In addition, the Portfolio may invest in
municipal securities issued by states other than New York, by territories and
possessions of the United States and by the District of Columbia and their
political subdivisions, agencies and instrumentalities. These securities earn
income exempt from federal income taxes but, in certain circumstances, may be
subject to alternative minimum tax. In order to seek to enhance the Portfolio's
after tax return, the Portfolio may also invest in securities which earn income
subject to New York and/or federal income taxes. These securities include U.S.
government securities, corporate securities and municipal securities issued on a
taxable basis.

THE PIERPONT DIVERSIFIED FUND (the "Diversified Fund") is designed for
investors who wish to invest for long term objectives such as retirement and who
seek to attain real appreciation in their investments over the long term, but
with somewhat less price fluctuation than a portfolio consisting solely of
equity securities. The Diversified Fund's investment objective is to provide a
high total return from a diversified portfolio of equity and fixed income
securities. The Fund attempts to achieve its investment objective by investing
all of its investable assets in The Diversified Portfolio, a diversified open-
end management investment company having the same investment objective as the
Diversified Fund.

THE PIERPONT EQUITY FUND (the "Equity Fund") is designed for investors who
want an actively managed portfolio of selected equity securities that seeks to
outperform the S&P 500 Index. The Equity Fund's investment objective is to
provide a high total return from a portfolio of selected equity securities. The
Fund attempts to achieve its investment objective by investing all of its
investable assets in The Selected U.S. Equity Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Equity Fund.

INVESTMENT PROCESS

The mix of equities and fixed income is based on the risk premium model and
the anticipation of changing economic trends. The risk premium is the
difference between Morgan's forecast of the long-term return on stocks
(determined using Morgan's proprietary dividend discount model) and the current
nominal yield on 30-year U.S. Treasury bonds. When the risk premium is high,
more assets are allocated to stocks. When the risk premium is low, more assets
are allocated to bonds. Within U.S. equities, the allocation between large cap
and small cap stocks is based on the relative dividend discount rate spread
between large and small cap. Within fixed income, the allocation among sectors
is based on Morgan's analysis of their relative valuation. Morgan's asset
allocation decisions for the Portfolio are implemented using the investment
processes described herein for the Bond, Equity, Capital Appreciation and
International Equity Funds.

In normal circumstances, at least 65% of the Portfolio's net assets will be
invested in equity securities consisting of common stocks and other securities
with equity characteristics comprised of preferred stock, warrants, rights,
convertible securities, trust certifications, limited partnership interests and
equity participations (collectively, "Equity Securities"). The Portfolio's

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primary equity investments are the common stock of large and medium sized U.S.
corporations and, to a limited extent, similar securities of foreign
corporations.

INVESTMENT PROCESS

Fundamental research: Morgan's 20 domestic equity analysts, each an
industry specialist with an average of 13 years of experience, follow 700
predominantly large- and medium-sized U.S. companies -- 500 of which form the
universe for the Portfolio's investments. Their research goal is to forecast
normalized, longer term earnings and dividends for the most attractive companies
among those they cover. In doing this, they may work in concert with Morgan's
international equity analysts in order to gain a broader perspective for
evaluating industries and companies in today's global economy.

Systematic valuation: The analysts' forecasts are converted into comparable
expected returns by a dividend discount model, which calculates those expected
returns by comparing a company's current stock price with the "fair value" price
forecasted by its estimated long term-earnings power. Within each sector,
companies are ranked by their expected return and grouped into quintiles: those
with the highest expected returns (Quintile 1) are deemed the most undervalued
relative to their long-term earnings power, while those with the lowest expected
returns (Quintile 5) are deemed the most overvalued.

Disciplined portfolio construction: A diversified portfolio is
constructed using disciplined buy and sell rules. Purchases are concentrated
among first-quintile stocks; the specific names selected reflect the
portfolio manager's judgment concerning the soundness of the underlying
forecasts, the likelihood that the perceived misvaluation will be corrected
within a reasonable time frame, and the magnitude of the risks versus the
rewards. Once a stock falls into the third quintile -- because its price has
risen or its fundamentals have deteriorated -- it generally becomes a sale
candidate. The portfolio manager seeks to hold sector weightings close to
those of the S&P 500 Index, reflecting Morgan's belief that its research has
the potential to add value at the individual stock level, but not at the
sector level. Sector neutrality is also seen as a way to help protect the
portfolio from macroeconomic risks, and --together with diversification --
represents an important element of Morgan's risk control strategy. A
dedicated trading desk handles all transactions for the Portfolio.

THE PIERPONT CAPITAL APPRECIATION FUND (the "Capital Appreciation Fund") is
designed for investors who are willing to assume the somewhat higher risk of
investing in small companies in order to seek a higher return over time than
might be expected from a portfolio of stocks of large companies. The Capital
Appreciation Fund's investment objective is to provide a high total return from
a portfolio of Equity Securities of small companies. The Fund attempts to
achieve its investment objective by investing all of its investable assets in
The U.S. Small Company Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the
Capital Appreciation Fund.

The Portfolio attempts to achieve its investment objective by investing
primarily in the common stock of small U.S. companies included in the Russell
2500 Index, which is composed of 2,500 common stocks of U.S. companies with
market capitalizations ranging between $100 million and $1.5 billion.

INVESTMENT PROCESS

Fundamental research: Morgan's 20 domestic equity analysts -- each an
industry specialist with an average of 13 years of experience -- continuously
monitor the small cap stocks in their respective sectors with the aim of

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identifying companies that exhibit superior financial strength and operating
returns. Meetings with management and on-site visits play a key role in shaping
their assessments. Their research goal is to forecast normalized, long-term
earnings and dividends for the most attractive small cap companies among those
they monitor -- a universe that generally contains a total of 300-350 names.
Because Morgan's analysts follow both the larger and smaller companies in their
industries -- in essence, covering their industries from top to bottom -- they
are able to bring broad perspective to the research they do on both.

Systematic valuation: The analysts' forecasts are converted into comparable
expected returns by Morgan's dividend discount model, which calculates those
returns by comparing a company's current stock price with the "fair value" price
forecasted by its estimated long-term earnings power. Within each industry,
companies are ranked by their expected returns and grouped into quintiles: those
with the highest expected returns (Quintile 1) are deemed the most undervalued
relative to their long-term earnings power, while those with the lowest expected
returns (Quintile 5) are deemed the most overvalued.

Disciplined portfolio construction: A diversified portfolio is constructed
using disciplined buy and sell rules. Purchases are concentrated among the
stocks in the top two quintiles of the rankings; the specific names selected
reflect the portfolio manager's judgment concerning the soundness of the
underlying forecasts, the likelihood that the perceived misevaluation will soon
be corrected, and the magnitude of the risks versus the rewards. Once a stock
falls into the third quintile -- because its price has risen or its fundamentals
have deteriorated -- it generally becomes a sale candidate. The portfolio
manager seeks to hold sector weightings close to those of the Russell 2500
Index, the Portfolio's benchmark, reflecting Morgan's belief that its research
has the potential to add value at the individual stock level, but not at the
sector level. Sector neutrality is also seen as a way to help to protect the
portfolio from macroeconomic risks, and -- together with diversification --
represents an important element of Morgan's investment strategy.

THE PIERPONT INTERNATIONAL EQUITY FUND (the "International Equity Fund")
is designed for investors with a long term investment horizon who want to
diversify their portfolios by investing in an actively managed portfolio of
non-U.S. securities that seeks to outperform the Morgan Stanley Capital
International ("MSCI") Europe, Australia and Far East Index (the "EAFE
Index"). The International Equity Fund's investment objective is to provide
a high total return from a portfolio of Equity Securities of foreign
corporations. The Fund attempts to achieve its investment objective by
investing all of its investable assets in The Non-U.S. Equity Portfolio (the
"Portfolio"), a diversified open-end management investment company having the
same investment objective as the International Equity Fund.

The Portfolio seeks to achieve its investment objective by investing
primarily in the Equity Securities of foreign corporations. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing at the same time in a significant number of developed
foreign countries render investments in such countries inadvisable.

INVESTMENT PROCESS

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in comparisons to the EAFE Index to reflect the above-average (below-average)
attractiveness of their stock markets. In determining weightings, Morgan
analyzes a variety of qualitative factors as well -- including the liquidity,
earnings momentum and interest rate climate of the market at hand. These
qualitative assessments can change the magnitude but not the direction of the
country allocations called for by the risk premium forecast. Morgan places
limits on the total size of the Portfolio's country over- and under-weightings
relative to the EAFE Index.

Stock selection: Morgan's 44 international equity analysts, each an
industry and country specialist, forecast normalized earnings and dividend
payouts for roughly 1,000 non-U.S. companies -- taking a long-term perspective
rather than the short time frame common to consensus estimates. These forecasts
are converted into comparable expected returns by a dividend discount model, and
then companies are ranked from most to least attractive by industry and country.
A diversified portfolio is constructed using disciplined buy and sell rules. The
portfolio manager's objective is to concentrate the purchases in the top third
of the rankings, and to keep sector weightings close to those of the EAFE Index,
the Fund's benchmark. Once a stock falls into the bottom third of the rankings,
it generally becomes a sales candidate. Where available, warrants and
convertibles may be purchased instead of common stock if they are deemed a more
attractive means of investing in an undervalued company.

Currency management: Currency is actively managed, in conjunction with
country and stock allocation, with the goal of protecting and possibly enhancing
the Fund's return. Morgan's currency decisions are supported by a proprietary
tactical mode which forecasts currency movements based on an analysis of four
fundamental factors -- trade balance trends, purchasing power parity, real
short-term interest differentials and real bond yields -- plus a technical
factor designed to improve the timing of transactions. Combining the output of
this model with a subjective assessment of economic, political and market
factors, Morgan's currency group recommends currency strategies that are
implemented in conjunction with the Portfolio's investment strategy.

THE PIERPONT EMERGING MARKETS EQUITY FUND (the "Emerging Markets Equity
Fund") is designed for investors with a long term investment horizon who want
exposure to the rapidly growing emerging markets. The Emerging Markets Equity
Fund's investment objective is to provide a high total return from a portfolio
of Equity Securities of companies in emerging markets. The Fund attempts to
achieve its investment objective by investing all of its investable assets in
The Emerging Markets Equity Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the
Emerging Markets Equity Fund.

The Portfolio seeks to achieve its investment objective by investing
primarily in Equity Securities of emerging markets issuers. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing at the same time in a significant number of emerging
markets countries render investments in such countries inadvisable.

INVESTMENT PROCESS

Country allocation: Morgan's country allocation decision begins with a
forecast of the expected return of each market in the Portfolio's universe.
These expected returns are calculated using a proprietary valuation method that
is forward looking in nature rather than based on historical data. Morgan then
evaluates these expected returns from two different perspectives: first, it
identifies those countries that have high real expected returns relative to
their own history and other nations in their universe. Second, it identifies
those countries that it expects will provide high returns relative to their
currency

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<PAGE>

risk. Countries that rank highly on one or both of these scores are
overweighted relative to the Fund's benchmark, the MSCI Emerging Markets Free
Index, while those that rank poorly are underweighted. To help contain risk,
Morgan places limits on the total size of the Portfolio's country over- and
under-weightings.

Stock selection: Morgan's 12 emerging market equity analysts -- each an
industry specialist -- monitor a universe of approximately 900 companies in
these countries, developing forecasts of earnings and cash flows for the most
attractive among them. Companies are ranked from most to least attractive based
on this research, and then a diversified portfolio is constructed using
disciplined buy and sell rules. The portfolio manager's objective is to
concentrate the Portfolio's holdings in the stocks deemed most undervalued, and
to keep sector weightings relatively close to those of the index. Stocks are
generally held until they fall into the bottom half of Morgan's rankings.

THE PIERPONT EUROPEAN EQUITY FUND (the "European Equity Fund") is designed
for investors who want an actively managed portfolio of European Equity
Securities that seeks to outperform the Morgan Stanley Capital International
Europe Index which is comprised of more than 500 companies in fourteen European
countries. The European Equity Fund's investment objective is to provide a high
total return from a portfolio of Equity Securities of European companies. The
European Equity Fund attempts to achieve its investment objective by investing
all of its investable assets in The European Equity Portfolio (the "Portfolio"),
a diversified open-end management investment company having the same investment
objective as the European Equity Fund.

The Portfolio seeks to achieve its investment objective by investing
primarily in the Equity Securities of European companies. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing at the same time in a significant number of European
countries render investments in such countries inadvisable.

INVESTMENT PROCESS

Country allocation: Morgan's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of those
deviations. Countries with high (low) rankings are overweighted (underweighted)
in comparison to the Morgan Stanley Capital International Europe Index to
reflect the above-average (below-average) attractiveness of their stock markets.
In determining weightings, Morgan analyzes a variety of qualitative factors as
well -- including the liquidity, earnings momentum and interest rate climate of
the market at hand. These qualitative assessments can change the magnitude but
not the direction of the country allocations called for by the risk-premium
forecast. In an effort to contain risk, Morgan places limits on the total size
of the Portfolio's country over- and under-weightings.

Stock selection: Morgan's 15 European equity analysts, each an industry and
country specialist, forecast normalized earnings and dividend payouts for
roughly 600 companies, taking a long-term perspective rather than the short time
frame common to consensus estimates. The analysts' forecasts are converted into
comparable expected returns by a dividend discount model, and then companies are
ranked from most to least attractive by industry and country. A diversified
portfolio is constructed using disciplined buy and sell rules. The portfolio
manager's objective is to concentrate purchases in the top third of the
rankings, and to keep sector weightings close to those of the benchmark. Once a
stock

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<PAGE>

falls into the bottom third of the rankings -- because its price has risen or
its fundamentals have deteriorated -- it generally becomes a sale candidate.

THE PIERPONT JAPAN EQUITY FUND (the "Japan Equity Fund") is designed for
investors who want an actively managed portfolio of Japanese Equity Securities
that seeks to outperform the Tokyo Stock Price Index ("TOPIX"), a composite
market-capitalization weighted-index of all common stocks listed on the First
Section of the Tokyo Stock Exchange. The Japan Equity Fund's investment
objective is to provide a high total return from a portfolio of Equity
Securities of Japanese companies. The Japan Equity Fund attempts to achieve its
investment objective by investing all of its investable assets in The Japan
Equity Portfolio (the "Portfolio"), a non-diversified open-end management
investment company having the same investment objective as the Japan Equity
Fund. For additional information, see "Appendix C - Investing in Japan and
Asian Growth Markets."

The Portfolio seeks to achieve its investment objective by investing
primarily in the Equity Securities of Japanese companies. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing in Japan render investments there inadvisable.

INVESTMENT PROCESS

Systematic valuation: Morgan's ten Japanese equity analysts in Tokyo --
each an industry specialist -- follow a total of over 300 Japanese companies.
The most attractive names in that universe are identified by a multifactor model
which screens for low price/earnings ratios, high earnings growth rates and high
sales/price ratios. Within each sector, this subset of the universe is ranked
by these three measures and broken into quintiles; the companies in the top
quintile are considered the most attractive ones from both a growth and
valuation viewpoint. To provide an additional check on the valuation of
selected companies, the analysts prepare normalized, long-term earnings and
dividend forecasts which are converted into comparable expected returns by a
dividend discount model.

Warrant/convertible strategy: Once a company has been identified as a buy
candidate, the portfolio manager analyzes the yields on the company's available
equity vehicles -- stocks, warrants and convertibles -- to determine which
appears the most attractive means of purchase. In an effort to enhance
potential returns, the Portfolio also trades among these vehicles -- a strategy
that seeks to capitalize on the inefficiencies that pervade the Japanese equity
market. If the Portfolio invests in a warrant, it will set aside cash in an
amount approximately equal to the difference in the price of the warrant and the
market value of the underlying common stock. The cash is invested in money
market instruments.

Disciplined portfolio construction: The Portfolio is constructed using
disciplined buy and sell rules. The portfolio manager's objective is to
concentrate purchases in the top 20% of the rankings; the specific companies
selected reflect the portfolio manager's judgment concerning the liquidity of an
issue, the soundness of the underlying forecasts, and the magnitude of the risks
versus the rewards. Once a stock falls into the third quintile -- because its
price has risen or its fundamentals have deteriorated -- it generally becomes a
sale candidate. The portfolio manager strives to hold sector weightings close
to those of the benchmark in an effort to contain risk.

THE PIERPONT ASIA GROWTH FUND (the "Asia Growth Fund") is designed for
long-term investors who want access to the rapidly growing Asian markets. The
Advisor considers Asian growth markets to be Bangladesh, China, India,
Indonesia, Korea, Malaysia, Pakistan, the Philippines, Sri Lanka, Thailand,
Taiwan, Hong Kong and Singapore. The Asia Growth Fund's investment objective is
to provide a

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<PAGE>

high total return from a portfolio of Equity Securities of companies in Asian
growth markets. The Asia Growth Fund attempts to achieve its investment
objective by investing all its investable assets in The Asia Growth Portfolio
(the "Portfolio"), a diversified open-end management investment company having
the same investment objective as the Asia Growth Fund. For additional
information, see "Appendix C -Investing in Japan and Asian Growth Markets."

The Portfolio seeks to achieve its investment objective by investing
primarily in the Equity Securities of companies in Asian growth markets. Under
normal circumstances, the Portfolio expects to invest at least 65% of its total
assets in such securities. The Portfolio does not intend to invest in U.S.
securities (other than money market instruments), except temporarily, when
extraordinary circumstances prevailing at the same time in a significant number
of countries considered to be Asian growth markets render investments in such
countries inadvisable.

INVESTMENT PROCESS

Country allocation: Morgan's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of these
deviations. Countries with high (low) rankings are overweighted (underweighted)
to reflect the above-average (below average) attractiveness of their stock
markets. In determining weightings, Morgan analyzes a variety of qualitative
factors as well -- including the liquidity, earnings momentum and interest rate
climate of the market at hand. These qualitative assessments can change the
magnitude but not the direction of the country allocations called for by the
risk-premium forecast. In an effort to contain risk, Morgan places limits on
the total size of the Portfolio's country over- and under-weightings.

Stock selection: Morgan's six Asian equity analysts focused on Asian
markets -- each an industry and country specialist -- forecast normalized,
long-term earnings and dividend payouts for approximately 250 companies in
this region. These forecasts are converted into comparable expected returns
by a dividend discount model, and then companies are ranked from most to
least attractive by industry and country, and are grouped into quintiles. A
diversified portfolio is constructed using disciplined buy and sell rules.
The portfolio manager's objective is to concentrate purchases in the top 20%
of the rankings, and to keep sector weightings close to those of the
benchmark. Once a stock falls into the third quintile -- because its price
has risen or its fundamentals have deteriorated -- it generally becomes a
sale candidate. Where available, warrants and convertibles are purchased
when they appear to have the potential to add value over common stock.

The following discussion supplements the information regarding the
investment objective of each of the Funds and the policies to be employed to
achieve this objective by their corresponding Portfolios as set forth above and
in the Prospectus. The investment objective of each Fund and its corresponding
Portfolio is identical. Accordingly, references below to a Fund also include
the Fund's corresponding Portfolio; similarly, references to a Portfolio also
include the corresponding Fund that invests in the Portfolio unless the context
requires otherwise.

MONEY MARKET INSTRUMENTS

As discussed in the Prospectus, each Fund may invest in money market
instruments to the extent consistent with its investment objective and policies.
A description of the various types of money market instruments that may be

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<PAGE>

purchased by the Funds appears below. See "Quality and Diversification
Requirements."

U.S. TREASURY SECURITIES. Each of the Funds may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all
of which are backed as to principal and interest payments by the full faith and
credit of the United States.

ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. Each of the Funds may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities, except that the Treasury Money Market Fund may only invest in
certain of these obligations as noted below. These obligations may or may not
be backed by the "full faith and credit" of the United States. In the case of
securities not backed by the full faith and credit of the United States, each
Fund must look principally to the federal agency issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitments. Securities in which each Fund, except the Treasury Money
Market Fund, may invest that are not backed by the full faith and credit of the
United States include, but are not limited to, obligations of the Tennessee
Valley Authority, the Federal Home Loan Mortgage Corporation and the U.S. Postal
Service, each of which has the right to borrow from the U.S. Treasury to meet
its obligations. Securities in which each Fund, including the Treasury Money
Market Fund, may invest that are not backed by the full faith and credit of the
United States include, and only for the Treasury Money Market Fund are limited
to, obligations of the Federal Farm Credit System and the Federal Home Loan
Banks, both of whose obligations may be satisfied only by the individual credits
of each issuing agency. Securities which are backed by the full faith and
credit of the United States include obligations of the Government National
Mortgage Association, the Farmers Home Administration, and the Export-Import
Bank.

FOREIGN GOVERNMENT OBLIGATIONS. Each of the Funds, except the Tax Exempt
Money Market Fund, the Treasury Money Market Fund, the Tax Exempt Bond Fund and
the New York Total Return Bond Fund, subject to its applicable investment
policies, may also invest in short-term obligations of foreign sovereign
governments or of their agencies, instrumentalities, authorities or political
subdivisions. These securities may be denominated in the U.S. dollar or, in the
case of the Equity, Capital Appreciation, International Equity, Emerging Markets
Equity, Diversified, European Equity, Japan Equity and Asia Growth Funds, in
another currency. See "Foreign Investments."

BANK OBLIGATIONS. Each of the Funds, except the Treasury Money Market
Fund, unless otherwise noted in the Prospectus or below, may invest in
negotiable certificates of deposit, time deposits and bankers' acceptances of
(i) banks, savings and loan associations and savings banks which have more than
$2 billion in total assets (the "Asset Limitation") and are organized under the
laws of the United States or any state, (ii) foreign branches of these banks or
of foreign banks of equivalent size (Euros) and (iii) U.S. branches of foreign
banks of equivalent size (Yankees). The Tax Exempt Money Market, Tax Exempt
Bond and New York Total Return Bond Funds may not invest in obligations of
foreign branches of foreign banks and the Asset Limitation is not applicable to
the International Equity, Emerging Markets Equity, European Equity, Japan Equity
or Asia Growth Funds. See "Foreign Investments." The Funds will not invest in
obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting bank. Each of the Funds, other than the Tax
Exempt Money Market, Treasury Money Market, Tax Exempt Bond and New York Total
Return Bond Funds, may also invest in obligations of international banking
institutions designated or supported by national governments to promote economic
reconstruction, development or trade between nations (e.g., the European
Investment Bank, the Inter-American Development Bank, or the World Bank).

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<PAGE>

COMMERCIAL PAPER. Each of the Funds (except the Treasury Money Market
Fund) may invest in commercial paper, including master demand obligations.
Master demand obligations are obligations that provide for a periodic adjustment
in the interest rate paid and permit daily changes in the amount borrowed.
Master demand obligations are governed by agreements between the issuer and
Morgan Guaranty Trust Company of New York acting as agent, for no additional
fee, in its capacity as investment advisor to the Portfolios and as fiduciary
for other clients for whom it exercises investment discretion. The monies
loaned to the borrower come from accounts managed by the Advisor or its
affiliates, pursuant to arrangements with such accounts. Interest and principal
payments are credited to such accounts. The Advisor, acting as a fiduciary on
behalf of its clients, has the right to increase or decrease the amount provided
to the borrower under an obligation. The borrower has the right to pay without
penalty all or any part of the principal amount then outstanding on an
obligation together with interest to the date of payment. Since these
obligations typically provide that the interest rate is tied to the Federal
Reserve commercial paper composite rate, the rate on master demand obligations
is subject to change. Repayment of a master demand obligation to participating
accounts depends on the ability of the borrower to pay the accrued interest and
principal of the obligation on demand which is continuously monitored by the
Advisor. Since master demand obligations typically are not rated by credit
rating agencies, the Funds may invest in such unrated obligations only if at the
time of an investment the obligation is determined by the Advisor to have a
credit quality which satisfies the Fund's quality restrictions. See "Quality
and Diversification Requirements." Although there is no secondary market for
master demand obligations, such obligations are considered by the Funds to be
liquid because they are payable upon demand. The Funds do not have any specific
percentage limitation on investments in master demand obligations.

REPURCHASE AGREEMENTS. Each of the Funds may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Funds' Trustees. In a repurchase agreement, a Fund buys a
security from a seller that has agreed to repurchase the same security at a
mutually agreed upon date and price . The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. This interest rate
is effective for the period of time the Fund is invested in the agreement and is
not related to the coupon rate on the underlying security. A repurchase
agreement may also be viewed as a fully collateralized loan of money by a Fund
to the seller. The period of these repurchase agreements will usually be short,
from overnight to one week, and at no time will the Funds invest in repurchase
agreements for more than thirteen months. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of thirteen
months from the effective date of the repurchase agreement. The Treasury Money
Market Fund will only enter into repurchase agreements involving U.S. Treasury
securities or permitted agency securities. The Funds will always receive
securities as collateral whose market value is, and during the entire term of
the agreement remains, at least equal to 100% of the dollar amount invested by
the Funds in each agreement plus accrued interest, and the Funds will make
payment for such securities only upon physical delivery or upon evidence of book
entry transfer to the account of the Custodian. The Money Market, Tax Exempt
Money Market, and Treasury Money Markets Funds will be fully collateralized
within the meaning of paragraph (a)(4) of Rule 2a-7 under the Investment Company
Act of 1940, as amended (the "1940 Act"). If the seller defaults, a Fund might
incur a loss if the value of the collateral securing the repurchase agreement
declines and might incur disposition costs in connection with liquidating the
collateral. In addition, if bankruptcy proceedings are commenced with respect
to the seller of the security, realization upon disposal of the collateral by a
Fund may be delayed or limited.

Each of the Funds (other than the Treasury Money Market Fund) may make
investments in other debt securities with remaining effective maturities of not
more than thirteen months, including without limitation corporate and foreign

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<PAGE>

bonds, asset-backed securities and other obligations described in the Prospectus
or this Statement of Additional Information. The Tax Exempt Money Market and
Tax Exempt Bond Funds may not invest in foreign bonds or asset-backed
securities.

CORPORATE BONDS AND OTHER DEBT SECURITIES

As discussed in the Prospectus, the Bond, Short Term Bond, New York Total
Return Bond, Diversified and European Equity Funds may invest in bonds and other
debt securities of domestic and (except for the New York Total Return Bond Fund)
foreign issuers to the extent consistent with their investment objectives and
policies. A description of these investments appears in the Prospectus and
below. See "Quality and Diversification Requirements." For information on
short-term investments in these securities, see "Money Market Instruments."

ASSET-BACKED SECURITIES. Asset-backed securities directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets such as motor vehicle or
credit card receivables. Payments of principal and interest may be guaranteed
up to certain amounts and for a certain time period by a letter of credit issued
by a financial institution unaffiliated with the entities issuing the
securities. The asset-backed securities in which a Fund may invest are subject
to the Fund's overall credit requirements. However, asset-backed securities, in
general, are subject to certain risks. Most of these risks are related to
limited interests in applicable collateral. For example, credit card debt
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts on credit card debt
thereby reducing the balance due. Additionally, if the letter of credit is
exhausted, holders of asset-backed securities may also experience delays in
payments or losses if the full amounts due on underlying sales contracts are not
realized. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.

TAX EXEMPT OBLIGATIONS

As discussed in the Prospectus, the Tax Exempt Money Market, Tax Exempt
Bond and New York Total Return Bond Funds and, in certain circumstances, the
Bond and Short Term Bond Funds, may invest in tax exempt obligations to the
extent consistent with each Fund's investment objective and policies. A
description of the various types of tax exempt obligations which may be
purchased by the Funds appears in the Prospectus and below. See "Quality and
Diversification Requirements."

MUNICIPAL BONDS. Municipal bonds are debt obligations issued by the
states, territories and possessions of the United States and the District of
Columbia, by their political subdivisions and by duly constituted authorities
and corporations. For example, states, territories, possessions and
municipalities may issue municipal bonds to raise funds for various public
purposes such as airports, housing, hospitals, mass transportation, schools,
water and sewer works. They may also issue municipal bonds to refund
outstanding obligations and to meet general operating expenses. Public
authorities issue municipal bonds to obtain funding for privately operated
facilities, such as housing and pollution control facilities, for industrial
facilities or for water supply, gas, electricity or waste disposal facilities.

Municipal bonds may be general obligation or revenue bonds. General
obligation bonds are secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
payable from revenues derived from particular facilities, from the proceeds of a
special excise tax or from other specific revenue sources. They are not
generally payable from the general taxing power of a municipality.

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<PAGE>

MUNICIPAL NOTES. Municipal notes are subdivided into three categories of
short-term obligations: municipal notes, municipal commercial paper and
municipal demand obligations.

Municipal notes are short-term obligations with a maturity at the time of
issuance ranging from six months to five years. The principal types of
municipal notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes, grant anticipation notes and project notes. Notes sold in
anticipation of collection of taxes, a bond sale, or receipt of other revenues
are usually general obligations of the issuing municipality or agency.

Municipal commercial paper typically consists of very short-term unsecured
negotiable promissory notes that are sold to meet seasonal working capital or
interim construction financing needs of a municipality or agency. While these
obligations are intended to be paid from general revenues or refinanced with
long-term debt, they frequently are backed by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks or institutions.

Municipal demand obligations are subdivided into two types: variable rate
demand notes and master demand obligations.

Variable rate demand notes are tax exempt municipal obligations or
participation interests that provide for a periodic adjustment in the interest
rate paid on the notes. They permit the holder to demand payment of the notes,
or to demand purchase of the notes at a purchase price equal to the unpaid
principal balance, plus accrued interest either directly by the issuer or by
drawing on a bank letter of credit or guaranty issued with respect to such note.
The issuer of the municipal obligation may have a corresponding right to prepay
at its discretion the outstanding principal of the note plus accrued interest
upon notice comparable to that required for the holder to demand payment. The
variable rate demand notes in which each Fund may invest are payable, or are
subject to purchase, on demand usually on notice of seven calendar days or less.
The terms of the notes provide that interest rates are adjustable at intervals
ranging from daily to six months, and the adjustments are based upon the prime
rate of a bank or other appropriate interest rate index specified in the
respective notes. Variable rate demand notes are valued at amortized cost; no
value is assigned to the right of each Fund to receive the par value of the
obligation upon demand or notice.

Master demand obligations are tax exempt municipal obligations that provide
for a periodic adjustment in the interest rate paid and permit daily changes in
the amount borrowed. The interest on such obligations is, in the opinion of
counsel for the borrower, exempt from federal income tax. For a description of
the attributes of master demand obligations, see "Money Market Instruments"
above. Although there is no secondary market for master demand obligations,
such obligations are considered by each Fund to be liquid because they are
payable upon demand. The Funds have no specific percentage limitations on
investments in master demand obligations.

The Tax Exempt Money Market Fund may purchase securities of the type
described above if they have effective maturities within thirteen months. As
required by regulation of the Securities and Exchange Commission (the "SEC"),
this means that on the date of acquisition the final stated maturity (or if
called for redemption, the redemption date) must be within thirteen months or
the maturity must be deemed to be no more than thirteen months because of a
maturity shortening mechanism, such as a variable interest rate, coupled with a
conditional or unconditional right to resell the investment to the issuer or a
third party. See "Variable Rate Demand Notes" and "Puts." A substantial
portion of the Tax Exempt Money Market Fund's portfolio is subject to maturity
shortening mechanisms consisting of variable interest rates coupled with
unconditional rights to resell the securities to the issuers either directly or
by drawing on

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<PAGE>

a domestic or foreign bank letter of credit or other credit support arrangement.
See "Foreign Investments."

PUTS. The Tax Exempt Money Market, Tax Exempt Bond and New York Total
Return Bond Funds may purchase without limit municipal bonds or notes together
with the right to resell the bonds or notes to the seller at an agreed price or
yield within a specified period prior to the maturity date of the bonds or
notes. Such a right to resell is commonly known as a "put." The aggregate
price for bonds or notes with puts may be higher than the price for bonds or
notes without puts. Consistent with each Fund's investment objective and
subject to the supervision of the Trustees, the purpose of this practice is to
permit each Fund to be fully invested in tax exempt securities while preserving
the necessary liquidity to purchase securities on a when-issued basis, to meet
unusually large redemptions, and to purchase at a later date securities other
than those subject to the put. The principal risk of puts is that the writer of
the put may default on its obligation to repurchase. The Advisor will monitor
each writer's ability to meet its obligations under puts.

Puts may be exercised prior to the expiration date in order to fund
obligations to purchase other securities or to meet redemption requests. These
obligations may arise during periods in which proceeds from sales of Fund shares
and from recent sales of portfolio securities are insufficient to meet
obligations or when the funds available are otherwise allocated for investment.
In addition, puts may be exercised prior to the expiration date in order to take
advantage of alternative investment opportunities or in the event the Advisor
revises its evaluation of the creditworthiness of the issuer of the underlying
security. In determining whether to exercise puts prior to their expiration
date and in selecting which puts to exercise, the Advisor considers the amount
of cash available to each Fund, the expiration dates of the available puts, any
future commitments for securities purchases, alternative investment
opportunities, the desirability of retaining the underlying securities in each
Fund's portfolio and the yield, quality and maturity dates of the underlying
securities.

The Tax Exempt Money Market Fund values any municipal bonds and notes which
are subject to puts at amortized cost. No value is assigned to the put. The
cost of any such put is carried as an unrealized loss from the time of purchase
until it is exercised or expires. The Tax Exempt Bond and New York Total Return
Bond Funds value any municipal bonds and notes subject to puts with remaining
maturities of less than 60 days by the amortized cost method. If the Tax Exempt
Bond and New York Total Return Bond Funds were to invest in municipal bonds and
notes with maturities of 60 days or more that are subject to puts separate from
the underlying securities, the puts and the underlying securities would be
valued at fair value as determined in accordance with procedures established by
the Board of Trustees. The Board of Trustees would, in connection with the
determination of the value of a put, consider, among other factors, the
creditworthiness of the writer of the put, the duration of the put, the dates on
which or the periods during which the put may be exercised and the applicable
rules and regulations of the SEC. Prior to investing in such securities, the
Tax Exempt Bond and New York Total Return Bond Funds, if deemed necessary based
upon the advice of counsel, will apply to the SEC for an exemptive order, which
may not be granted, relating to the valuation of such securities.

Since the value of the put is partly dependent on the ability of the put
writer to meet its obligation to repurchase, each Fund's policy is to enter into
put transactions only with municipal securities dealers who are approved by the
Advisor. Each dealer will be approved on its own merits, and it is each Fund's
general policy to enter into put transactions only with those dealers which are
determined to present minimal credit risks. In connection with such
determination, the Trustees will review regularly the Advisor's list of approved
dealers, taking into consideration, among other things, the ratings, if
available, of their equity and debt securities, their reputation in the
municipal securities markets, their net worth, their efficiency in consummating

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<PAGE>

transactions and any collateral arrangements, such as letters of credit,
securing the puts written by them. Commercial bank dealers normally will be
members of the Federal Reserve System, and other dealers will be members of the
National Association of Securities Dealers, Inc. or members of a national
securities exchange. In the case of the Tax Exempt Bond and New York Total
Return Bond Funds, other put writers will have outstanding debt rated Aa or
better by Moody's Investors Service, Inc. ("Moody's") or AA or better by
Standard & Poor's Ratings Group ("Standard & Poor's"), or will be of comparable
quality in the Advisor's opinion or such put writers' obligations will be
collateralized and of comparable quality in the Advisor's opinion. The Trustees
have directed the Advisor not to enter into put transactions with any dealer
which in the judgment of the Advisor becomes more than a minimal credit risk.
In the event that a dealer should default on its obligation to repurchase an
underlying security, the Funds are unable to predict whether all or any portion
of any loss sustained could subsequently be recovered from such dealer.

The Trust has been advised by counsel that the Funds will be considered the
owner of the securities subject to the puts so that the interest on the
securities is tax exempt income to the Funds. Such advice of counsel is based
on certain assumptions concerning the terms of the puts and the attendant
circumstances.

EQUITY INVESTMENTS

As discussed in the Prospectus, the Portfolios for the Equity, Capital
Appreciation, International Equity, Emerging Markets Equity, European Equity,
Japan Equity and Asia Growth Funds and the equity portion of the Diversified
Fund (collectively, the "Equity Portfolios") invest primarily in Equity
Securities. The Equity Securities in which the Equity Portfolios invest include
those listed on any domestic or foreign securities exchange or traded in the
over-the-counter market as well as certain restricted or unlisted securities. A
discussion of the various types of equity investments which may be purchased by
these Portfolios appears in the Prospectus and below. See "Quality and
Diversification Requirements."

EQUITY SECURITIES. The Equity Securities in which the Equity Portfolios
may invest may or may not pay dividends and may or may not carry voting rights.
Common stock occupies the most junior position in a company's capital structure.

The convertible securities in which the Equity Portfolios may invest
include any debt securities or preferred stock which may be converted into
common stock or which carry the right to purchase common stock. Convertible
securities entitle the holder to exchange the securities for a specified number
of shares of common stock, usually of the same company, at specified prices
within a certain period of time.

The terms of any convertible security determine its ranking in a company's
capital structure. In the case of subordinated convertible debentures, the
holders' claims on assets and earnings are subordinated to the claims of other
creditors, and are senior to the claims of preferred and common shareholders.
In the case of convertible preferred stock, the holders' claims on assets and
earnings are subordinated to the claims of all creditors and are senior to the
claims of common shareholders.

COMMON STOCK WARRANTS

The Portfolios for the Equity, Capital Appreciation, International Equity,
Emerging Markets Equity, Diversified, European Equity, Japan Equity and Asia
Growth Funds may invest in common stock warrants that entitle the holder to buy
common stock from the issuer of the warrant at a specific price (the strike
price) for a specific period of time. The market price of warrants may be
substantially lower than the current market price of the underlying common
stock,

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<PAGE>

yet warrants are subject to similar price fluctuations. As a result, warrants
may be more volatile investments than the underlying common stock.

Warrants generally do not entitle the holder to dividends or voting rights
with respect to the underlying common stock and do not represent any rights in
the assets of the issuer company. A warrant will expire worthless if it is not
exercised on or prior to the expiration date.

FOREIGN INVESTMENTS

The International Equity, Emerging Markets Equity, European Equity, Japan
Equity and Asia Growth Funds make substantial investments in foreign countries.
The Money Market, Bond, Short Term Bond, Equity, Capital Appreciation and
Diversified Funds may invest in certain foreign securities. The Short Term Bond
Fund and the Bond Fund may invest in dollar-denominated fixed income securities
of foreign issuers. The Equity Fund may invest in equity securities of foreign
corporations included in the S&P 500 Index or listed on a national securities
exchange. The Capital Appreciation Fund may invest in equity securities of
foreign issuers that are listed on a national securities exchange or denominated
or principally traded in the U.S. dollar. The Bond, Short Term Bond, Equity,
Capital Appreciation and Diversified Funds do not expect to invest more than
25%, 25%, 5%, 5% and 30%, respectively, of their total assets at the time of
purchase in securities of foreign issuers. All investments of the Money Market
Fund must be U.S. dollar-denominated. In the case of the Money Market, Bond and
Short Term Bond Funds, any foreign commercial paper must not be subject to
foreign withholding tax at the time of purchase. Foreign investments may be
made directly in securities of foreign issuers or in the form of American
Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs").
Generally, ADRs and EDRs are receipts issued by a bank or trust company that
evidence ownership of underlying securities issued by a foreign corporation and
that are designed for use in the domestic, in the case of ADRs, or European, in
the case of EDRs, securities markets.

Since investments in foreign securities may involve foreign currencies, the
value of a Fund's assets as measured in U.S. dollars may be affected favorably
or unfavorably by changes in currency rates and in exchange control regulations,
including currency blockage. The Equity, Capital Appreciation, International
Equity, Emerging Markets Equity, Diversified, European Equity, Japan Equity and
Asia Growth Funds may enter into forward commitments for the purchase or sale of
foreign currencies in connection with the settlement of foreign securities
transactions or to manage the Funds' currency exposure related to foreign
investments as described in the relevant Prospectus. The Funds will not enter
into such commitments for speculative purposes.

For a description of the risks associated with investing in foreign
securities, see "Additional Investment Information and Risk Factors" in the
Prospectus. To the extent that the Tax Exempt Money Market, Tax Exempt Bond and
New York Total Return Bond Funds invest in municipal bonds and notes backed by
credit support arrangements with foreign financial institutions, the risks
associated with investing in foreign securities may be relevant to these Funds.

INVESTING IN JAPAN. Investing in Japanese securities may involve the risks
associated with investing in foreign securities generally. In addition, because
the Japan Equity Portfolio and the International Equity Portfolio invest in
Japan, they will be subject to the general economic and political conditions in
Japan. It is not expected that the Asia Growth Portfolio will invest in Japan
(see "Investment Objective and Policies" in the Prospectus).

Share prices of companies listed on Japanese stock exchanges and on the
Japanese OTC market reached historical peaks (which were later referred to as
the "bubble") as well as historically high trading volumes in 1989 and 1990.
Since

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<PAGE>

then, stock prices in both markets decreased significantly. There can be no
assurance that additional market corrections will not occur.

The common stocks of many Japanese companies continue to trade at high
price earnings ratios in comparison with those in the United States, even after
the recent market decline. Differences in accounting methods make it difficult
to compare the earnings of Japanese companies with those of companies in other
countries, especially the United States.

Since the Japan Equity and the International Equity Portfolios invest in
securities denominated in yen, changes in exchange rates between the U.S. dollar
and the yen affect the U.S. dollar value of their respective assets. Although
the Japanese economy has grown substantially over the past four decades,
recently the rate of growth had slowed substantially. See Foreign Currency
Exchange Transactions.

Japan's success in exporting its products has generated a sizeable trade
surplus. Such trade surplus has caused tensions at times between Japan and some
of its trading partners. In particular, Japan's trade relations with the United
States have recently been the subject of discussion and negotiation between the
two nations. The United States has imposed certain measures designed to address
trade issues in specific industries. These measures and similar measures in the
future may adversely affect the performance of the Japan Equity and
International Equity Portfolios.

Japan's economy has typically exhibited low inflation and low interest
rates. There can be no assurance that low inflation and low interest rates will
continue, and it is likely that a reversal of such factors would adversely
affect the Japanese economy. Moreover, the Japanese economy may differ,
favorably or unfavorably, from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position.

Japan has a parliamentary form of government. In 1993 a coalition
government was formed which, for the first time since 1955, did not include the
Liberal Democratic Party. Since mid-1993, there have been several changes in
leadership in Japan. What, if any, effect the current political situation will
have on prospective regulatory reforms of the economy in Japan cannot be
predicted. Recent and future developments in Japan and neighboring Asian
countries may lead to changes in policy that might adversely affect these
Portfolios.

ADDITIONAL INVESTMENTS

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each of the Portfolios may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income investments no interest accrues to a Portfolio until settlement
takes place. At the time a Portfolio makes the commitment to purchase
securities on a when-issued or delayed delivery basis, it will record the
transaction, reflect the value each day of such securities in determining its
net asset value and, if applicable, calculate the maturity for the purposes of
average maturity from that date. At the time of settlement a when-issued
security may be valued at less than the purchase price. To facilitate such
acquisitions, each Portfolio will maintain with the Custodian a segregated
account with liquid assets, consisting of cash, U.S. Government securities or
other appropriate securities, in an amount at least equal to such commitments.
On delivery dates for such transactions, each Portfolio will meet its
obligations from maturities or sales of the

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<PAGE>

securities held in the segregated account and/or from cash flow. If a Portfolio
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. It is the current
policy of each Portfolio not to enter into when-issued commitments exceeding in
the aggregate 15% of the market value of the Portfolio's total assets, less
liabilities other than the obligations created by when-issued commitments.

INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by each of the Funds and their corresponding Portfolios to the
extent permitted under the 1940 Act. These limits require that, as determined
immediately after a purchase is made, (i) not more than 5% of the value of a
Fund's total assets will be invested in the securities of any one investment
company, (ii) not more than 10% of the value of its total assets will be
invested in the aggregate in securities of investment companies as a group, and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by a Fund, provided however, that a Fund may invest all of
its investable assets in an open-end investment company that has the same
investment objective as the Fund (its corresponding Portfolio). As a
shareholder of another investment company, a Fund would bear, along with other
shareholders, its PRO RATA portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory
and other expenses that a Fund bears directly in connection with its own
operations.

REVERSE REPURCHASE AGREEMENTS. Each of the Portfolios may enter into
reverse repurchase agreements. In a reverse repurchase agreement, a Portfolio
sells a security and agrees to repurchase the same security at a mutually agreed
upon date and price. The Portfolio for the Treasury Money Market Fund will only
enter into reverse repurchase agreements involving Treasury securities. For
purposes of the 1940 Act a reverse repurchase agreement is also considered as
the borrowing of money by the Portfolio and, therefore, a form of leverage. The
Portfolios will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, a Portfolio will enter into a reverse repurchase
agreement only when the interest income to be earned from the investment of the
proceeds is greater than the interest expense of the transaction. A Portfolio
will not invest the proceeds of a reverse repurchase agreement for a period
which exceeds the duration of the reverse repurchase agreement. Each Portfolio
will establish and maintain with the Custodian a separate account with a
segregated portfolio of securities in an amount at least equal to its purchase
obligations under its reverse repurchase agreements. If interest rates rise
during the term of a reverse repurchase agreement, entering into the reverse
repurchase agreement may have a negative impact on the Money Market, Tax Exempt
Money Market and Treasury Money Market Funds' ability to maintain a net asset
value of $1.00 per share. See "Investment Restrictions" for each Portfolio's
limitations on reverse repurchase agreements and bank borrowings.

MORTGAGE DOLLAR ROLL TRANSACTIONS. The Portfolios for the Short Term Bond
Fund and the Bond Fund may engage in mortgage dollar roll transactions with
respect to mortgage securities issued by the Government National Mortgage
Association, the Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation. In a mortgage dollar roll transaction, the Portfolio
sells a mortgage backed security and simultaneously agrees to repurchase a
similar security on a specified future date at an agreed upon price. During the
roll period, the Portfolio will not be entitled to receive any interest or
principal paid on the securities sold. The Portfolio is compensated for the
lost interest on the securities sold by the difference between the sales price
and the lower price for the future repurchase as well as by the interest earned
on the reinvestment of the sales proceeds. The Portfolio may also be
compensated by receipt of a commitment fee. When the Portfolio enters into a
mortgage dollar roll transaction, liquid assets in an amount sufficient to pay
for the future repurchase are segregated with the Custodian. Mortgage dollar
roll transactions

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<PAGE>

are considered reverse repurchase agreements for purposes of the Portfolio's
investment restrictions.

LOANS OF PORTFOLIO SECURITIES. Each of the Portfolios may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the
Portfolio any income accruing thereon. Loans will be subject to termination by
the Portfolios in the normal settlement time, generally three business days
after notice, or by the borrower on one day's notice. Borrowed securities must
be returned when the loan is terminated. Any gain or loss in the market price
of the borrowed securities which occurs during the term of the loan inures to a
Portfolio and its respective investors. The Portfolios may pay reasonable
finders' and custodial fees in connection with a loan. In addition, a Portfolio
will consider all facts and circumstances including the creditworthiness of the
borrowing financial institution, and no Portfolio will make any loans in excess
of one year. The Portfolios will not lend their securities to any officer,
Trustee, Director, employee or other affiliate of the Portfolios, the Advisor or
the Distributor, unless otherwise permitted by applicable law.

PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. The Portfolios for
each of the Funds (except the Treasury Money Market Fund) may invest in
privately placed, restricted, Rule 144A or other unregistered securities as
described in the Prospectus.

As to illiquid investments, a Portfolio is subject to a risk that should
the Portfolio decide to sell them when a ready buyer is not available at a price
the Portfolio deems representative of their value, the value of the Portfolio's
net assets could be adversely affected. Where an illiquid security must be
registered under the Securities Act of 1933, as amended (the "1933 Act") before
it may be sold, a Portfolio may be obligated to pay all or part of the
registration expenses, and a considerable period may elapse between the time of
the decision to sell and the time the Portfolio may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, a Portfolio might obtain a less
favorable price than prevailed when it decided to sell.

SYNTHETIC VARIABLE RATE INSTRUMENTS. The Portfolios for the Tax Exempt
Bond, New York Total Return Bond and Tax Exempt Money Market Funds may invest in
certain synthetic variable rate instruments as described in the Prospectus. In
the case of some types of instruments credit enhancement is not provided, and if
certain events, which may include (a) default in the payment of principal or
interest on the underlying bond, (b) downgrading of the bond below investment
grade or (c) a loss of the bond's tax exempt status, occur, then (i) the put
will terminate, (ii) the risk to a Fund will be that of holding a long-term
bond, and (iii) in the case of the Tax Exempt Money Market Fund, the disposition
of the bond may be required which could be at a loss.

QUALITY AND DIVERSIFICATION REQUIREMENTS

Each of the Funds, except the New York Total Return Bond and Japan Equity
Funds, intends to meet the diversification requirements of the 1940 Act. To
meet these requirements, 75% of the assets of these Funds is subject to the
following fundamental limitations: (1) the Fund may not invest more than 5% of
its total assets in the securities of any one issuer, except obligations of the
U.S. Government, its agencies and instrumentalities, and (2) the Fund may not
own more than 10% of the outstanding voting securities of any one issuer. As
for the other 25% of the Fund's assets not subject to the limitation described
above, there is no limitation on investment of these assets under the 1940 Act,
so that all of such assets may be invested in securities of any one issuer,
subject to the limitation of any applicable state securities laws, or with
respect to the

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<PAGE>

Money Market, Tax Exempt Money Market and Treasury Money Market Funds, as
described below. Investments not subject to the limitations described above
could involve an increased risk to a Fund should an issuer, or a state or its
related entities, be unable to make interest or principal payments or should the
market value of such securities decline.

Although the New York Total Return Bond and Japan Equity Funds are not
limited by the diversification requirements of the 1940 Act, these Funds will
comply with the diversification requirements imposed by the Internal Revenue
Code of 1986, as amended (the "Code"), for qualification as a regulated
investment company. To meet these requirements, each Fund must diversify its
holdings so that, with respect to 50% of the Fund's assets, no more than 5% of
its assets are invested in the securities of any one issuer other than the U.S.
Government at the close of each quarter of the Fund's taxable year. The Fund
may with respect to the remaining 50% of its assets, invest up to 25% of its
assets in the securities of any one issuer (except this limitation does not
apply to U.S. Government Securities).

With respect to the Tax Exempt Money Market and Tax Exempt Bond Funds, for
purposes of diversification and concentration under the 1940 Act, identification
of the issuer of municipal bonds or notes depends on the terms and conditions of
the obligation. With respect to the New York Total Return Bond Fund, for
purposes of diversification under the Code and concentration under the 1940 Act,
identification of the issuer of municipal bonds or notes also depends on the
terms and conditions of the obligation. If the assets and revenues of an
agency, authority, instrumentality or other political subdivision are separate
from those of the government creating the subdivision and the obligation is
backed only by the assets and revenues of the subdivision, such subdivision is
regarded as the sole issuer. Similarly, in the case of an industrial
development revenue bond or pollution control revenue bond, if the bond is
backed only by the assets and revenues of the nongovernmental user, the
nongovernmental user is regarded as the sole issuer. If in either case the
creating government or another entity guarantees an obligation, the guaranty is
regarded as a separate security and treated as an issue of such guarantor.
Since securities issued or guaranteed by states or municipalities are not voting
securities, there is no limitation on the percentage of a single issuer's
securities which a Fund may own so long as it does not invest more than 5% of
its total assets that are subject to the diversification limitation in the
securities of such issuer, except obligations issued or guaranteed by the U.S.
Government. Consequently, the Funds may invest in a greater percentage of the
outstanding securities of a single issuer than would an investment company which
invests in voting securities. See "Investment Restrictions."

MONEY MARKET FUND. In order to attain the Money Market Fund's objective of
maintaining a stable net asset value, the Portfolio for the Money Market Fund
will (i) limit its investment in the securities (other than U.S. Government
securities) of any one issuer to no more than 5% of its assets, measured at the
time of purchase, except for investments held for not more than three business
days (subject, however, to the investment restriction No. 4 set forth under
"Investment Restrictions" below); and (ii) limit investments to securities that
present minimal credit risks and securities (other than U.S. Government
securities) that are rated within the highest short-term rating category by at
least two nationally recognized statistical rating organizations ("NRSROs") or
by the only NRSRO that has rated the security. Securities which originally had
a maturity of over one year are subject to more complicated, but generally
similar rating requirements. A description of illustrative credit ratings is
set forth in Appendix A attached to this Statement of Additional Information.
The Portfolio may also purchase unrated securities that are of comparable
quality to the rated securities described above. Additionally, if the issuer of
a particular security has issued other securities of comparable priority and
security and which have been rated in accordance with (ii) above, that security
will be deemed to have the same rating as such other rated securities.

<PAGE>

In addition, the Board of Trustees has adopted procedures which (i) require
the Board of Trustees to approve or ratify purchases by the Portfolio of
securities (other than U.S. Government securities) that are rated by only one
NRSRO or that are unrated; (ii) require the Portfolio to maintain a
dollar-weighted average portfolio maturity of not more than 90 days and to
invest only in securities with a remaining maturity of not more than thirteen
months; and (iii) require the Portfolio, in the event of certain downgradings of
or defaults on portfolio holdings, to dispose of the holding, subject in certain
circumstances to a finding by the Trustees that disposing of the holding would
not be in the Portfolio's best interest.

TAX EXEMPT MONEY MARKET FUND. In order to attain the Tax Exempt Money
Market Fund's objective of maintaining a stable net asset value, the Portfolio
for the Tax Exempt Money Market Fund will limit its investments to securities
that present minimal credit risks and securities (other than New York State
municipal notes) that are rated within the highest rating assigned to short-term
debt securities (or, in the case of New York State municipal notes, within one
of the two highest ratings assigned to short-term debt securities) by at least
two NRSROs or by the only NRSRO that has rated the security. Securities which
originally had a maturity of over one year are subject to more complicated, but
generally similar rating requirements. The Portfolio may also purchase unrated
securities that are of comparable quality to the rated securities described
above. Additionally, if the issuer of a particular security has issued other
securities of comparable priority and security and which have been rated in
accordance with the criteria described above that security will be deemed to
have the same rating as such other rated securities.

In addition, the Board of Trustees has adopted procedures which (i) require
the Portfolio to maintain a dollar-weighted average portfolio maturity of not
more than 90 days and to invest only in securities with a remaining maturity of
not more than thirteen months and (ii) require the Portfolio, in the event of
certain downgrading of or defaults on portfolio holdings, to dispose of the
holding, subject in certain circumstances to a finding by the Trustees that
disposing of the holding would not be in the Portfolio's best interest.

The credit quality of variable rate demand notes and other municipal
obligations is frequently enhanced by various credit support arrangements with
domestic or foreign financial institutions, such as letters of credit,
guarantees and insurance, and these arrangements are considered when investment
quality is evaluated. The rating of credit-enhanced municipal obligations by a
NRSRO may be based primarily or exclusively on the credit support arrangement.

TREASURY MONEY MARKET FUND. In order to attain its objective of
maintaining a stable net asset value, the Treasury Money Market Fund will limit
its investments to direct obligations of the U.S. Treasury, including Treasury
bills, notes and bonds, and certain U.S. Government securities with remaining
maturities of thirteen months or less at the time of purchase and will maintain
a dollar-weighted average portfolio maturity of not more than 90 days.

SHORT TERM BOND, BOND, AND DIVERSIFIED FUNDS. The Short Term Bond and Bond
Funds and the fixed income portion of the Diversified Fund invest principally in
a diversified portfolio of "high grade" and "investment grade" securities.
Investment grade debt is rated, on the date of investment, within the four
highest ratings of Moody's, currently Aaa, Aa, A and Baa, or of Standard &
Poor's, currently AAA, AA, A and BBB. High grade debt is rated, on the date of
the investment, within the two highest of such ratings. The Bond Fund may also
invest up to 5% of its total assets in securities which are "below investment
grade." Such securities must be rated, on the date of investment, Ba by Moody's
or BB by Standard & Poor's. The Funds may invest in debt securities which are
not rated or other debt securities to which these ratings are not applicable, if
in the opinion of the Advisor, such securities are of comparable quality to the
rated securities discussed above. In addition, at the time the Funds invest in

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<PAGE>

any commercial paper, bank obligation or repurchase agreement, the issuer must
have outstanding debt rated A or higher by Moody's or Standard & Poor's, the
issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are
available, the investment must be of comparable quality in the Advisor's
opinion.

TAX EXEMPT BOND FUND. The Tax Exempt Bond Fund invests principally in a
diversified portfolio of "high grade" and "investment grade" tax exempt
securities. On the date of investment (i) municipal bonds must be rated within
the three highest ratings of Moody's, currently Aaa, Aa and A, or of Standard &
Poor's, currently AAA, AA, and A, (ii) municipal notes must be rated MIG-1 by
Moody's or SP-1 by Standard & Poor's (or, in the case of New York State
municipal notes, MIG-1 or MIG-2 by Moody's or SP-1 or SP-2 by Standard & Poor's)
and (iii) municipal commercial paper must be rated Prime-1 by Moody's or A-1 by
Standard & Poor's or, if not rated by either Moody's or Standard & Poor's,
issued by an issuer either (a) having an outstanding debt issue rated A or
higher by Moody's or Standard & Poor's or (b) having comparable quality in the
opinion of the Advisor. The Fund may invest in other tax exempt securities
which are not rated if, in the opinion of the Advisor, such securities are of
comparable quality to the rated securities discussed above. In addition, at the
time the Fund invests in any commercial paper, bank obligation or repurchase
agreement, the issuer must have outstanding debt rated A or higher by Moody's or
Standard & Poor's, the issuer's parent corporation, if any, must have
outstanding commercial paper rated Prime-1 by Moody's or A-1 by Standard &
Poor's, or if no such ratings are available, the investment must be of
comparable quality in the Advisor's opinion.

NEW YORK TOTAL RETURN BOND FUND. The New York Total Return Bond Fund
invests principally in a diversified portfolio of "investment grade" tax exempt
securities. An investment grade bond is rated, on the date of investment within
the four highest ratings of Moody's, currently Aaa, Aa, A and Baa or of Standard
& Poor's, currently AAA, AA, A and BBB, while high grade debt is rated, on the
date of the investment within the two highest of such ratings. Investment grade
municipal notes are rated, on the date of investment, MIG-1 or MIG-2 by Standard
& Poor's or SP-1 and SP-2 by Moody's. Investment grade municipal commercial
paper is rated, on the date of investment, Prime 1 or Prime 2 by Moody's and A-1
or A-2 by Standard & Poor's. The New York Total Return Bond Fund may also
invest up to 5% of its total assets in securities which are "below investment
grade." Such securities must be rated, on the date of investment, Ba by Moody's
or BB by Standard & Poor's. The New York Total Return Bond Fund may invest in
debt securities which are not rated or other debt securities to which these
ratings are not applicable, if in the opinion of the Advisor, such securities
are of comparable quality to the rated securities discussed above. In addition,
at the time the Fund invests in any taxable commercial paper, bank obligation or
repurchase agreement, the issuer must have outstanding debt rated A or higher by
Moody's or Standard & Poor's, the issuer's parent corporation, if any, must have
outstanding commercial paper rated Prime-1 by Moody's or A-1 by Standard &
Poor's, or if no such ratings are available, the investment must be of
comparable quality in the Advisor's opinion.

EQUITY, CAPITAL APPRECIATION, INTERNATIONAL EQUITY, EMERGING MARKETS
EQUITY, DIVERSIFIED, EUROPEAN EQUITY, JAPAN EQUITY AND ASIA GROWTH FUNDS. The
Equity, Capital Appreciation, International Equity, Emerging Markets Equity,
Diversified, European Equity, Japan Equity and Asia Growth Funds may invest in
convertible debt securities, for which there are no specific quality
requirements. In addition, at the time a Fund invests in any commercial paper,
bank obligation or repurchase agreement, the issuer must have outstanding debt
rated A or higher by Moody's or Standard & Poor's, the issuer's parent
corporation, if any, must have outstanding commercial paper rated Prime-1 by
Moody's or A-1 by Standard & Poor's, or if no such ratings are available, the
investment must be of comparable quality in the Advisor's opinion. At the time
a Fund invests in any other short-term debt securities, they must be rated A or

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<PAGE>

higher by Moody's or Standard & Poor's, or if unrated, the investment must be of
comparable quality in the Advisor's opinion.

In determining suitability of investment in a particular unrated security,
the Advisor takes into consideration asset and debt service coverage, the
purpose of the financing, history of the issuer, existence of other rated
securities of the issuer, and other relevant conditions, such as comparability
to other issuers.

OPTIONS AND FUTURES TRANSACTIONS

EXCHANGE TRADED AND OVER-THE-COUNTER OPTIONS. All options purchased or sold by
the Portfolios will be traded on a securities exchange or will be purchased or
sold by securities dealers (over-the-counter or OTC options) that meet
creditworthiness standards approved by the Portfolio's Board of Trustees. While
exchange-traded options are obligations of the Options Clearing Corporation, in
the case of OTC options, a Portfolio relies on the dealer from which it
purchased the option to perform if the option is exercised. Thus, when a
Portfolio purchases an OTC option, it relies on the dealer from which it
purchased the option to make or take delivery of the underlying securities.
Failure by the dealer to do so would result in the loss of the premium paid by
the Portfolio as well as loss of the expected benefit of the transaction.

The staff of the SEC has taken the position that, in general, purchased OTC
options and the underlying securities used to cover written OTC options are
illiquid securities. However, a Portfolio may treat as liquid the underlying
securities used to cover written OTC options, provided it has arrangements with
certain qualified dealers who agree that the Portfolio may repurchase any option
it writes for a maximum price to be calculated by a predetermined formula. In
these cases, the OTC option itself would only be considered illiquid to the
extent that the maximum repurchase price under the formula exceeds the intrinsic
value of the option.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolios permitted to
enter into futures and options transactions may purchase or sell (write) futures
contracts and purchase put and call options, including put and call options on
futures contracts. In addition, the Portfolios for the Emerging Markets Equity,
Diversified, European Equity, Japan Equity and Asia Growth Funds may sell
(write) put and call options, including options on futures. Futures contracts
obligate the buyer to take and the seller to make delivery at a future date of a
specified quantity of a financial instrument or an amount of cash based on the
value of a securities index. Currently, futures contracts are available on
various types of fixed income securities, including but not limited to U.S.
Treasury bonds, notes and bills, Eurodollar certificates of deposit and on
indexes of fixed income securities and indexes of equity securities.

Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for
the option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.

The seller of an option on a futures contract receives the premium paid by
the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by a Portfolio are paid by the Portfolio into a segregated

24
<PAGE>

account, in the name of the Futures Commission Merchant, as required by the
1940 Act and the SEC's interpretations thereunder.

COMBINED POSITIONS. The Portfolios permitted to purchase and write options may
do so in combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, certain Portfolios may purchase a put option and write a
call option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call
option at one strike price and buying a call option at a lower price, in order
to reduce the risk of the written call option in the event of a substantial
price increase. Because combined options positions involve multiple trades,
they result in higher transaction costs and may be more difficult to open and
close out.

CORRELATION OF PRICE CHANGES. Because there are a limited number of types of
exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match a
Portfolio's current or anticipated investments exactly. A Portfolio may invest
in options and futures contracts based on securities with different issuers,
maturities, or other characteristics from the securities in which it typically
invests, which involves a risk that the options or futures position will not
track the performance of the Portfolio's other investments.

Options and futures contracts prices can also diverge from the prices of
their underlying instruments, even if the underlying instruments match the
Portfolio's investments well. Options and futures contracts prices are affected
by such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A Portfolio may purchase or sell options
and futures contracts with a greater or lesser value than the securities it
wishes to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in a Portfolio's options
or futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.

LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for a
Portfolio to enter into new positions or close out existing positions. If the
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions, and
could potentially require a Portfolio to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, the
Portfolio's access to other assets held to cover its options or futures
positions could also be impaired. (See "Exchange Traded and Over-the-Counter
Options" above for a discussion of the liquidity of options not traded on an
exchange.)

POSITION LIMITS. Futures exchanges can limit the number of futures and options
on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, a Portfolio or the Advisor may be
required to

<PAGE>

reduce the size of its futures and options positions or may not be able to trade
a certain futures or options contract in order to avoid exceeding such limits.

ASSET COVERAGE FOR FUTURES CONTRACTS AND OPTIONS POSITIONS. The Portfolios
intend to comply with Section 4.5 of the regulations under the Commodity
Exchange Act, which limits the extent to which a Portfolio can commit assets to
initial margin deposits and option premiums. In addition, the Portfolios will
comply with guidelines established by the SEC with respect to coverage of
options and futures contracts by mutual funds, and if the guidelines so require,
will set aside appropriate liquid assets in a segregated custodial account in
the amount prescribed. Securities held in a segregated account cannot be sold
while the futures contract or option is outstanding, unless they are replaced
with other suitable assets. As a result, there is a possibility that
segregation of a large percentage of a Portfolio's assets could impede portfolio
management or the Portfolio's ability to meet redemption requests or other
current obligations.

RISK MANAGEMENT

The Portfolios for the New York Total Return Bond, Diversified, Emerging
Markets Equity, European Equity, Japan Equity and Asia Growth Funds may employ
non-hedging risk management techniques. Examples of such strategies include
synthetically altering the duration of a portfolio or the mix of securities in a
portfolio. For example, if the Advisor wishes to extend maturities in a fixed
income portfolio in order to take advantage of an anticipated decline in
interest rates, but does not wish to purchase the underlying long term
securities, it might cause the Portfolio to purchase futures contracts on long
term debt securities. Similarly, if the Advisor wishes to decrease fixed income
securities or purchase equities, it could cause the Portfolio to sell futures
contracts on debt securities and purchase futures contracts on a stock index.
Such non-hedging risk management techniques are not speculative, but because
they involve leverage include, as do all leveraged transactions, the possibility
of losses as well as gains that are greater than if these techniques involved
the purchase and sale of the securities themselves rather than their synthetic
derivatives.

SPECIAL FACTORS AFFECTING THE NEW YORK TOTAL RETURN BOND FUND. The New York
Total Return Bond Fund intends to invest a high proportion of its assets in
municipal obligations of the State of New York and its political subdivisions,
municipalities, agencies, instrumentalities and public authorities. Payment of
interest and preservation of principal is dependent upon the continuing ability
of New York issuers and/or obligators of state, municipal and public authority
debt obligations to meet their obligations thereunder.

The fiscal stability of New York State is related, at least in part, to the
fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State through lease-purchase arrangements, other
contractual arrangements or moral obligation provisions. While debt service is
normally paid out of revenues generated by projects of such State agencies,
authorities and localities, the State has had to provide special assistance in
the past, in some cases of a recurring nature, to enable such agencies,
authorities and localities to meet their financial obligations and, in some
cases, to prevent or cure defaults. To the extent State agencies and local
governments require State assistance to meet their financial obligations, the
ability of the State to meet its own obligations as they become due or to obtain
additional financing could be adversely affected.

On July 10, 1995, Standard & Poor's downgraded its rating on New York
City's outstanding general obligation bonds to BBB+ from A-, citing the city's
chronic structural budget problems and weak economic outlook. Moody's currently
rates New York City general obligation bonds Baa-1. Factors contributing to
these ratings include the city's reliance on one-time revenue measures to close
annual budget gaps, a dependence on unrealized labor savings, overly optimistic

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<PAGE>

estimates of revenues and of state and federal aid, and the city's continued
high debt levels.

For further information concerning New York municipal obligations, see
Appendix B to this Statement of Additional Information. The summary set forth
above and in Appendix B is included for the purpose of providing a general
description of New York State and New York City credit and financial conditions.
This summary is based on information from an official statement of New York
general obligation municipal obligations and does not purport to be complete.

PORTFOLIO TURNOVER

The table below sets forth the portfolio turnover rates for the Portfolios
corresponding to the Funds. A rate of 100% indicates that the equivalent of all
of the Portfolio's assets have been sold and reinvested in a year. High
portfolio turnover may result in the realization of substantial net capital
gains or losses. To the extent net short term capital gains are realized, any
distributions resulting from such gains are considered ordinary income for
federal income tax purposes. See "Taxes" below.

THE SHORT TERM BOND PORTFOLIO (SHORT TERM BOND FUND) -- For the fiscal year
ended October 31, 1994: 230%. For the fiscal year ended October 31, 1995: 177%.

THE TAX EXEMPT BOND PORTFOLIO (TAX EXEMPT BOND FUND) -- For the fiscal year
ended August 31, 1994: 33%. For the fiscal year ended August 31, 1995: 47%.

THE NEW YORK TOTAL RETURN BOND PORTFOLIO (NEW YORK TOTAL RETURN BOND FUND) --
For the period April 11, 1994 (commencement of operations) through March 31,
1995: 63%. For the fiscal year ended March 31, 1996: 41%.

THE U.S. FIXED INCOME PORTFOLIO (BOND FUND) -- For the fiscal year ended
October 31, 1994: 234%. For the fiscal year ended October 31, 1995: 293%.

THE SELECTED U.S. EQUITY PORTFOLIO (EQUITY FUND) -- For the period July 19,
1993 (commencement of operations) through May 31, 1994: 76%. For the fiscal
year ended May 31, 1995: 71%.

THE U.S. SMALL COMPANY PORTFOLIO (CAPITAL APPRECIATION FUND) -- For the period
July 19, 1993 (commencement of operations) through May 31, 1994: 97%. For the
fiscal year ended May 31, 1995: 75%.

THE NON-U.S. EQUITY PORTFOLIO (INTERNATIONAL EQUITY FUND) -- For the fiscal year
ended October 31, 1994: 56%. For the fiscal year ended October 31, 1995: 59%.

THE DIVERSIFIED PORTFOLIO (DIVERSIFIED FUND) -- For the period July 8, 1993
(commencement of operations) through June 30, 1994: 115%. For the fiscal year
ended June 30, 1995: 136%.

THE EMERGING MARKETS EQUITY PORTFOLIO (EMERGING MARKETS EQUITY FUND) -- For the
fiscal year ended October 31, 1994: 27.48%. For the fiscal year ended October
31, 1995: 41.31%.

THE EUROPEAN EQUITY PORTFOLIO (EUROPEAN EQUITY FUND) -- For the period March 28,
1995 (commencement of operations) through December 31, 1995: 36%. For the six
months ended June 30, 1996: 27% (unaudited).

THE JAPAN EQUITY PORTFOLIO (Japan Equity Fund) -- For the period March 28, 1995
(commencement of operations) through December 31, 1995: 60%. For the six months
ended June 30, 1996: 44.07% (unaudited).

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<PAGE>

THE ASIA GROWTH PORTFOLIO (Asia Growth Fund) -- For the period April 5, 1995
(commencement of operations) through December 31, 1995: 70%. For the six months
ended June 30, 1996: 42% (unaudited).

The estimated annual portfolio turnover rate for each of the European
Equity, Japan Equity and Asia Growth Portfolios generally should not exceed
100%.

INVESTMENT RESTRICTIONS

The investment restrictions of each Fund and its corresponding Portfolio
are identical, unless otherwise specified. Accordingly, references below to a
Fund also include the Fund's corresponding Portfolio unless the context requires
otherwise; similarly, references to a Portfolio also include its corresponding
Fund unless the context requires otherwise.

The investment restrictions below have been adopted by the Trust with
respect to each Fund and by each corresponding Portfolio. Except where
otherwise noted, these investment restrictions are "fundamental" policies which,
under the 1940 Act, may not be changed without the vote of a majority of the
outstanding voting securities of the Fund or Portfolio, as the case may be. A
"majority of the outstanding voting securities" is defined in the 1940 Act as
the lesser of (a) 67% or more of the voting securities present at a meeting if
the holders of more than 50% of the outstanding voting securities are present or
represented by proxy, or (b) more than 50% of the outstanding voting securities.
The percentage limitations contained in the restrictions below apply at the time
of the purchase of securities. Whenever a Fund is requested to vote on a change
in the fundamental investment restrictions of its corresponding Portfolio, the
Trust will hold a meeting of Fund shareholders and will cast its votes as
instructed by the Fund's shareholders.

The MONEY MARKET FUND and its corresponding PORTFOLIO may not:

1. Acquire any illiquid securities, such as repurchase agreements with more than
seven days to maturity or fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 10% of the market value of the
Fund's total assets would be in investments which are illiquid;

2. Enter into reverse repurchase agreements exceeding in the aggregate one-third
of the market value of the Fund's total assets, less liabilities other than
obligations created by reverse repurchase agreements;

3. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts not to exceed 10% of the value of the Fund's total assets,
taken at cost, at the time of such borrowing. Mortgage, pledge, or hypothecate
any assets except in connection with any such borrowing and in amounts not to
exceed 10% of the value of the Fund's net assets at the time of such borrowing.
The Fund will not purchase securities while borrowings exceed 5% of the Fund's
total assets; provided, however, that the Fund may increase its interest in an
open-end management investment company with the same investment objective and
restrictions as the Fund while such borrowings are outstanding. This borrowing
provision is included to facilitate the orderly sale of portfolio securities,
for example, in the event of abnormally heavy redemption requests, and is not
for investment purposes and shall not apply to reverse repurchase agreements;

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<PAGE>

5. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investment in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities, negotiable certificates of
deposit, time deposits, and bankers' acceptances of U.S. branches of U.S. banks;

6. Make loans, except through purchasing or holding debt obligations, or
entering into repurchase agreements, or loans of portfolio securities in
accordance with the Fund's investment objective and policies (see "Investment
Objectives and Policies");

7. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, or commodity contracts or interests in oil, gas, or
mineral exploration or development programs. However, the Fund may purchase
bonds or commercial paper issued by companies which invest in real estate or
interests therein including real estate investment trusts;

8. Purchase securities on margin, make short sales of securities, or maintain a
short position, provided that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued securities or of securities
for delivery at a future date;

9. Acquire securities of other investment companies, except as permitted by the
1940 Act; or

10. Act as an underwriter of securities.

The TAX EXEMPT MONEY MARKET FUND and its corresponding PORTFOLIO may not:

1. Borrow money, except from banks for temporary, extraordinary or emergency
purposes and then only in amounts up to 10% of the value of the Fund's total
assets, taken at cost at the time of such borrowing; or mortgage, pledge or
hypothecate any assets except in connection with any such borrowing in amounts
up to 10% of the value of the Fund's net assets at the time of such borrowing.
The Fund will not purchase securities while borrowings exceed 5% of the Fund's
total assets, provided, however, that the Fund may increase its interest in an
open-end management investment company with the same investment objective and
restrictions as the Fund's while such borrowings are outstanding. This
borrowing provision, for example, facilitates the orderly sale of portfolio
securities in the event of abnormally heavy redemption requests or in the event
of redemption requests during periods of tight market supply. This provision is
not for leveraging purposes;

2. Invest more than 25% of its total assets in securities of governmental
units located in any one state, territory, or possession of the United
States. The Fund may invest more then 25% of its total assets in industrial
development and pollution control obligations whether or not the users of
facilities financed by such obligations are in the same industry;

3. Purchase industrial revenue bonds if, as a result of such purchase, more than
5% of total Fund assets would be invested in industrial revenue bonds where
payment of principal and interest are the responsibility of companies with fewer
than three years of operating history;

- ----------------------

(1)Pursuant to an interpretation of the staff of the SEC, the Fund may not
invest more than 25% of its assets in industrial development bonds in projects
of similar type or in the same state. The Fund shall comply with this
interpretation until such time as it may be modified by the staff or the SEC.

29
<PAGE>

payment of principal and interest are the responsibility of companies with fewer
than three years of operating history;

4. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in securities or other obligations of any one
such issuer, provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. Each state and each
political subdivision, agency or instrumentality of such state and each
multi-state agency of which such state is a member will be a separate issuer
if the security is backed only by the assets and revenues of that issuer. If
the security is guaranteed by another entity, the guarantor will be deemed to
be the issuer. This limitation shall not apply to securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or to
permitted investments of up to 25% of the Fund's total assets;

5. Make loans, except through the purchase or holding of debt obligations,
repurchase agreements, or loans of portfolio securities in accordance with the
Fund's investment objective and policies (see "Investment Objectives and
Policies");

6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof
except to the extent that securities subject to a demand obligation, stand-by
commitments and puts may be purchased (see "Investment Objectives and
Policies"); real estate; commodities; commodity contracts; or interests in oil,
gas, or mineral exploration or development programs. However, the Fund may
purchase municipal bonds, notes or commercial paper secured by interests in real
estate;

7. Purchase securities on margin, make short sales of securities, or maintain a
short position, provided that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued securities or of securities
for delayed delivery;

8. Acquire securities of other investment companies, except as permitted by the
1940 Act; or

9. Act as an underwriter of securities.

The TREASURY MONEY MARKET FUND and its corresponding PORTFOLIO may not:

1. Enter into reverse repurchase agreements which together with any other
borrowing exceeds in the aggregate one-third of the market value of the Fund's
or the Portfolio's total assets, less liabilities other than the obligations
created by reverse repurchase agreements;

2. Borrow money (not including reverse repurchase agreements), except from banks
for temporary or extraordinary or emergency purposes and then only in amounts up
to 10% of the value of the Fund's or the Portfolio's total assets, taken at cost
at the time of such borrowing (and provided that such borrowings and reverse
repurchase agreements do not exceed in the aggregate one-third of the market
value of the Fund's and the Portfolio's total assets less liabilities other than
the obligations represented by the bank borrowings and reverse repurchase
agreements). Mortgage, pledge, or hypothecate any assets except in connection
with any such borrowing and in amounts up to 10% of the value of the Fund's or

- -----------------

(1)For purposes of interpretation of Investment Restriction No. 4
"guaranteed by another entity" includes credit substitutions, such as letters of
credit or insurance, unless the Advisor determines that the security meets the
Fund's credit standards without regard to the credit substitution.

30
<PAGE>

the Portfolio's net assets at the time of such borrowing. The Fund or the
Portfolio will not purchase securities while borrowings exceed 5% of the Fund's
or the Portfolio's total assets, respectively; provided, however, that the Fund
may increase its interest in an open-end management investment company with the
same investment objective and restrictions as the Fund while such borrowings are
outstanding. This borrowing provision is included to facilitate the orderly
sale of portfolio securities, for example, in the event of abnormally heavy
redemption requests, and is not for investment purposes;

3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's or the
Portfolio's total assets would be invested in securities or other obligations of
any one such issuer; provided, however, that the Fund may invest all or part of
its investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund. This limitation also shall
not apply to issues of the U.S. Government and repurchase agreements related
thereto;

4. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investment in such industry would exceed 25% of the
value of the Fund's or the Portfolio's total assets; provided, however, that the
Fund may invest all or part of its assets in an open-end management investment
company with the same investment objective and restrictions as the Fund. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities and repurchase agreements
related thereto;

5. Make loans, except through purchasing or holding debt obligations, repurchase
agreements, or loans of portfolio securities in accordance with the Fund's or
the Portfolio's investment objective and policies (see "Investment Objectives
and Policies");

6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, or commodity contracts or interests in oil, gas, or
mineral exploration or development programs;

8. Acquire securities of other investment companies, except as permitted by the
1940 Act or in connection with a merger, consolidation, reorganization,
acquisition of assets or an offer of exchange; provided, however, that nothing
in this investment restriction shall prevent the Trust from investing all or
part of the Fund's assets in an open-end management investment company with the
same investment objective and restrictions as the Fund; or

9. Act as an underwriter of securities.

The SHORT TERM BOND FUND and its corresponding PORTFOLIO may not:

1. Purchase securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase the value of its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;

31
<PAGE>

2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. This limitation shall not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of the Fund's total
assets;

3. Purchase the securities of an issuer if, immediately after such purchase, the
Fund owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that the Fund may invest all or part of its investable assets
in an open-end management investment company with the same investment objective
and restrictions as the Fund's. This limitation shall not apply to permitted
investments of up to 25% of the Fund's total assets;

4. Borrow money (not including reverse repurchase agreements), except from banks
for temporary or extraordinary or emergency purposes and then only in amounts up
to 30% of the value of the Fund's or the Portfolio's total assets, taken at cost
at the time of such borrowing (and provided that such borrowings and reverse
repurchase agreements do not exceed in the aggregate one-third of the market
value of the Fund's and the Portfolio's total assets less liabilities other than
the obligations represented by the bank borrowings and reverse repurchase
agreements). The Fund will not mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts not to exceed 30% of
the value of the Fund's or the Portfolio's net assets at the time of such
borrowing. The Fund or the Portfolio will not purchase securities while
borrowings exceed 5% of the Fund's total assets; provided, however, that the
Fund may increase its interest in an open-end management investment company with
the same investment objective and restrictions as the Fund's while such
borrowings are outstanding. Collateral arrangements for premium and margin
payments in connection with the Fund's hedging activities are not deemed to be a
pledge of assets;

5. Issue any senior security, except as appropriate to evidence indebtedness
which constitutes a senior security and which the Fund is permitted to incur
pursuant to Investment Restriction No. 4 and except that the Fund may enter into
reverse repurchase agreements, provided that the aggregate of senior securities,
including reverse repurchase agreements, shall not exceed one-third of the
market value of the Fund's total assets, less liabilities other than obligations
created by reverse repurchase agreements. The Fund's arrangements in connection
with its hedging activities as described in "Investment Objectives and Policies"
shall not be considered senior securities for purposes hereof;

6. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities) or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies;

7. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, or commodity contracts, except for the Fund's
interests in hedging activities as described under "Investment Objectives and
Policies"; or interests in oil, gas, or mineral exploration or development
programs. However, the Fund may purchase securities or commercial paper issued
by companies which invest in real estate or interests therein, including real
estate investment trusts, and purchase instruments secured by real estate or
interests therein;

8. Purchase securities on margin, make short sales of securities, or maintain a
short position in securities, except to obtain such short-term credit as
necessary for the clearance of purchases and sales of securities; provided that

32
<PAGE>

this restriction shall not be deemed to be applicable to the purchase or sale of
when-issued securities or delayed delivery securities;

9. Acquire securities of other investment companies, except as permitted by the
1940 Act or in connection with a merger, consolidation, reorganization,
acquisition of assets or an offer of exchange; provided, however, that nothing
in this investment restriction shall prevent the Trust from investing all or
part of the Fund's assets in an open-end management investment company with the
same investment objective and restrictions as the Fund; or

10. Act as an underwriter of securities.

The BOND FUND and its corresponding PORTFOLIO may not:

1. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts up to 30% of the value of the Fund's total assets, taken at
cost at the time of such borrowing and except in connection with reverse
repurchase agreements permitted by Investment Restriction No. 8. Mortgage,
pledge, or hypothecate any assets except in connection with any such borrowing
in amounts up to 30% of the value of the Fund's net assets at the time of such
borrowing. The Fund will not purchase securities while borrowings (including
reverse repurchase agreements) exceed 5% of the Fund's total assets; provided,
however, that the Fund may increase its interest in an open-end management
investment company with the same investment objective and restrictions as the
Fund's while such borrowings are outstanding. This borrowing provision
facilitates the orderly sale of portfolio securities, for example, in the event
of abnormally heavy redemption requests. This provision is not for investment
purposes. Collateral arrangements for premium and margin payments in connection
with the Fund's hedging activities are not deemed to be a pledge of assets;

4. Purchase securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase the value of its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;

5. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities) or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies;

6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, commodity contracts, except for the Fund's interest in

33
<PAGE>

hedging activities as described under "Investment Objectives and Policies"; or
interests in oil, gas, or mineral exploration or development programs. However,
the Fund may purchase debt obligations secured by interests in real estate or
issued by companies which invest in real estate or interests therein including
real estate investment trusts;

7. Purchase securities on margin, make short sales of securities, or maintain a
short position in securities, except in the course of the Fund's hedging
activities, unless at all times when a short position is open the Fund owns an
equal amount of such securities, provided that this restriction shall not be
deemed to be applicable to the purchase or sale of when-issued securities or
delayed delivery securities;

8. Issue any senior security, except as appropriate to evidence indebtedness
which constitutes a senior security and which the Fund is permitted to incur
pursuant to Investment Restriction No. 1 and except that the Fund may enter into
reverse repurchase agreements, provided that the aggregate of senior securities,
including reverse repurchase agreements, shall not exceed one-third of the
market value of the Fund's total assets, less liabilities other than obligations
created by reverse repurchase agreements. The Fund's arrangements in connection
with its hedging activities as described in "Investment Objectives and Policies"
shall not be considered senior securities for purposes hereof;

9. Acquire securities of other investment companies, except as permitted by the
1940 Act; or

10. Act as an underwriter of securities.

The TAX EXEMPT BOND FUND and its corresponding PORTFOLIO may not:

1. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts up to 10% of the value of the Fund's total assets, taken at
cost at the time of such borrowing; or mortgage, pledge, or hypothecate any
assets except in connection with any such borrowing in amounts up to 10% of the
value of the Fund's net assets at the time of such borrowing. The Fund will not
purchase securities while borrowings exceed 5% of the Fund's total assets;
provided, however, that the Fund may increase its interest in an open-end
management investment company with the same investment objective and
restrictions as the Fund's while such borrowings are outstanding. This
borrowing provision facilitates the orderly sale of portfolio securities, for
example, in the event of abnormally heavy redemption requests. This provision
is not for investment purposes. Collateral arrangements for premium and margin
payments in connection with the Fund's hedging activities are not deemed to be a
pledge of assets;

2. Purchase securities or other obligations of any one issuer if, immediately
after such purchase, more than 5% of the value of the Fund's total assets would
be invested in securities or other obligations of any one such issuer; provided,
however, that the Fund may invest all or part of its investable assets in an
open-end management investment company with the same investment objective and
restrictions as the Fund's. Each state and each political subdivision, agency
or instrumentality of such state and each multi-state agency of which such state
is a member will be a separate issuer if the security is backed only by the
assets and revenue of that issuer. If the security is guaranteed by another
entity, the guarantor will be deemed to be the issuer. This limitation shall
not apply to securities issued or guaranteed by the U.S. Government, its
agencies

- ----------------------

(1)For purposes of interpretation of Investment Restriction No.2
"guaranteed by another entity" includes credit substitutions, such as letters of
credit or insurance, unless the Advisor determines that the security meets the
Fund's credit standards without regard to the credit substitution.

34
<PAGE>

or instrumentalities or to permitted investments of up to 25% of the Fund's
total assets;

3. Invest more than 25% of its total assets in securities of governmental units
located in any one state, territory, or possession of the United States. The
Fund may invest more than 25% of its total assets in industrial developments and
pollution control obligations whether or not the users of facilities financed by
such obligations are in that same industry;

4. Purchase industrial revenue bonds if, as a result of such purchase, more than
5% of total Fund assets would be invested in industrial revenue bonds where
payment of principal and interest are the responsibility of companies with fewer
than three years of operating history (including predecessors);

6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof
except to the extent that securities subject to a demand obligation, stand-by
commitments and puts may be purchased (see "Investment Objectives and
Policies"); real estate; commodities; commodity contracts, except for the Fund's
interests in hedging activities as described under "Investment Objectives and
Policies"; or interests in oil, gas, or mineral exploration or development
programs. However, the Fund may purchase municipal bonds, notes or commercial
paper secured by interests in real estate;

7. Purchase securities on margin, make short sales of securities, or maintain a
short position, except in the course of the Fund's hedging activities, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or owns securities which, without payment of any further
consideration, are convertible into or exchangeable for securities of the same
issue as, and equal in amount to, the securities sold short; provided that this
restriction shall not be deemed to be applicable to the purchase or sale of
when-issued or delayed delivery securities;

8. Issue any senior security, except as appropriate to evidence indebtedness
which the Fund is permitted to incur pursuant to Investment Restriction No. 1.
The Fund's arrangements in connection with its hedging activities as described
in "Investment Objectives and Policies" shall not be considered senior
securities for purposes hereof;

9. Acquire securities of other investment companies, except as permitted by the
1940 Act; or

10. Act as an underwriter of securities.

Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC staff
interpretations thereof, are amended or modified, the NEW YORK TOTAL RETURN BOND
FUND and its corresponding PORTFOLIO may not:

- ---------------------------

(1)Pursuant to an interpretation of the staff of the SEC, the Fund may not
invest more that 25% of its assets in industrial development bonds in projects
of similar type or in the same state. The Fund shall comply with this
interpretation until such time as it may be modified by the staff of the SEC.

35
<PAGE>

2. Borrow money, except that the Fund may (i) borrow money from banks for
temporary or emergency purposes (not for leveraging purposes) and (ii) enter
into reverse repurchase agreements for any purpose; provided that (i) and (ii)
in total do not exceed 33 1/3% of the value of the Fund's total assets
(including the amount borrowed) less liabilities (other than borrowings). If at
any time any borrowings come to exceed 33 1/3% of the value of the Fund's total
assets, the Fund will reduce its borrowings within three business days to the
extent necessary to comply with the 33 1/3% limitation;

3. Make loans to other persons, except through the purchase of debt obligations,
loans of portfolio securities, and participation in repurchase agreements;

4. Purchase or sell physical commodities or contracts thereon, unless acquired
as a result of the ownership of securities or instruments, but the Fund may
purchase or sell futures contracts or options (including options on futures
contracts, but excluding options or futures contracts on physical commodities)
and may enter into foreign currency forward contracts;

5. Purchase or sell real estate, but the Fund may purchase or sell securities
that are secured by real estate or issued by companies (including real estate
investment trusts) that invest or deal in real estate;

6. Underwrite securities of other issuers, except to the extent the Fund, in
disposing of portfolio securities, may be deemed an underwriter within the
meaning of the 1933 Act;

7. Issue senior securities, except as permitted under the 1940 Act or any rule,
order or interpretation thereunder; or

8. Notwithstanding any other investment restriction of the Fund, the Fund may
invest all of its investable assets in an open-end management investment company
having the same investment objective and restrictions as the Fund.

The DIVERSIFIED FUND and its corresponding PORTFOLIO may not:

1. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase the value of its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;

36
<PAGE>

4. Borrow money (not including reverse repurchase agreements), except from banks
for temporary or extraordinary or emergency purposes and then only in amounts up
to 30% of the value of the Fund's or the Portfolio's total assets, taken at cost
at the time of such borrowing (and provided that such borrowings and reverse
repurchase agreements do not exceed in the aggregate one-third of the market
value of the Fund's and the Portfolio's total assets less liabilities other than
the obligations represented by the bank borrowings and reverse repurchase
agreements). The Fund will not mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts not to exceed 30% of
the value of the Fund's or the Portfolio's net assets at the time of such
borrowing. The Fund or the Portfolio will not purchase securities while
borrowings exceed 5% of the Fund's total assets; provided, however, that the
Fund may increase its interest in an open-end management investment company with
the same investment objective and restrictions as the Fund's while such
borrowings are outstanding. This borrowing provision is included to facilitate
the orderly sale of portfolio securities, for example, in the event of
abnormally heavy redemption requests, and is not for investment purposes.
Collateral arrangements for premium and margin payments in connection with the
Fund's use of futures contracts and options are not deemed to be a pledge of
assets;

5. Issue any senior security, except as appropriate to evidence indebtedness
which constitutes a senior security and which the Fund is permitted to incur
pursuant to Investment Restriction No. 4 and except that the Fund may enter into
reverse repurchase agreements, provided that the aggregate of senior securities,
including reverse repurchase agreements, shall not exceed one-third of the
market value of the Fund's total assets, less liabilities other than obligations
created by reverse repurchase agreements. The Fund's arrangements in connection
with its use of futures contracts and options shall not be considered senior
securities for purposes hereof;

6. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities), or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies (see "Investment Objectives and Policies");

7. Purchase or sell commodities or commodity contracts, but this restriction
shall not prohibit the Fund from purchasing or selling futures contracts or
options (including options on futures contracts, but excluding options or
futures contracts on physical commodities) or entering into foreign currency
forward contracts; or purchase or sell real estate or interests in oil, gas, or
mineral exploration or development programs. However, the Fund may purchase
securities or commercial paper issued by companies which invest in real estate
or interests therein, including real estate investment trusts, and purchase
instruments secured by real estate or interests therein;

8. Purchase securities on margin, make short sales of securities, or maintain a
short position in securities, except to obtain such short term credit as
necessary for the clearance of purchases and sales of securities, provided that
this restriction shall not be deemed to be applicable to the purchase or sale of
when-issued securities or delayed delivery securities or to restrict the Fund's
use of futures contracts or options;

10. Act as an underwriter of securities.

37
<PAGE>

Each of the EQUITY FUND and the CAPITAL APPRECIATION FUND and their
corresponding PORTFOLIOS may not:

2. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts not to exceed 10% of the value of the Fund's total assets,
taken at cost, at the time of such borrowing. Mortgage, pledge, or hypothecate
any assets except in connection with any such borrowing and in amounts not to
exceed 10% of the value of the Fund's net assets at the time of such borrowing.
The Fund will not purchase securities while borrowings exceed 5% of the Fund's
total assets; provided, however, that the Fund may increase its interest in an
open-end management investment company with the same investment objective and
restrictions as the Fund's while such borrowings are outstanding. This borrowing
provision is included to facilitate the orderly sale of portfolio securities,
for example, in the event of abnormally heavy redemption requests, and is not
for investment purposes. Collateral arrangements for premium and margin payments
in connection with the Fund's hedging activities are not deemed to be a pledge
of assets;

3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. This limitation shall not
apply to issues of the U.S. Government, its agencies or instrumentalities and to
permitted investments of up to 25% of the Fund's total assets;

4. Purchase the securities of an issuer if, immediately after such purchase, the
Fund owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that the Fund may invest all or part of its investable assets
in an open-end management investment company with the same investment objective
and restrictions as the Fund's;

5. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities), or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies (see "Investment Objectives and Policies");

6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, or commodity contracts, except for the Fund's
interests in hedging activities as described under "Investment Objectives and
Policies"; or interests in oil, gas, or mineral exploration or development
programs. However, the Fund may purchase securities or commercial paper issued
by companies which invest in real estate or interests therein, including real
estate investment trusts;

7. Purchase securities on margin, make short sales of securities, or maintain a
short position, except in the course of the Fund's hedging activities, provided
that this restriction shall not be deemed to be applicable to the purchase or
sale of when-issued securities or delayed delivery securities;

8. Acquire securities of other investment companies, except as permitted by the
1940 Act;

38
<PAGE>

9. Act as an underwriter of securities;

10. Issue any senior security, except as appropriate to evidence indebtedness
which the Fund is permitted to incur pursuant to Investment Restriction No. 2.
The Fund's arrangements in connection with its hedging activities as described
in "Investment Objectives and Policies" shall not be considered senior
securities for purposes hereof; or

11. Purchase any equity security if, as a result, the Fund would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three years.

The INTERNATIONAL EQUITY FUND and its corresponding PORTFOLIO may not:

1. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts up to 30% of the value of the Fund's net assets at the time
of borrowing, and except in connection with reverse repurchase agreements and
then only in amounts up to 33 1/3% of the value of the Fund's net assets; or
purchase securities while borrowings, including reverse repurchase agreements,
exceed 5% of the Fund's total assets; provided, however, that the Fund may
increase its interest in an open-end management investment company with the same
investment objective and restrictions as the Fund's while such borrowings are
outstanding. The Fund will not mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts not to exceed 30% of
the value of the Fund's net assets at the time of such borrowing;

4. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;

5. Make loans, except through the purchase or holding of debt obligations
(including restricted securities), or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies, see "Additional Investment Information" in
the Prospectus and "Investment Objectives and Policies" in this Statement of
Additional Information;

6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real property, including limited partnership interests, commodities, or
commodity contracts, except for the Fund's interests in hedging and foreign
exchange activities as described under "Additional Investment Information" in
the

39
<PAGE>

Prospectus; or interests in oil, gas, mineral or other exploration or
development programs or leases. However, the Fund may purchase securities or
commercial paper issued by companies that invest in real estate or interests
therein including real estate investment trusts;

7. Purchase securities on margin, make short sales of securities, or maintain a
short position in securities, except to obtain such short-term credit as
necessary for the clearance of purchases and sales of securities, provided that
this restriction shall not be deemed to apply to the purchase or sale of
when-issued securities or delayed delivery securities;

8. Acquire securities of other investment companies, except as permitted by the
1940 Act;

9. Act as an underwriter of securities, except insofar as the Fund may be deemed
to be an underwriter under the 1933 Act by virtue of disposing of portfolio
securities; or

10. Issue any senior security, except as appropriate to evidence indebtedness
which the Fund is permitted to incur pursuant to Investment Restriction No. 1.
The Fund's arrangements in connection with its hedging activities as described
in "Additional Investment Information" in the Prospectus shall not be considered
senior securities for purposes hereof.

Unless Sections 8(b)(1) and 13(a) of the 1940 Act, or any SEC or SEC staff
interpretations thereof, are amended or modified, each of the EMERGING MARKETS
EQUITY, EUROPEAN EQUITY AND ASIA GROWTH FUNDS and their corresponding PORTFOLIOS
may not:

3. With respect to 75% of its total assets, purchase any security if, as a
result, (a) more than 5% of the value of the Fund's total assets would be
invested in securities or other obligations of any one issuer; or (b) the Fund
would hold more than 10% of the outstanding voting securities of that issuer.
This limitation shall not apply to Government securities (as defined in the 1940
Act);

4. Make loans to other persons, except through the purchase of debt obligations,
loans of portfolio securities, and participation in repurchase agreements;

5. Purchase or sell physical commodities or contracts thereon, unless acquired
as a result of the ownership of securities or instruments, but the Fund may
purchase or sell futures contracts or options (including options on futures
contracts, but excluding options or futures contracts on physical commodities)
and may enter into foreign currency forward contracts;

40
<PAGE>

6. Purchase or sell real estate, but the Fund may purchase or sell securities
that are secured by real estate or issued by companies (including real estate
investment trusts) that invest or deal in real estate;

7. Underwrite securities of other issuers, except to the extent the Fund, in
disposing of portfolio securities, may be deemed an underwriter within the
meaning of the 1933 Act;

8. Issue senior securities, except as permitted under the 1940 Act or any rule,
order or interpretation thereunder; and

9. Notwithstanding any other investment restriction of the Fund, the Fund may
invest all of its investable assets in an open-end management investment company
having the same investment objective and restrictions as the Fund.

Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or
SEC staff interpretations thereof are amended or modified, the JAPAN EQUITY FUND
and its corresponding PORTFOLIO may not:

1. Purchase any security if, as a result, more than 25% of the value of the
Fund's total assets would be invested in securities of issuers having their
principal business activities in the same industry. This limitation shall not
apply to obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities. In addition, and while subject to changing
interpretations, so long as a single foreign government or supranational
organization is considered to be an "industry" for the purposes of this 25%
limitation, the Portfolio will comply therewith. The staff of the SEC considers
all supranational organizations (as a group) to be a single industry for
concentration purposes;

3. Make loans to other persons, except through the purchase of debt obligations,
loans of portfolio securities, and participation in repurchase agreements;

6. Underwrite securities of other issuers, except to the extent the Fund, in
disposing of portfolio securities, may be deemed an underwriter within the
meaning of the 1933 Act;

7. Issue senior securities, except as permitted under the 1940 Act or any rule,
order or interpretation thereunder; and

8. Notwithstanding any other investment restriction of the Fund, the Fund may
invest all of its investable assets in an open-end management investment company
having substantially the same investment objective and restrictions as the Fund.

41
<PAGE>

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - MONEY MARKET FUND. The
investment restriction described below is not a fundamental policy of the Money
Market Fund or its corresponding Portfolio and may be changed by their
respective Trustees. This non-fundamental investment policy requires that the
Money Market Fund and its corresponding Portfolio may not:

(i) enter into reverse repurchase agreements or borrow money, except from banks
for extraordinary or emergency purposes, if such obligations exceed in the
aggregate one-third of the market value of the Fund's total assets, less
liabilities other than obligations created by reverse repurchase agreements and
borrowings.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - TAX EXEMPT MONEY MARKET FUND AND
TREASURY MONEY MARKET FUND. The investment restriction described below is not a
fundamental policy of these Funds or their corresponding Portfolios and may be
changed by their respective Trustees. This non-fundamental investment policy
requires that each such Fund may not:

(i) acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 10% of the market value of the
Fund's total assets would be in investments that are illiquid.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - SHORT TERM BOND FUND, TAX EXEMPT
BOND FUND, BOND FUND, EQUITY FUND, CAPITAL APPRECIATION FUND, INTERNATIONAL
EQUITY FUND, DIVERSIFIED FUND, EUROPEAN EQUITY FUND, JAPAN EQUITY FUND AND ASIA
GROWTH FUND. The investment restriction described below is not a fundamental
policy of these Funds or their corresponding Portfolios and may be changed by
their respective Trustees. This non-fundamental investment policy requires that
each such Fund may not:

(i) acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 15% of the market value of the
Fund's total assets would be in investments that are illiquid.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - NEW YORK TOTAL RETURN BOND FUND.
The investment restrictions described below are not fundamental policies of the
New York Total Return Bond Fund and its corresponding Portfolio and may be
changed by their Trustees. These non-fundamental investment policies require
that the New York Total Return Bond Fund and its corresponding Portfolio may
not:

(i) Acquire securities of other investment companies, except as permitted by the
1940 Act or any rule, order or interpretation thereunder, or in connection with
a merger, consolidation, reorganization, acquisition of assets or an offer of
exchange;

(ii) Acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 15% of the market value of the
Fund's total assets would be in investments that are illiquid;

(iii) Sell any security short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold or unless it
covers such short sales as required by the current rules or positions of the SEC
or its staff. Transactions in futures contracts and options shall not
constitute selling securities short; or

(iv) Purchase securities on margin, but the Fund may obtain such short term
credits as may be necessary for the clearance of transactions.

42
<PAGE>

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - INTERNATIONAL EQUITY FUND AND
DIVERSIFIED FUND. The investment restrictions described below are not
fundamental policies of these Funds or their corresponding Portfolios and may be
changed by their respective Trustees. These non-fundamental investment policies
require that each such Fund may not:

(i) purchase any equity security if, as a result, the Fund would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three years;

(ii) invest in warrants (other than warrants acquired by the Fund as part of a
unit or attached to securities at the time of purchase) if, as a result, the
investments (valued at the lower of cost or market) would exceed 5% of the value
of the Fund's net assets or if, as a result, more than 2% of the Fund's net
assets would be invested in warrants not listed on a recognized U.S. or foreign
stock exchange, to the extent permitted by applicable state securities laws; or

(iii) invest in any securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Trust,
or is an officer of the Investment Advisor, if after the Portfolio's purchase of
the securities of such issuer, one or more of such persons owns beneficially
more than 1/2 of 1% of the shares or securities, or both, all taken at market
value, of such issuer, and such persons owning more than 1/2 of 1% of such
shares or securities together own beneficially more than 5% of such shares or
securities, or both, all taken at market value.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - EQUITY FUND AND CAPITAL
APPRECIATION FUND. The investment restrictions described below are not
fundamental policies of these Funds or their corresponding Portfolios and may be
changed by their respective Trustees. These non-fundamental investment policies
require that each such Fund may not:

(i) invest in warrants (other than warrants acquired by the Fund as part of a
unit or attached to securities at the time of purchase) if, as a result, the
investments (valued at the lower of cost or market) would exceed 5% of the value
of the Fund's net assets or if, as a result, more than 2% of the Fund's net
assets would be invested in warrants not listed on a recognized U.S. or foreign
stock exchange, to the extent permitted by applicable state securities laws; or

(ii) invest in any securities issued by an issuer any of whose officers,
directors, trustees or security holders is an officer or Trustee of the Trust,
or is an officer of the Investment Advisor, if after the Portfolio's purchase of
the securities of such issuer, one or more of such persons owns beneficially
more than 1/2 of 1% of the shares or securities, or both, all taken at market
value, of such issuer, and such persons owning more than 1/2 of 1% of such
shares or securities together own beneficially more than 5% of such shares or
securities, or both, all taken at market value.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - EQUITY FUND, CAPITAL APPRECIATION
FUND AND DIVERSIFIED FUND. The investment restrictions described below are not
fundamental policies of these Funds or their corresponding Portfolios and may be
changed by their respective Trustees. These non-fundamental investment policies
require that each such Fund may not:

(i) invest in real estate limited partnership interests; or

(ii) invest in oil, gas or other mineral leases.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - EMERGING MARKETS EQUITY FUND,
EUROPEAN EQUITY FUND AND ASIA GROWTH FUND. The investment restrictions
described below are not fundamental policies of these Funds or their
corresponding

43
<PAGE>

Portfolios and may be changed by their respective Trustees. These
non-fundamental investment policies require that each such Fund may not:

(iii) Purchase any security if, as a result, the Fund would then have more than
5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three years;

(iv) Invest in warrants (other than warrants acquired by the Fund as part of a
unit or attached to securities at the time of purchase) if, as a result, the
investments (valued at the lower of cost or market) would exceed 5% of the value
of the Fund's net assets or if, as a result, more than 2% of the Fund's net
assets would be invested in warrants not listed on a recognized U.S. or foreign
stock exchange, to the extent permitted by applicable state securities laws;

(v) Sell any security short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold or unless it
covers such short sales as required by the current rules or positions of the SEC
or its staff. Transactions in futures contracts and options shall not
constitute selling securities short;

(vi) Purchase securities on margin, but the Fund may obtain such short term
credits as may be necessary for the clearance of transactions;

(vii) Purchase or retain securities of any issuer if, to the knowledge of the
Fund, any of the Fund's officers or Trustees or any officer of the Portfolio's
investment adviser individually owns more than 1/2 of 1% of the issuer's
outstanding securities and such persons owning more than 1/2 of 1% of such
securities together beneficially own more than 5% of such securities, all taken
at market; or

(viii) Invest in real estate limited partnerships or purchase interests in oil,
gas or mineral exploration or development programs or leases.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - JAPAN EQUITY FUND. The
investment restrictions described below are not fundamental policies of the
Japan Equity Fund or its corresponding Portfolio and may be changed by its
Trustees. These non-fundamental investment policies require that the Japan
Equity Fund may not:

(ii) Acquire any illiquid securities if as a result thereof, more than 15% of
the market value of the Fund's total assets would be in investments that are
illiquid;

44
<PAGE>

(iv) Sell any security short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold or unless it
covers such short sales as required by the current rules or positions of the
Securities and Exchange Commission or its staff. Transactions in futures
contracts and options shall not constitute selling securities short;

(v) Purchase or retain securities of any issuer if, to the knowledge of the
Fund, any of the Fund's officers or Trustees or any officer of the Portfolio's
investment adviser individually owns more than 1/2 of 1% of the issuer's
outstanding securities and such persons owning more than 1/2 of 1% of such
securities together beneficially own more than 5% of such securities, all taken
at market;

(vi) Purchase securities on margin, but the Fund may obtain such short term
credits as may be necessary for the clearance of transactions; or

(vii) Invest in real estate limited partnerships or purchase interests in oil,
gas or mineral exploration or development programs or leases.

ALL FUNDS. There will be no violation of any investment restriction if
that restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.

TRUSTEES AND OFFICERS

TRUSTEES

The Trustees of the Trust, who are also the Trustees of each of the
Portfolios, their business addresses, and their principal occupations during the
past five years are set forth below.

FREDERICK S. ADDY--Trustee; Retired; Executive Vice President and Chief
Financial Officer from January 1990 to April 1994, Amoco Corporation. His
address is 5300 Arbutus Cove, Austin, TX 78746.

WILLIAM G. BURNS--Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, FL 32779.

ARTHUR C. ESCHENLAUER--Trustee; Retired; Senior Vice President, Morgan
Guaranty Trust Company of New York until 1987. His address is 14 Alta Vista
Drive, RD #2, Princeton, NJ 08540.

MATTHEW HEALEY (*)--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since 1989. His address is Pine Tree Club
Estates, 10286 Saint Andrews Road, Boynton Beach, FL 33436.

MICHAEL P. MALLARDI--Trustee; Retired; Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast Group prior to April 1996. His
address is 10 Charnwood Drive, Suffern, NY 10910.

________________________

(*) Mr. Healey is an "interested person" of the Trust and each Portfolio as that
term is defined in the 1940 Act.

The Trustees of the Trust are the same as the Trustees of each of the
Portfolios. In accordance with applicable state requirements, a majority of the
disinterested Trustees have adopted written procedures reasonably appropriate to
deal with potential conflicts of interest arising from the fact that the same
individuals are Trustees of the Trust, each of the Portfolios and The JPM
Institutional Funds, up to and including creating a separate board of trustees.

45
<PAGE>

Each Trustee is paid an annual fee as follows for serving as Trustee of the
Trust, each of the Portfolios and The JPM Institutional Funds and is reimbursed
for expenses incurred in connection with service as a Trustee. The compensation
paid to the Trustees in calendar 1995 is set forth below. The Trustees may hold
various other directorships unrelated to these funds.

AGGREGATE PENSION OR TOTAL COMPENSATION FROM THE
COMPENSATION RETIREMENT BENEFITS ESTIMATED ANNUAL TRUST, THE PIERPONT FUNDS AND
FROM THE TRUST ACCRUED AS PART BENEFITS CORRESPONDING PORTFOLIOS (**)
NAME OF TRUSTEES DURING 1995 OF FUND EXPENSES UPON RETIREMENT PAID TO TRUSTEES DURING 1995
- ---------------- --------------- -------------------- ------------------ -----------------------------

<S>
Frederick S. Addy, <C> <C> <C> <C>
Trustee $18,791 None None $62,500

William G. Burns,
Trustee $18,791 None None $62,500

Arthur C. Eschenlauer,
Trustee $18,791 None None $62,500

Matthew Healey,
Trustee(*),
Chairman and Chief Executive
Officer $18,791 None None $62,500

Michael P. Mallardi, Trustee $18,791 None None $62,500

</TABLE>

(*) During 1995, Pierpont Group, Inc. paid Mr. Healey, in his role as Chairman
of Pierpont Group, Inc., compensation in the amount of $140,000, contributed
$21,000 to a defined contribution plan on his behalf and paid $20,000 in
insurance premiums for his benefit.

(**) Includes the Portfolios and The Non-U.S. Fixed Income Portfolio
(collectively the "Master Portfolios").

As of April 1, 1995 the annual fee paid to each Trustee for serving as a
Trustee of the Trust, each of the Portfolios and The JPM Institutional Funds was
adjusted to $65,000. As of the date of this Statement of Additional there were
17 investment companies (the Trust, The JPM Institutional Funds, the Master
Portfolios and The JPM Advisor Funds) in the fund complex. The JPM Advisor
Funds has a separate, unrelated board.

The Trustees, in addition to reviewing actions of the Trust's and the
Portfolios' various service providers, decide upon matters of general policy.
Each of the Portfolios and the Trust has entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities over the affairs of the Portfolios and the Trust.
Pierpont Group, Inc. was organized in July 1989 to provide services for The
Pierpont Family of Funds, and the Trustees are the equal and sole shareholders
of Pierpont Group, Inc. The Trust and the Portfolios have agreed to pay
Pierpont Group, Inc. a fee in an amount representing its reasonable costs in
performing these services. These costs are periodically reviewed by the
Trustees.

The aggregate fees paid to Pierpont Group, Inc. by each Fund and its
corresponding Portfolio during the indicated fiscal years are set forth below:

MONEY MARKET FUND -- For the fiscal year ended November 30, 1994: $302,195. For
the fiscal year ended November 30, 1995: $193,838.
THE MONEY MARKET PORTFOLIO -- For the fiscal year ended November 30, 1994:
$246,089. For the fiscal year ended November 30, 1995: $261,045.

TAX EXEMPT MONEY MARKET FUND -- For the fiscal year ended August 31, 1994:
$175,737. For the fiscal year ended August 31, 1995: $101,846.
THE TAX EXEMPT MONEY MARKET PORTFOLIO -- For the fiscal year ended August 31,
1994: $79,046. For the fiscal year ended August 31, 1995: $110,325.

TREASURY MONEY MARKET FUND -- For the fiscal year ended October 31, 1994:
$16,086. For the fiscal year ended October 31, 1995: $14,332.

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<PAGE>

THE TREASURY MONEY MARKET PORTFOLIO -- For the fiscal year ended October 31,
1994: $17,104. For the fiscal year ended October 31, 1995: $22,791.

SHORT TERM BOND FUND -- For the fiscal year ended October 31, 1994: $952. For
the fiscal year ended October 31, 1995: $823.
THE SHORT TERM BOND PORTFOLIO -- For the fiscal year ended October 31, 1994:
$4,545. For the fiscal year ended October 31, 1995: $5,573.

TAX EXEMPT BOND FUND -- For the fiscal year ended August 31, 1994: $80,810. For
the fiscal year ended August 31, 1995: $35,144.
THE TAX EXEMPT BOND PORTFOLIO -- For the period January 15, 1994 to August 31,
1994: $35,243. For the fiscal year ended August 31, 1995: $38,804.

NEW YORK TOTAL RETURN BOND FUND -- For the period April 11, 1994 (commencement
of operations) through March 31, 1995: $2,847. For the fiscal year ended March
31, 1996: $3,108.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO -- For the period April 11, 1994
(commencement of operations) through March 31, 1995: $4,140. For the fiscal
year ended March 31, 1996: $5,530.

BOND FUND -- For the fiscal year ended October 31, 1994: $15,491. For the
fiscal year ended October 31, 1995: $11,376.
THE U.S. FIXED INCOME PORTFOLIO -- For the fiscal year ended October 31, 1994:
$23,028. For the fiscal year ended October 31, 1995: $40,729.

EQUITY FUND -- For the period July 19, 1993 (commencement of operations) through
May 31, 1994: $48,660. For the fiscal year ended May 31, 1995: $25,316.
THE SELECTED U.S. EQUITY PORTFOLIO -- For the period July 19, 1993 (commencement
of operations) through May 31, 1994: $20,385. For the fiscal year ended May 31,
1995: $52,948.

CAPITAL APPRECIATION FUND -- For the period July 19, 1993 (commencement of
operations) through May 31, 1994: $47,244. For the fiscal year ended May 31,
1995: $19,612.
THE U.S. SMALL COMPANY PORTFOLIO -- For the period July 19, 1993 (commencement
of operations) through May 31, 1994: $33,435. For the fiscal year ended May
31, 1995: $62,256.

INTERNATIONAL EQUITY FUND -- For the fiscal year ended October 31, 1994:
$27,503. For the fiscal year ended October 31, 1995: $18,131.
THE NON-U.S. EQUITY PORTFOLIO -- For the fiscal year ended October 31, 1994:
$32,512. For the fiscal year ended October 31, 1995: $48,442.

DIVERSIFIED FUND -- For the period July 8, 1993 (commencement of operations)
through June 30, 1994: $247. For the fiscal year ended June 30, 1995: $1,437.
THE DIVERSIFIED PORTFOLIO -- For the period July 8, 1993 (commencement of
operations) through June 30, 1994: $3,434. For the fiscal year ended June 30,
1995: $11,702.

EMERGING MARKETS EQUITY FUND -- For the fiscal year ended October 31, 1994:
$4,331. For the fiscal year ended October 31, 1995: $4,544.
THE EMERGING MARKETS EQUITY PORTFOLIO -- For the fiscal year ended October 31,
1994: $42,764. For the fiscal year ended October 31, 1995: $53,162.

EUROPEAN EQUITY PORTFOLIO -- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $19,953. For the six months ended
June 30, 1996: $14,050 (unaudited).
EUROPEAN EQUITY FUND -- For the period May 13, 1996 (commencement of operations)
through June 30, 1996: $0 (unaudited).

47
<PAGE>

JAPAN EQUITY PORTFOLIO -- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $21,727. For the six months ended
June 30, 1996: $13,641 (unaudited).
JAPAN EQUITY FUND -- For the period May 6, 1996 (commencement of operations)
through June 30, 1996: $1 (unaudited).

ASIA GROWTH PORTFOLIO -- For the period April 5, 1995 (commencement of
operations) through December 31, 1995: $4,788. For the six months ended
June 30, 1996: $2,840 (unaudited).
ASIA GROWTH FUND -- For the period May 13, 1996 (commencement of operations)
through June 30, 1996: $0 (unaudited).

OFFICERS

The Trust's and Portfolios' executive officers (listed below), other than
the Chief Executive Officer, are provided and compensated by Funds Distributor,
Inc. ("FDI"), a wholly owned indirect subsidiary of Boston Institutional Group,
Inc. The officers conduct and supervise the business operations of the Trust
and the Portfolios. The Trust and the Portfolios have no employees.

The officers of the Trust and the Portfolios and their principal
occupations during the past five years are set forth below. Unless otherwise
specified, each officer holds the same position with the Trust and each
Portfolio. The business address of each of the officers unless otherwise noted
is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston, Massachusetts
02109.

MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group, Inc.,
since 1989. His address is Pine Tree Club Estates, 10286 Saint Andrews Road,
Boynton Beach, FL 33436.

ELIZABETH A. BACHMAN; Vice President and Assistant Secretary. Counsel, FDI
and Premier Mutual Fund Services, Inc. ("Premier Mutual") and an officer of RCM
Capital Funds, Inc., RCM Equity Funds, Inc., Waterhouse Investors Cash
Management Fund, Inc. and certain investment companies advised or administered
by the Dreyfus Corporation ("Dreyfus"). Prior to September 1995, Ms. Bachman
was enrolled at Fordham University School of Law and received her JD in May
1995. Prior to September 1992, Ms. Bachman was an assistant at the National
Association for Public Interest Law. Address: FDI, 200 Park Avenue, New York,
New York 10166.

MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President and
Chief Executive Officer and Director of FDI, Premier Mutual and an officer of
RCM Capital Funds, Inc., RCM Equity Funds, Inc. and certain investment companies
advised or administered by Dreyfus. From December 1991 to July 1994, she was
President and Chief Compliance Officer of FDI. Prior to December 1991, she
served as Vice President and Controller, and later as Senior Vice President of
The Boston Company Advisors, Inc. ("TBCA").

DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Supervisor of
Treasury Services and Administration of FDI and an officer of certain investment
companies advised or administered by Dreyfus. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company.
Prior to March 1993, Mr. Conroy was employed as a fund accountant at The Boston
Company.

JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of the
Portfolios (excluding the Treasury Money Market, Tax Exempt Money Market, Tax
Exempt Bond and New York Total Return Bond Portfolios). Managing Director,
State Street Cayman Trust Company, Ltd. since October 1994. Prior to October
1994, Mrs. Henning was head of mutual funds at Morgan Grenfell in Cayman and for
five years was Managing director of Bank of Nova Scotia Trust Company (Cayman)
Limited

48
<PAGE>

from September 1988 to September 1993. Address: P.O. Box 2508 GT, Elizabethan
Square, 2nd Floor, Shedden Road, George Town, Grand Cayman, Cayman Islands.

RICHARD W. INGRAM; President and Treasurer. Senior Vice President and
Director of Client Services and Treasury Administration of FDI, Senior Vice
President of Premier Mutual and an officer of RCM Capital Funds, Inc., RCM
Equity Funds, Inc., Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus. From March 1994 to
November 1995, Mr. Ingram was Vice President and Division Manager of First Data
Investor Services Group, Inc. From 1989 to 1994, Mr. Ingram was Vice President,
Assistant Treasurer and Tax Director - Mutual Funds of The Boston Company.

KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Assistant Vice
President of FDI and an officer of RCM Capital Funds, Inc. and RCM Equity Funds,
Inc. From June 1994 to January 1996, Ms. Jacoppo was a Manager, SEC
Registration, Scudder, Stevens & Clark, Inc. From 1988 to May 1994, Ms. Jacoppo
was a senior paralegal at TBCA.

CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Associate General Counsel of FDI. From April 1994 to July 1996,
Mr. Kelley was Assistant Counsel at Forum Financial Group. From 1992 to 1994,
Mr. Kelley was employed by Putnam Investments in legal and compliance
capacities. Prior to September 1992, Mr. Kelley was enrolled at Boston College
Law School and received his JD in May 1992.

LENORE J. MCCABE; Assistant Secretary and Assistant Treasurer of the
Portfolios (excluding the Treasury Money Market, Tax Exempt Money Market, Tax
Exempt Bond and New York Total Return Bond Portfolios). Assistant Vice
President, State Street Bank and Trust Company since November 1994. Assigned as
Operations Manager, State Street Cayman Trust Company, Ltd. since February 1995.
Prior to November, 1994, employed by Boston Financial Data Services, Inc. as
Control Group Manager. Address: P.O. Box 2508 GT, Elizabethan Square, 2nd
Floor, Shedden Road, George Town, Grand Cayman, Cayman Islands.

MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI, an officer of RCM
Capital Funds, Inc., RCM Equity Funds, Inc. and certain investment companies
advised or administered by Dreyfus. From 1989 to 1994, Ms. Nelson as an
Assistant Vice President and client manager for The Boston Company.

JOHN E. PELLETIER; Vice President and Secretary. Senior Vice President and
General Counsel of FDI and Premier Mutual and an officer of RCM Capital Funds,
Inc., RCM Equity Funds, Inc., Waterhouse Investors Cash Management Fund, Inc.
and certain investment companies advised or administered by Dreyfus. From
February 1992 to April 1994, Mr. Pelletier served as Counsel for TBCA. From
August 1990 to February 1992, Mr. Pelletier was employed as an Associate at
Ropes & Gray.

JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Senior Vice
President, Treasurer and Chief Financial Officer of FDI and Premier Mutual and
an officer of Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus. From July 1988 to
November 1993, Mr. Tower was Financial Manager of The Boston Company.

INVESTMENT ADVISOR

The investment advisor to the Portfolios is Morgan Guaranty Trust Company
of New York, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P.
Morgan"), a bank holding company organized under the laws of the State of
Delaware. Morgan, whose principal offices are at 60 Wall Street, New York, New
York 10260, is a New York trust company which conducts a general banking and
trust business. Morgan is subject to regulation by the New York State Banking
Department and is a member bank of the Federal Reserve System. Through offices

49
<PAGE>

in New York City and abroad, Morgan offers a wide range of services, primarily
to governmental, institutional, corporate and high net worth individual
customers in the United States and throughout the world.

J.P. Morgan, through the Advisor and other subsidiaries, acts as investment
advisor to individuals, governments, corporations, employee benefit plans,
mutual funds and other institutional investors with combined assets under
management of $179 billion (of which the Advisor advises over $28 billion).

J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.

The basis of Morgan's investment process is fundamental investment research
as the firm believes that fundamentals should determine an asset's value over
the long term. J.P. Morgan currently employs over 100 full time research
analysts, among the largest research staffs in the money management industry, in
its investment management divisions located in New York, London, Tokyo,
Frankfurt, Melbourne and Singapore to cover companies, industries and countries
on site. In addition, the investment management divisions employ approximately
300 capital market researchers, portfolio managers and traders. The conclusions
of the equity analysts' fundamental research is quantified into a set of
projected returns for individual companies through the use of a dividend
discount model. These returns are projected for 2 to 5 years to enable analysts
to take a longer term view. These returns, or normalized earnings, are used to
establish relative values among stocks in each industrial sector. These values
may not be the same as the markets' current valuations of these companies. This
provides the basis for ranking the attractiveness of the companies in an
industry according to five distinct quintiles or rankings. This ranking is one
of the factors considered in determining the stocks purchased and sold in each
sector. The Advisor's fixed income investment process is based on analysis of
real rates, sector diversification and quantitative and credit analysis.

The investment advisory services the Advisor provides to the Portfolios are
not exclusive under the terms of the Advisory Agreements. The Advisor is free
to and does render similar investment advisory services to others. The Advisor
serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolios. Such accounts are supervised by officers and employees of
the Advisor who may also be acting in similar capacities for the Portfolios.
See "Portfolio Transactions."

Sector weightings are generally similar to a fund's benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmarks for the Portfolios in which the Funds
invest are currently: The Money Market Portfolio--IBC/Donoghue's Tier-One Money
Fund Average; The Treasury Money Market Portfolio--IBC/Donoghue's U.S.
Government and Agency Money Fund Average; The Tax Exempt Money Market
Portfolio--IBC/Donoghue's Tax Exempt Money Fund Average; The Short Term Bond
Portfolio--Merrill Lynch 1-3 Year Treasury Index; The U.S. Fixed Income
Portfolio--Salomon Brothers Broad Investment Grade Bond Index; The Tax Exempt
Bond Portfolio--Lehman Brothers Quality Intermediate Municipal Bond Index; The
New York Total Return Bond Portfolio--Lehman Brothers New York 1-15 Year
Municipal Bond Index; The Selected U.S. Equity Portfolio--S&P 500 Index; The
U.S. Small Company Portfolio--Russell 2500 Index; The Non-U.S. Equity
Portfolio--EAFE Index; The Emerging Markets Equity Portfolio--MSCI Emerging
Markets Free Index;

50
<PAGE>

The Diversified Portfolio--diversified benchmark (52% S&P 500, 35% Salomon
Brothers Broad Investment Grade Bond, 3% Russell 2000 and 10% EAFE indexes);
The European Equity Portfolio--the MSCI Europe Index; The Japan Equity
Portfolio--the TOPIX; and The Asia Growth Portfolio--the MSCI indexes for
Hong Kong and Singapore and the International Finance Corporation Investable
indexes for China, Indonesia, Malaysia, Philippines, South Korea, Taiwan and
Thailand.

J.P. Morgan Investment Management Inc., also a wholly owned subsidiary of
J.P. Morgan, is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, which manages employee benefit funds of corporations,
labor unions and state and local governments and the accounts of other
institutional investors, including investment companies. Certain of the assets
of employee benefit accounts under its management are invested in commingled
pension trust funds for which the Advisor serves as trustee. J.P. Morgan
Investment Management Inc. advises the Advisor on investment of the commingled
pension trust funds.

The Portfolios are managed by officers of the Advisor who, in acting for
their customers, including the Portfolios, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan Investment Management Inc.

As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Advisory
Agreements, the Portfolio corresponding to each Fund has agreed to pay the
Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of each Portfolio's average daily net assets shown below.

MONEY MARKET: 0.20% of net assets up to $1 billion and 0.10% of net assets in
excess of $1 billion

TAX EXEMPT MONEY MARKET: 0.20% of net assets up to $1 billion and 0.10% of net
assets in excess of $1 billion

TREASURY MONEY MARKET: 0.20% of net assets up to $1 billion and 0.10% of net
assets in excess of $1 billion

SHORT TERM BOND: 0.25%

U.S. FIXED INCOME: 0.30%

TAX EXEMPT BOND: 0.30%

NEW YORK TOTAL RETURN BOND: 0.30%

SELECTED U.S. EQUITY: 0.40%

U.S. SMALL COMPANY: 0.60%

NON-U.S. EQUITY: 0.60%

DIVERSIFIED: 0.55%

EMERGING MARKETS EQUITY: 1.00%

EUROPEAN EQUITY: 0.65%

JAPAN EQUITY: 0.65%

ASIA GROWTH: 0.80%

51
<PAGE>

The table below sets forth for the predecessor of each Fund listed below
(for the indicated fiscal years) the advisory fees, net of fee waivers and
reimbursements, paid by the Fund (expressed as an aggregate amount of the Fund's
average daily net assets) and the advisory fees waived or reimbursed by Morgan
for the Fund (expressed as an aggregate amount), in each case prior to such
Fund's reorganization. See "Expenses" in the Prospectus and below for
applicable expense limitations.

Money Market: Nov. 1993 - net amount paid: $2,244,381; amount waived: $0.

Tax Exempt Money Market: Aug. 1993 - net amount paid: $1,688,141; amount waived:
$0.

Bond: Oct. 1993 - net amount paid: $149,804; amount waived: $25,312.

Tax Exempt Bond: Aug. 1993 - net amount paid: $1,035,734; amount waived: $0.

Equity: May 1993 - net amount paid: $485,214; amount waived: $51,158.

Capital Appreciation: May 1993 - net amount paid: $434,662; amount waived:
$29,585.

International Equity: May 1993 - net amount paid: $359,813; amount waived:
$27,018.

The table below sets forth for each Fund listed the advisory fees paid by
its corresponding Portfolio to Morgan following the Fund's reorganization or
commencement of operations and its corresponding Portfolio's commencement of
operations. See "Expenses" in the Prospectus and below for applicable expense
limitations.

THE MONEY MARKET PORTFOLIO (Money Market Fund) -- For the period July 12, 1993
(commencement of operations) through November 30, 1993: $1,370,552. For the
fiscal year ended November 30, 1994: $3,423,576. For the fiscal year ended
November 30, 1995: $3,913,479.

THE TAX EXEMPT MONEY MARKET PORTFOLIO (Tax Exempt Money Market Fund) -- For the
period July 12, 1993 (commencement of operations) through August 31, 1993:
$271,454. For the fiscal year ended August 31, 1994: $2,021,476. For the
fiscal year ended August 31, 1995: $2,150,291.

THE TREASURY MONEY MARKET PORTFOLIO (Treasury Money Market Fund) -- For the
period January 4, 1993 (commencement of operations) through October 31, 1993:
$93,370. For the fiscal year ended October 31, 1994: $339,521. For the fiscal
year ended October 31, 1995: $492,941.

THE SHORT TERM BOND PORTFOLIO (Short Term Bond Fund) -- For the period July 8,
1993 (commencement of operations) through October 31, 1993: $10,427. For the
fiscal year ended October 31, 1994: $113,379. For the fiscal year ended October
31, 1995: $146,335.

THE U.S. FIXED INCOME PORTFOLIO (Bond Fund) -- For the period July 12, 1993
(commencement of operations) through October 31, 1993: $119,488. For the fiscal
year ended October 31, 1994: $699,081. For the fiscal year ended October 31,
1995: $1,339,147.

THE TAX EXEMPT BOND PORTFOLIO (Tax Exempt Bond Fund) -- For the period July 12,
1993 (commencement of operations) through August 31, 1993: $200,272. For the
fiscal year ended August 31, 1994: $1,383,986. For the fiscal year ended August
31, 1995: $1,178,720.

<PAGE>

THE NEW YORK TOTAL RETURN BOND PORTFOLIO (New York Total Return Bond Fund) --
For the period April 11, 1994 (commencement of operations) through March 31,
1995: $120,281. For the fiscal year ended March 31, 1996: $246,966.

THE SELECTED U.S. EQUITY PORTFOLIO (Equity Fund) -- For the period July 19, 1993
(commencement of operations) through May 31, 1994: $1,263,048. For the fiscal
year ended May 31, 1995: $2,025,936.

THE U.S. SMALL COMPANY PORTFOLIO (Capital Appreciation Fund) -- For the period
July 19, 1993 (commencement of operations) through May 31, 1994: $2,912,670.
For the fiscal year ended May 31, 1995: $3,514,331.

THE NON-U.S. EQUITY PORTFOLIO (International Equity Fund) -- For the period
October 4, 1993 (commencement of operations) through October 31, 1993: $78,550.
For the fiscal year ended October 31, 1994: $1,911,202. For the fiscal year
ended October 31, 1995: $3,174,965.

THE DIVERSIFIED PORTFOLIO (Diversified Fund) -- For the period July 8, 1993
(commencement of operations) through June 30, 1994: $197,026. For the fiscal
year ended June 30, 1995: $663,000.

THE EMERGING MARKETS EQUITY PORTFOLIO (Emerging Markets Equity Fund) -- For the
period November 15, 1993 (commencement of operations) through October 31, 1994:
$4,122,465. For the fiscal year ended October 31, 1995: $5,713,506.

EUROPEAN EQUITY PORTFOLIO (European Equity Fund) -- For the period March 28,
1995 (commencement of operations) through December 31, 1995: $1,675,355. For
the six months ended June 30, 1996: $1,670,174 (unaudited).

JAPAN EQUITY PORTFOLIO (Japan Equity Fund) -- For the period March 28, 1995
(commencement of operations) through December 31, 1995: $1,777,126. For the six
months ended June 30, 1996: $1,581,190 (unaudited).

ASIA GROWTH PORTFOLIO (Asia Growth Fund) -- For the period April 5, 1995
(commencement of operations) through December 31, 1995: $528,956. For the six
months ended June 30, 1996: $414,049 (unaudited).

The Investment Advisory Agreements provide that they will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Co-Administrator and Distributor" below. Each of the Investment Advisory
Agreements will terminate automatically if assigned and is terminable at any
time without penalty by a vote of a majority of the Portfolio's Trustees, or by
a vote of the holders of a majority of the Portfolio's outstanding voting
securities, on 60 days' written notice to the Advisor and by the Advisor on 90
days' written notice to the Portfolio. See "Additional Information."

The Glass-Steagall Act and other applicable laws generally prohibit banks
such as Morgan from engaging in the business of underwriting or distributing
securities, and the Board of Governors of the Federal Reserve System has issued
an interpretation to the effect that under these laws a bank holding company
registered under the federal Bank Holding Company Act or certain subsidiaries
thereof may not sponsor, organize, or control a registered open-end investment
company continuously engaged in the issuance of its shares, such as the Trust.
The interpretation does not prohibit a holding company or a subsidiary thereof
from acting as investment advisor and custodian to such an investment company.
Morgan believes that it may perform the services for the Portfolios contemplated
by the Advisory Agreements without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. State laws on this issue may differ
from the interpretation of relevant federal law, and banks and financial
institutions may be required to register as dealers pursuant to state securities
laws. However, it is possible that future changes in either federal or state
statutes

53
<PAGE>

and regulations concerning the permissible activities of banks or trust
companies, as well as further judicial or administrative decisions and
interpretations of present and future statutes and regulations, might prevent
Morgan from continuing to perform such services for the Portfolios.

If Morgan were prohibited from acting as investment advisor to any
Portfolio, it is expected that the Trustees of the Portfolio would recommend to
investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.

Under separate agreements, Morgan also provides certain financial, fund
accounting and administrative services to the Trust and the Portfolios and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.

CO-ADMINISTRATOR AND DISTRIBUTOR

FDI serves as the Trust's exclusive Distributor and holds itself available
to receive purchase orders for each of the Fund's shares. In that capacity, FDI
has been granted the right, as agent of the Trust, to solicit and accept orders
for the purchase of each of the Fund's shares in accordance with the terms of
the Distribution Agreement between the Trust and FDI. The Distribution
Agreement shall continue in effect with respect to each of the Funds for a
period of two years after execution only if it is approved at least annually
thereafter (i) by a vote of the holders of a majority of the Fund's outstanding
shares or by its Trustees and (ii) by a vote of a majority of the Trustees of
the Trust who are not "interested persons" (as defined by the 1940 Act) of the
parties to the Distribution Agreement, cast in person at a meeting called for
the purpose of voting on such approval (see "Trustees and Officers"). The
Distribution Agreement will terminate automatically if assigned by either party
thereto and is terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust, a vote of a majority of the Trustees who are not
"interested persons" of the Trust, or by a vote of the holders of a majority of
the Fund's outstanding shares as defined under "Additional Information", in any
case without payment of any penalty on 60 days' written notice to the other
party. The principal offices of FDI are located at 60 State Street, Suite 1300,
Boston, Massachusetts 02109.

Under Co-Administration Agreements with the Trust and the Portfolios dated
August 1, 1996, FDI also serves as the Trust's and the Portfolios'
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust or the Portfolios, as applicable, on not more than 60
days' written notice nor less than 30 days' written notice to the other party.
The Co-Administrator may subcontract for the performance of its obligations,
provided, however, that unless the Trust or the Portfolios, as applicable,
expressly agrees in writing, the Co-Administrator shall be fully responsible for
the acts and omissions of any subcontractor as it would for its own acts or
omissions. See "Services Agent" below.

The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to Signature Broker-Dealer Services, Inc.
(which provided distribution and administrative services to the Trust and
placement agent and administrative services to the Portfolios prior to August 1,
1996) for the fiscal periods indicated. See "Expenses" in the Prospectus and
below for applicable expense limitations.

54
<PAGE>

THE MONEY MARKET PORTFOLIO -- For the period July 12, 1993 (commencement of
operations) through November 30, 1993: $32,869. For the fiscal year ended
November 30, 1994: $165,519. For the fiscal year ended November 30, 1995:
$176,717.

MONEY MARKET FUND -- For the period July 12, 1993 (commencement of operations)
through November 30, 1993: $341,591. For the fiscal year ended November 30,
1994: $631,683. For the fiscal year ended November 30, 1995: $565,438.

THE TAX EXEMPT MONEY MARKET PORTFOLIO -- For the period July 12, 1993
(commencement of operations) through August 31, 1993: $0. For the fiscal year
ended August 31, 1994: $62,565. For the fiscal year ended August 31, 1995:
$72,729.

TAX EXEMPT MONEY MARKET FUND -- For the period July 12, 1993 (commencement of
operations) through August 31, 1993: $51,665. For the fiscal year ended August
31, 1994: $306,768. For the fiscal year ended August 31, 1995: $290,271.

THE TREASURY MONEY MARKET PORTFOLIO -- For the period January 4, 1993
(commencement of operations) through October 31, 1993: $677. For the fiscal
year ended October 31, 1994: $11,777. For the fiscal year ended October 31,
1995: $17,480.

TREASURY MONEY MARKET FUND -- For the period January 4, 1993 (commencement of
operations) through October 31, 1993: $17,014. For the fiscal year ended
October 31, 1994: $32,587. For the fiscal year ended October 31, 1995: $46,000.

THE SHORT TERM BOND PORTFOLIO -- For the period July 8, 1993 (commencement of
operations) through October 31, 1993: $210. For the fiscal year ended
October 31, 1994: $3,149. For the fiscal year ended October 31, 1995: $4,485.

SHORT TERM BOND FUND -- For the period July 8, 1993 (commencement of operations)
through October 31, 1993: $272. For the fiscal year ended October 31, 1994:
$1,839. For the fiscal year ended October 31, 1995: $2,380.

THE U.S. FIXED INCOME PORTFOLIO -- For the period July 12, 1993 (commencement of
operations) through October 31, 1993: $950. For the fiscal year ended
October 31, 1994: $16,107. For the fiscal year ended October 31, 1995: $27,436.

BOND FUND -- For the period July 12, 1993 (commencement of operations) through
October 31, 1993: $10,804. For the fiscal year ended October 31, 1994: $30,915.
For the fiscal year ended October 31, 1995: $32,901.

THE TAX EXEMPT BOND PORTFOLIO -- For the period July 12, 1993 (commencement of
operations) through August 31, 1993: $0. For the fiscal year ended August 31,
1994: $28,345. For the fiscal year ended August 31, 1995: $28,290.

TAX EXEMPT BOND FUND -- For the period July 12, 1993 (commencement of
operations) through August 31, 1993: $25,780. For the fiscal year ended August
31, 1994: $137,890. For the fiscal year ended August 31, 1995: $97,520.

THE NEW YORK TOTAL RETURN BOND PORTFOLIO -- For the period April 11, 1994
(commencement of operations) through March 31, 1995: $2,563. For the fiscal
year ended March 31, 1996: $6,648.

NEW YORK TOTAL RETURN BOND FUND -- For the period April 11, 1994 (commencement
of operations) through March 31, 1995: $7,716. For the fiscal year ended March
31, 1996: $5,538.

THE SELECTED U.S. EQUITY PORTFOLIO -- For the period July 19, 1993 (commencement
of operations) through May 31, 1994: $19,348. For the fiscal year ended May 31,
1995: $32,670.

55
<PAGE>

EQUITY FUND -- For the period July 19, 1993 (commencement of operations)
through May 31, 1994: $78,201. For the fiscal year ended May 31, 1995: $61,903.

THE U.S. SMALL COMPANY PORTFOLIO -- For the period July 19, 1993 (commencement
of operations) through May 31, 1994: $30,420. For the fiscal year ended May 31,
1995: $38,215.

CAPITAL APPRECIATION FUND -- For the period July 19, 1993 (commencement of
operations) through May 31, 1994: $75,401. For the fiscal year ended May 31,
1995: $51,087.

THE NON-U.S. EQUITY PORTFOLIO -- For the period October 4, 1993 (commencement of
operations) through October 31, 1993: $1,005. For the fiscal year ended October
31, 1994: $22,024. For the fiscal year ended October 31, 1995: $31,500.

INTERNATIONAL EQUITY FUND -- For the period October 4, 1993 (commencement of
operations) through October 31, 1993: $3,988. For the fiscal year ended
October 31, 1994: $55,782. For the fiscal year ended October 31, 1995: $52,698.

THE DIVERSIFIED PORTFOLIO -- For the period July 8, 1993 (commencement of
operations) through June 30, 1994: $2,423. For the fiscal year ended June 30,
1995: $7,770.

DIVERSIFIED FUND -- For the period December 15, 1993 (commencement of
operations) through June 30, 1994: $638. For the fiscal year ended June 30,
1995: $3,660.

THE EMERGING MARKETS EQUITY PORTFOLIO -- For the period November 15, 1993
(commencement of operations) through October 31, 1994: $30,828. For the fiscal
year ended October 31, 1995: $35,189.

EMERGING MARKETS EQUITY FUND -- For the period November 15, 1993 (commencement
of operations) through October 31, 1994: $11,373. For the fiscal year ended
October 31, 1995: $12,990.

EUROPEAN EQUITY PORTFOLIO -- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $15,623. For the six months ended
June 30, 1996: $32,409 (unaudited).

EUROPEAN EQUITY FUND -- For the period May 13, 1996 (commencement of operations)
through June 30, 1996: $0 (unaudited).

JAPAN EQUITY PORTFOLIO -- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $17,418. For the six months ended
June 30, 1996: $30,693 (unaudited).

JAPAN EQUITY FUND -- For the period May 6, 1996 (commencement of operations)
through June 30, 1996: $5 (unaudited).

ASIA GROWTH PORTFOLIO -- For the period April 5, 1995 (commencement of
operations) through December 31, 1995: $4,037. For the six months ended June
30, 1996: $6,530 (unaudited).

ASIA GROWTH FUND -- For the period May 13, 1996 (commencement of operations)
through June 30, 1996: $0 (unaudited).

SERVICES AGENT

The Trust, on behalf of each Fund, and the Portfolios have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
effective December 29, 1995, as amended effective August 1, 1996, pursuant to
which Morgan is responsible for certain administrative and related services
provided to each Fund and its corresponding Portfolio. The Services Agreements

56
<PAGE>

may be terminated at any time, without penalty, by the Trustees or Morgan, in
each case on not more than 60 days' nor less than 30 days' written notice to the
other party.

Under the amended Services Agreements and the Co-Administration Agreements,
each of the Funds and the Portfolios has agreed to pay Morgan and FDI fees equal
to its allocable share of an annual complex-wide charge. This charge is
calculated daily based on the aggregate net assets of the Master Portfolios (in
which series of the Trust, The JPM Institutional Funds or The JPM Advisor Funds
invest) in accordance with the following annual schedule: 0.09% on the first
$7 billion of the Master Portfolios' aggregate average daily net assets and
0.04% of the Master Portfolios' average daily net assets in excess of $7
billion.

Under Administrative Services Agreements in effect from December 29, 1995
through July 31, 1996, with Morgan, each Fund and its corresponding Portfolio
paid Morgan a fee equal to its proportionate share of an annual complex-wide
charge. This charge was calculated daily based on the aggregate net assets of
the Master Portfolios in accordance with the following schedule: 0.06% of the
first $7 billion of the Master Portfolios' aggregate average daily net assets,
and 0.03% of the Master Portfolios' average daily net assets in excess of $7
billion.

Prior to December 29, 1995, the Trust and each Portfolio had entered into
Financial and Fund Accounting Services Agreements with Morgan, the provisions of
which included certain of the activities described above and, prior to
September 1, 1995, also included reimbursement of usual and customary expenses.
The table below sets forth for each Fund listed and its corresponding Portfolio
the fees paid to Morgan, net of fee waivers and reimbursements, as Services
Agent. See "Expenses" in the Prospectus and below for applicable expense
limitations.

THE MONEY MARKET PORTFOLIO -- For the period July 12, 1993 (commencement of
operations) through November 30, 1993: $193,980. For the fiscal year ended
November 30, 1994: $385,012. For the fiscal year ended November 30, 1995:
$373,077.

MONEY MARKET FUND -- For the period July 12, 1993 (commencement of operations)
through November 30, 1993: $(86,373)*. For the fiscal year ended November 30,
1994: $(92,422)*. For the fiscal year ended November 30, 1995: $(74,259).

THE TAX EXEMPT MONEY MARKET PORTFOLIO -- For the period July 12, 1993
(commencement of operations) through August 31, 1993: $(5,756)*. For the fiscal
year ended August 31, 1994: $153,204. For the fiscal year ended August 31,
1995: $169,754.

TAX EXEMPT MONEY MARKET FUND -- For the period July 12, 1993 (commencement of
operations) through August 31, 1993: $(24,092)*. For the fiscal year ended
August 31, 1994: $(98,653)*. For the fiscal year ended August 31, 1995:
$(30,971)*.

THE TREASURY MONEY MARKET PORTFOLIO -- For the period January 4, 1993
(commencement of operations) through October 31, 1993: $(30,702)*. For the
fiscal year ended October 31, 1994: $(13,844)*. For the fiscal year ended
October 31, 1995: $(146,180)*.

TREASURY MONEY MARKET FUND -- For the period January 4, 1993 (commencement of
operations) through October 31, 1993: $(74,904)*. For the fiscal year ended
October 31, 1994: $(98,377)*. For the fiscal year ended October 31, 1995:
$(57,960)*.

57
<PAGE>

THE SHORT TERM BOND PORTFOLIO -- For the period July 8, 1993 (commencement of
operations) through October 31, 1993: $(39,290)*. For the fiscal year ended
October 31, 1994: $(22,054)*. For the fiscal year ended October 31, 1995:
$(21,070)*.

SHORT TERM BOND FUND -- For the period July 8, 1993 (commencement of operations)
through October 31, 1993: $(22,474)*. For the fiscal year ended October 31,
1994: $(75,727)*. For the fiscal year ended October 31, 1995: $(43,861)*.

THE U.S. FIXED INCOME PORTFOLIO -- For the period July 12, 1993 (commencement of
operations) through October 31, 1993: $7,691. For the fiscal year ended
October 31, 1994: $140,493. For the fiscal year ended October 31, 1995:
$167,081.

BOND FUND -- For the period July 12, 1993 (commencement of operations) through
October 31, 1993: $(20,885)*. For the fiscal year ended October 31, 1994:
$(9,177)*. For the fiscal year ended October 31, 1995: $18,672.

THE TAX EXEMPT BOND PORTFOLIO -- For the period July 12, 1993 (commencement of
operations) through August 31, 1993: $(1,816)*. For the fiscal year ended
August 31, 1994: $210,795. For the fiscal year ended August 31, 1995: $189,892.

TAX EXEMPT BOND FUND -- For the period July 12, 1993 (commencement of
operations) through August 31, 1993: $13,305. For the fiscal year ended August
31, 1994: $179,891. For the fiscal year ended August 31, 1995: $168,215.

THE NEW YORK TOTAL RETURN BOND PORTFOLIO -- For the period April 11, 1994
(commencement of operations) through March 31, 1995: $(11,830)*. For the fiscal
year ended March 31, 1996: $7,691.

THE NEW YORK TOTAL RETURN BOND FUND -- For the Period April 11, 1994
(commencement of operations) through March 31, 1995: $(37,934)*. For the fiscal
year ended March 31, 1996: $3,302.

THE SELECTED U.S. EQUITY PORTFOLIO -- For the period July 19, 1993 (commencement
of operations) through May 31, 1994: $155,348. For the fiscal year ended May
31, 1995: $236,537.

EQUITY FUND -- For the period July 19, 1993 (commencement of operations)
through May 31, 1994: $113,959. For the fiscal year ended May 31, 1995:
$126,738.

THE U.S. SMALL COMPANY PORTFOLIO -- For the period July 19, 1993 (commencement
of operations) through May 31, 1994: $203,764. For the fiscal year ended May
31, 1995: $241,373.

CAPITAL APPRECIATION FUND -- For the period July 19, 1993 (commencement of
operations) through May 31, 1994: $72,970. For the fiscal year ended May 31,
1995: $108,015.

THE NON-U.S. EQUITY PORTFOLIO -- For the period October 4, 1993 (commencement of
operations) through October 31, 1993: $(22,160)*. For the fiscal year ended
October 31, 1994: $327,569. For the fiscal year ended October 31, 1995:
$349,443.

INTERNATIONAL EQUITY FUND -- For the period October 4, 1993 (commencement of
operations) through October 31, 1993: $(46,370)*. For the fiscal year ended
October 31, 1994: $223,806. For the fiscal year ended October 31, 1995:
$210,123.

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<PAGE>

THE DIVERSIFIED PORTFOLIO -- For the period July 8, 1993 (commencement of
operations) through June 30, 1994: $(17,807)*. For the fiscal year ended
June 30, 1995: $63,153.

DIVERSIFIED FUND -- For the period December 15, 1993 (commencement of
operations) through June 30, 1994: $(43,203)*. For the fiscal year ended June
30, 1995: $(66,127)*.

THE EMERGING MARKETS EQUITY PORTFOLIO -- For the period November 15, 1993
(commencement of operations) through October 31, 1994: $347,925. For the fiscal
year ended October 31, 1995: $337,050.

EMERGING MARKETS EQUITY FUND -- For the period November 15, 1993 (commencement
of operations) through October 31, 1994: $(37,902)*. For the fiscal year ended
October 31, 1995: $5,847.

EUROPEAN EQUITY PORTFOLIO-- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $128,335. For the six months ended
June 30, 1996: $64,388 (unaudited).

EUROPEAN EQUITY FUND -- For the period May 13, 1996 (commencement of operations)
through June 30, 1996: $0 (unaudited).

JAPAN EQUITY PORTFOLIO -- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $147,974. For the six months ended
June 30, 1996: $60,965 (unaudited).

JAPAN EQUITY FUND -- For the period May 6, 1996 (commencement of operations)
through June 30, 1996: $10 (unaudited).

ASIA GROWTH PORTFOLIO -- For the period April 5, 1995 (commencement of
operations) through December 31, 1995: $21,823. For the six months ended
June 30, 1996: $12,972 (unaudited).

ASIA GROWTH FUND -- For the period May 13, 1996 (commencement of operations)
through June 30, 1996: $0 (unaudited).

____________________________________

(*) Indicates a reimbursement by Morgan for expenses in excess of its fees under
the Prior Services Agreements. No fees were paid for the fiscal period.

CUSTODIAN

State Street Bank and Trust Company ("State Street"), 225 Franklin Street,
Boston, Massachusetts 02110, serves as the Trust's and each of the Portfolio's
Custodian and Transfer and Dividend Disbursing Agent. Pursuant to the Custodian
Contracts, State Street is responsible for maintaining the books of account and
records of portfolio transactions and holding portfolio securities and cash. In
addition, the Custodian has entered into subcustodian agreements on behalf of
the Portfolios for the Tax Exempt Money Market, Tax Exempt Bond and New York
Total Return Bond Funds with Bankers Trust Company for the purpose of holding
TENR Notes and with Bank of New York and Chemical Bank, N.A. for the purpose of
holding certain variable rate demand notes. In the case of foreign assets held
outside the United States, the Custodian employs various subcustodians who were
approved by the Trustees of the Portfolios in accordance with the regulations of
the SEC. The Custodian maintains portfolio transaction records. As Transfer
Agent and Dividend Disbursing Agent, State Street is responsible for maintaining
account records detailing the ownership of Fund shares and for crediting income,
capital gains and other changes in share ownership to shareholder accounts.

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SHAREHOLDER SERVICING

The Trust on behalf of each of the Funds has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of an Eligible Institution. Under this agreement, Morgan is responsible for
performing shareholder account administrative and servicing functions, which
includes but is not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to a Fund; assisting customers in
designating and changing dividend options, account designations and addresses;
providing necessary personnel and facilities to coordinate the establishment and
maintenance of shareholder accounts and records with the Funds' transfer agent;
transmitting purchase and redemption orders to the Funds' transfer agent and
arranging for the wiring or other transfer of funds to and from customer
accounts in connection with orders to purchase or redeem Fund shares; verifying
purchase and redemption orders, transfers among and changes in accounts;
informing the Distributor of the gross amount of purchase orders for Fund
shares; and providing other related services.

Under the Shareholder Servicing Agreement, each Fund has agreed to pay
Morgan for these services a fee at the following annual rates (expressed as a
percentage of the average daily net asset values of Fund shares owned by or for
shareholders for whom Morgan is acting as shareholder servicing agent): Money
Market, Treasury Money Market and Tax Exempt Money Market Funds, 0.15% of
average daily net assets up to $2 billion and 0.10% of such assets thereafter;
Short Term Bond, Bond, Tax Exempt Bond and New York Total Return Bond Funds,
0.20% of average daily net assets; Equity, Capital Appreciation, International
Equity, Emerging Markets Equity, Diversified, European Equity, Japan Equity and
Asia Growth Funds, 0.25% of average daily net assets. Morgan acts as
shareholder servicing agent for all shareholders.

The table below sets forth for each Fund listed the shareholder servicing
fees paid by each Fund to Morgan, net of fee waivers and reimbursements, for the
fiscal periods indicated following each Fund's reorganization or commencement of
operations. See "Expenses" in the Prospectus and below for applicable expense
limitations.

MONEY MARKET FUND -- For the period July 12, 1993 (commencement of operations)
through November 30, 1993: $1,628,914. For the fiscal year ended November 30,
1994: $3,701,260. For the fiscal year ended November 30, 1995: $3,629,031.

TAX EXEMPT MONEY MARKET FUND -- For the period July 12, 1993 (commencement of
operations) through August 31, 1993: $278,665. For the fiscal year ended
August 31, 1994: $2,121,421. For the fiscal year ended August 31, 1995:
$2,227,944.

TREASURY MONEY MARKET FUND -- For the period January 4, 1993 (commencement of
operations) through October 31, 1993: $71,617. For the fiscal year ended
October 31, 1994: $200,453. For the fiscal year ended October 31, 1995:
$273,861.

SHORT TERM BOND FUND -- For the period July 8, 1993 (commencement of operations)
through October 31, 1993: $1,437. For the fiscal year ended October 31, 1994:
$11,275. For the fiscal year ended October 31, 1995: $16,063.

BOND FUND -- For the period July 12, 1993 (commencement of operations) through
October 31, 1993: $53,352. For the fiscal year ended October 31, 1994:
$189,959. For the fiscal year ended October 31, 1995: $222,000.

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TAX EXEMPT BOND FUND -- For the period July 12, 1993 (commencement of
operations) through August 31, 1993: $119,828. For the fiscal year ended
August 31, 1994: $816,408. For the fiscal year ended August 31, 1995: $635,645.

NEW YORK TOTAL RETURN BOND FUND -- For the period April 11, 1994 (commencement
of operations) through March 31, 1995: $49,958. For the fiscal year ended
March 31, 1996: $83,301.

EQUITY FUND -- For the period July 19, 1993 (commencement of operations)
through May 31, 1994: $506,629. For the fiscal year ended May 31, 1995:
$598,644.

CAPITAL APPRECIATION FUND -- For the period July 19, 1993 (commencement of
operations) through May 31, 1994: $491,556. For the fiscal year ended May 31,
1995: $456,271.

INTERNATIONAL EQUITY FUND -- For the period October 4, 1993 (commencement of
operations) through October 31, 1993: $32,604. For the fiscal year ended
October 31, 1994: $476,339. For the fiscal year ended October 31, 1995:
$479,112.

DIVERSIFIED FUND -- For the period December 15, 1993 (commencement of
operations) through June 30, 1994: $5,411. For the fiscal year ended June 30,
1995: $36,552.

EMERGING MARKETS EQUITY FUND -- For the period November 15, 1993 (commencement
of operations) through October 31, 1994: $92,084. For the fiscal year ended
October 31, 1995: $121,502.

EUROPEAN EQUITY FUND -- For the period May 13, 1996 (commencement of operations)
through June 30, 1996: $2 (unaudited).

JAPAN EQUITY FUND -- For the period May 6, 1996 (commencement of operations)
through June 30, 1996: $99 (unaudited).

ASIA GROWTH FUND -- For the period May 13, 1996 (commencement of operations)
through June 30, 1996: $5 (unaudited).

As discussed under "Investment Advisor", the Glass-Steagall Act and other
applicable laws and regulations limit the activities of bank holding companies
and certain of their subsidiaries in connection with registered open-end
investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and providing administrative services to the Funds and the Portfolios under the
Services Agreements and in acting as Advisor to the Portfolios under the
Investment Advisory Agreements, may raise issues under these laws. However,
Morgan believes that it may properly perform these services and the other
activities described in the Prospectus without violation of the Glass-Steagall
Act or other applicable banking laws or regulations.

If Morgan were prohibited from providing any of the services under the
Shareholder Servicing Agreement and the Services Agreements, the Trustees would
seek an alternative provider of such services. In such event, changes in the
operation of the Funds or the Portfolios might occur and a shareholder might no
longer be able to avail himself or herself of any services then being provided
to shareholders by Morgan.

INDEPENDENT ACCOUNTANTS

The independent accountants of the Trust and the Portfolios are Price
Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036. Price
Waterhouse LLP conducts an annual audit of the financial statements of each of
the Funds and the Portfolios, assists in the preparation and/or review of each

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of the Fund's and the Portfolio's federal and state income tax returns and
consults with the Funds and the Portfolios as to matters of accounting and
federal and state income taxation. The financial statements of the predecessors
of the Money Market, Tax Exempt Money Market, Bond, Tax Exempt Bond, Equity,
Capital Appreciation and International Equity Funds were audited by other
independent accountants.

EXPENSES

In addition to the fees payable to Pierpont Group, Inc., Morgan and FDI
under various agreements discussed under Trustees and Officers, Investment
Advisor, Co-Administrator and Distributor, Services Agent and Shareholder
Servicing above, the Fund and the Portfolio are responsible for usual and
customary expenses associated with their respective operations. Such expenses
include organization expenses, legal fees, accounting expenses, insurance costs,
the compensation and expenses of the Trustees, registration fees under federal
securities laws, and extraordinary expenses applicable to the Fund or the
Portfolio. For the Fund, such expenses also include transfer, registrar and
dividend disbursing costs, the expenses of printing and mailing reports, notices
and proxy statements to Fund shareholders, and registration fees under state
securities laws. For the Portfolio, such expenses also include applicable
registration fees under foreign securities laws, custodian fees and brokerage
expenses. Under fee arrangements prior to September 1, 1995, Morgan as Services
Agent was responsible for reimbursements to the Trust and the Portfolio and the
usual and customary expenses described above (excluding organization and
extraordinary expenses, custodian fees and brokerage expenses).

Morgan has agreed that if in any fiscal year the sum of any Fund's expenses
exceeds the limits set by applicable regulations of state securities
commissions, the fees payable by the Fund to Morgan for that year shall be
reduced as specified by agreement with the Trust on behalf of the Fund.
Currently, Morgan believes that the most restrictive expense limitation of state
securities commissions limits expenses to 2.5% of the first $30 million of
average net assets, 2% of the next $70 million of such net assets and 1.5% of
such net assets in excess of $100 million for any fiscal year. For additional
information regarding waivers or expense subsidies, see "Management of the Trust
and the Portfolio(s)" in the Prospectus.

PURCHASE OF SHARES

Investors may open Fund accounts and purchase shares as described in the
relevant Prospectus under "Purchase of Shares." References in the Prospectus
and this Statement of Additional Information to customers of Morgan or an
Eligible Institution include customers of their affiliates and references to
transactions by customers with Morgan or an Eligible Institution include
transactions with their affiliates. Only Fund investors who are using the
services of a financial institution acting as shareholder servicing agent
pursuant to an agreement with the Trust on behalf of a Fund may make
transactions in shares of a Fund.

Each Fund may, at its own option, accept securities in payment for shares.
The securities delivered in are valued by the method described in Net Asset
Value as of the day the Fund receives the securities. This is a taxable
transaction to the shareholder. Securities may be accepted in payment for
shares only if they are, in the judgment of Morgan, appropriate investments for
the Fund's corresponding Portfolio. In addition, securities accepted in payment
for shares must: (i) meet the investment objective and policies of the acquiring
Fund's corresponding Portfolio; (ii) be acquired by the applicable Fund for
investment and not for resale (other than for resale to the Fund's corresponding
Portfolio); (iii) be liquid securities which are not restricted as to transfer
either by law or liquidity of market; and (iv) if stock, have a value which is
readily ascertainable as evidenced by a listing on a stock exchange, over the
counter market or by readily available market quotations from a dealer in such

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securities. Each Fund reserves the right to accept or reject at its own option
any and all securities offered in payment for its shares.

Prospective investors may purchase shares with the assistance of an
Eligible Institution, and the Eligible Institution may charge the investor a fee
for this service and other services it provides to its customers.

REDEMPTION OF SHARES

Investors may redeem shares as described in the relevant Prospectus under
"Redemption of Shares." Shareholders redeeming shares of the Money Market, Tax
Exempt Money Market or Treasury Money Market Funds should be aware that these
Funds attempt to maintain a stable net asset value of $1.00 per share; however,
there can be no assurance that they will be able to continue to do so, and in
that case the net asset value of the Funds' shares might deviate from $1.00 per
share. Accordingly, a redemption request might result in payment of a dollar
amount which differs from the number of shares redeemed. See "Net Asset Value"
in the Prospectus and below.

If the Trust on behalf of a Fund and its corresponding Portfolio determine
that it would be detrimental to the best interest of the remaining shareholders
of a Fund to make payment wholly or partly in cash, payment of the redemption
price may be made in whole or in part by a distribution in kind of securities
from the Portfolio, in lieu of cash, in conformity with the applicable rule of
the SEC. If shares are redeemed in kind, the redeeming shareholder might incur
transaction costs in converting the assets into cash. The method of valuing
portfolio securities is described under "Net Asset Value," and such valuation
will be made as of the same time the redemption price is determined. The Trust
on behalf of all of the Funds and their corresponding Portfolios (except the
European Equity, Japan Equity and Asia Growth Portfolios) have elected to be
governed by Rule 18f-1 under the 1940 Act pursuant to which the Funds and the
corresponding Portfolios are obligated to redeem shares solely in cash up to the
lesser of $250,000 or one percent of the net asset value of the Fund during any
90 day period for any one shareholder. The Trust will redeem Fund shares in
kind only if it has received a redemption in kind from the corresponding
Portfolio and therefore shareholders of the Fund that receive redemptions in
kind will receive securities of the Portfolio. The Portfolios have advised the
Trust that the Portfolios will not redeem in kind except in circumstances in
which a Fund is permitted to redeem in kind.

FURTHER REDEMPTION INFORMATION. The Trust, on behalf of a Fund, and the
Portfolios reserve the right to suspend the right of redemption and to postpone
the date of payment upon redemption as follows: (i) for up to seven days, (ii)
during periods when the New York Stock Exchange is closed for other than
weekends and holidays or when trading on such Exchange is restricted as
determined by the SEC by rule or regulation, (iii) during periods in which an
emergency, as determined by the SEC, exists that causes disposal by the
Portfolio of, or evaluation of the net asset value of, its portfolio securities
to be unreasonable or impracticable, or (iv) for such other periods as the SEC
may permit.

EXCHANGE OF SHARES

An investor may exchange shares from any Pierpont Fund into any other
Pierpont Fund or JPM Institutional Fund, as described under "Exchange of Shares"
in the Prospectus. For complete information, the Prospectus as it relates to
the Fund into which a transfer is being made should be read prior to the
transfer. Requests for exchange are made in the same manner as requests for
redemptions. See "Redemption of Shares." Shares of the Fund to be acquired are
purchased for settlement when the proceeds from redemption become available. In
the case of investors in certain states, state securities laws may restrict the
availability of the exchange privilege. The Trust reserves the right to
discontinue, alter or limit the exchange privilege at any time.

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DIVIDENDS AND DISTRIBUTIONS

Each Fund declares and pays dividends and distributions as described under
"Dividends and Distributions" in the Prospectus.

Net investment income of the Money Market, Tax Exempt Money Market and
Treasury Money Market Funds consists of accrued interest or discount and
amortized premium, less the accrued expenses of the Fund applicable to that
dividend period including the fees payable to Morgan. See "Net Asset Value."

Determination of the net income for Money Market, Tax Exempt Money Market,
Treasury Money Market, Short Term Bond, Bond, Tax Exempt Bond and New York Total
Return Bond Funds is made at the times described in the Prospectus; in addition,
net investment income for days other than business days is determined at the
time net asset value is determined on the prior business day.

NET ASSET VALUE

Each of the Funds computes its net asset value once daily on Monday through
Friday as described under "Net Asset Value" in the Prospectus. The net asset
value will not be computed on the day the following legal holidays are observed:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day. On days when U.S. trading
markets close early in observance of these holidays, the Funds and the
Portfolios would expect to close for purchases and redemptions at the same time.
The days on which net asset value is determined are the Funds' business days.

The net asset value of each Fund is equal to the value of the Fund's
investment in its corresponding Portfolio (which is equal to the Fund's pro rata
share of the total investment of the Fund and of any other investors in the
Portfolio less the Fund's pro rata share of the Portfolio's liabilities) less
the Fund's liabilities. The following is a discussion of the procedures used by
the Portfolios corresponding to each Fund in valuing their assets.

MONEY MARKET, TAX EXEMPT MONEY MARKET AND TREASURY MONEY MARKET FUNDS. In
the case of the Portfolios for the Money Market, Tax Exempt Money Market and
Treasury Money Market Funds, all portfolio securities are valued by the
amortized cost method. The purpose of this method of calculation is to attempt
to maintain a constant net asset value per share of the Fund of $1.00. No
assurances can be given that this goal can be attained. The amortized cost
method of valuation values a security at its cost at the time of purchase and
thereafter assumes a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. If a difference of more than 1/2 of 1% occurs between
valuation based on the amortized cost method and valuation based on market
value, the Trustees will take steps necessary to reduce such deviation, such as
changing the Fund's dividend policy, shortening the average portfolio maturity,
realizing gains or losses, or reducing the number of outstanding Fund shares.
Any reduction of outstanding shares will be effected by having each shareholder
contribute to a Fund's capital the necessary shares on a PRO RATA basis. Each
shareholder will be deemed to have agreed to such contribution in these
circumstances by his investment in the Funds. See "Taxes."

BOND, TAX EXEMPT BOND, NEW YORK TOTAL RETURN BOND, SHORT TERM BOND AND
DIVERSIFIED FUNDS. In the case of the Bond, Tax Exempt Bond, New York Total
Return Bond and Short Term Bond Funds, and the fixed income portion of the
Diversified Fund, portfolio securities with a maturity of 60 days or more,
including securities that are listed on an exchange or traded over the counter,
are valued using prices supplied daily by an independent pricing service or
services that (i) are based on the last sale price on a national securities
exchange or, in the absence of recorded sales, at the readily available closing
bid price on such exchange or at the quoted bid price in the over-the-counter

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market, if such exchange or market constitutes the broadest and most
representative market for the security and (ii) in other cases, take into
account various factors affecting market value, including yields and prices of
comparable securities, indication as to value from dealers and general market
conditions. If such prices are not supplied by the Portfolio's independent
pricing service, such securities are priced in accordance with procedures
adopted by the Trustees. All portfolio securities with a remaining maturity of
less than 60 days are valued by the amortized cost method Securities listed on
a foreign exchange are valued at the last quoted sale price available before the
time when net assets are valued. Because of the large number of municipal bond
issues outstanding and the varying maturity dates, coupons and risk factors
applicable to each issuer's books, no readily available market quotations exist
for most municipal securities. The Portfolio values municipal securities on the
basis of prices from a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values.

Trading in securities in most foreign markets is normally completed before
the close of trading in U.S. markets and may also take place on days on which
the U.S. markets are closed. If events materially affecting the value of
securities occur between the time when the market in which they are traded
closes and the time when a Portfolio's net asset value is calculated, such
securities will be valued at fair value in accordance with procedures
established by and under the general supervision of the Trustees.

EQUITY, CAPITAL APPRECIATION, INTERNATIONAL EQUITY, EMERGING MARKETS
EQUITY, DIVERSIFIED, EUROPEAN EQUITY, JAPAN EQUITY AND ASIA GROWTH FUNDS. In
the case of the Equity Portfolios, the value of investments listed on a domestic
securities exchange, other than options on stock indexes, is based on the last
sale prices on the New York Stock Exchange at 4:00 P.M. or, in the absence of
recorded sales, at the average of readily available closing bid and asked prices
on such exchange. Securities listed on a foreign exchange are valued at the
last quoted sale price available before the time when net assets are valued.
Unlisted securities are valued at the average of the quoted bid and asked prices
in the over-the-counter market. The value of each security for which readily
available market quotations exist is based on a decision as to the broadest and
most representative market for such security. For purposes of calculating net
asset value all assets and liabilities initially expressed in foreign currencies
will be converted into U.S. dollars at the prevailing market rates available at
the time of valuation.

Options on stock indexes traded on national securities exchanges are valued
at the close of options trading on such exchanges which is currently 4:10 P.M.,
New York time. Stock index futures and related options, which are traded on
commodities exchanges, are valued at their last sales price as of the close of
such commodities exchanges which is currently 4:15 P.M., New York time.
Securities or other assets for which market quotations are not readily available
(including certain restricted and illiquid securities) are valued at fair value
in accordance with procedures established by and under the general supervision
and responsibility of the Trustees. Such procedures include the use of
independent pricing services which use prices based upon yields or prices of
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions. Short-term investments
which mature in 60 days or less are valued at amortized cost if their original
maturity was 60 days or less, or by amortizing their value on the 61st day prior
to maturity, if their original maturity when acquired by the Portfolio was more
than 60 days, unless this is determined not to represent fair value by the
Trustees.

Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the New York Stock Exchange
and may also take place on days on which the New York Stock Exchange is closed.
If events materially affecting the value of securities occur between the time
when

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the exchange on which they are traded closes and the time when a Portfolio's net
asset value is calculated, such securities will be valued at fair value in
accordance with procedures established by and under the general supervision of
the Trustees.

PERFORMANCE DATA

From time to time, the Funds may quote performance in terms of yield,
actual distributions, total return or capital appreciation in reports, sales
literature and advertisements published by the Trust. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See "Additional
Information" in the Prospectus.

YIELD QUOTATIONS. As required by regulations of the SEC, current yield for
the Money Market, Tax Exempt Money Market and Treasury Money Market Funds is
computed by determining the net change exclusive of capital changes in the value
of a hypothetical pre-existing account having a balance of one share at the
beginning of a seven-day calendar period, dividing the net change in account
value of the account at the beginning of the period, and multiplying the return
over the seven-day period by 365/7. For purposes of the calculation, net change
in account value reflects the value of additional shares purchased with
dividends from the original share and dividends declared on both the original
share and any such additional shares, but does not reflect realized gains or
losses or unrealized appreciation or depreciation. Effective yield for the
Money Market, Tax Exempt Money Market and Treasury Money Market Funds is
computed by annualizing the seven-day return with all dividends reinvested in
additional Fund shares. In the case of the Tax Exempt Money Market Fund, the
tax equivalent yield is computed by first computing the yield as discussed
above. Then the portion of the yield attributable to securities the income of
which was exempt for federal income tax purposes is determined. This portion of
the yield is then divided by one minus the stated assumed federal income tax
rate for individuals and then added to the portion of the yield that is not
attributable to securities, the income of which was not tax exempt.

As required by regulations of the SEC, the annualized yield for the Bond,
Tax Exempt Bond, New York Total Return Bond and Short Term Bond Funds is
computed by dividing each Fund's net investment income per share earned during a
30-day period by the net asset value on the last day of the period. The average
daily number of shares outstanding during the period that are eligible to
receive dividends is used in determining the net investment income per share.
Income is computed by totaling the interest earned on all debt obligations
during the period and subtracting from that amount the total of all recurring
expenses incurred during the period. The 30-day yield is then annualized on a
bond-equivalent basis assuming semi-annual reinvestment and compounding of net
investment income, as described under "Additional Information" in the
Prospectus.

Historical performance for periods prior to the establishment of the Money
Market, Tax Exempt Money Market, Bond, and Tax Exempt Bond Funds will be that of
the respective predecessor free-standing fund and will be presented in
accordance with applicable SEC staff interpretations.

Below is set forth historical yield information for the Funds or their
predecessors for the periods indicated:

MONEY MARKET FUND (5/31/96): 7-day current yield: 4.94%; 7-day effective yield:
5.06%.

TAX EXEMPT MONEY MARKET FUND (2/29/96): 7-day current yield: 3.00%; 7-day tax
equivalent yield at 39% tax rate: 4.98%; 7-day effective yield: 3.04%.

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TREASURY MONEY MARKET FUND (4/30/96): 7-day current yield: 4.77%; 7-day
effective yield: 4.88%.

SHORT TERM BOND FUND (4/30/96): 30-day yield: 5.45%.

BOND FUND (4/30/96): 30-day yield: 6.17%.

TAX EXEMPT BOND FUND (2/29/96): 30-day yield: 4.28%; 30-day tax equivalent yield
at 39% tax rate: 7.01%.

NEW YORK TOTAL RETURN BOND FUND (3/31/96): 30-day yield: 4.35%; 30-day tax
equivalent yield at 39% tax rate: 7.13%.

TOTAL RETURN QUOTATIONS. As required by regulations of the SEC, the
annualized total return of the Bond, Tax Exempt Bond, New York Total Return
Bond, Short Term Bond, Equity, Capital Appreciation, International Equity,
Emerging Markets Equity, Diversified, European Equity, Japan Equity and Asia
Growth Funds for a period is computed by assuming a hypothetical initial payment
of $1,000. It is then assumed that all of the dividends and distributions by
the Fund over the period are reinvested. It is then assumed that at the end of
the period, the entire amount is redeemed. The annualized total return is then
calculated by determining the annual rate required for the initial payment to
grow to the amount which would have been received upon redemption.

Aggregate total returns, reflecting the cumulative percentage change over a
measuring period, may also be calculated.

Historical performance information for periods prior to the establishment
of the Money Market, Tax Exempt Money Market, Bond, Tax Exempt Bond, Equity,
Capital Appreciation and International Equity Funds will be that of the
respective predecessor free-standing fund and will be presented in accordance
with applicable SEC staff interpretations.

Below is set forth historical return information for the Funds or their
predecessors for the periods indicated:

MONEY MARKET FUND (5/31/96): Average annual total return, 1 year: 5.54%; average
annual total return, 5 years: 4.33%; average annual total return, 10 years:
5.88%; aggregate total return, 1 year: 5.54%; aggregate total return, 5 years:
23.61%; aggregate total return, 10 years: 76.99%.

TAX EXEMPT MONEY MARKET FUND (2/29/96): Average annual total return, 1 year:
3.47%; Average annual total return, 5 years: 2.94%; average annual total return,
10 years: 3.98%; aggregate total return, 1 year: 3.47%; aggregate total return,
5 years: 15.56%; aggregate total return, 10 years: 47.70%.

TREASURY MONEY MARKET FUND (4/30/96): Average annual total return, 1 year:
5.36%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 4.10%; aggregate total return, 1
year: 5.36%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 13.96%.

SHORT TERM BOND FUND (4/30/96): Average annual total return, 1 year: 6.72%;
average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 4.44%; aggregate total return, 1
year: 6.72%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 12.69%.

BOND FUND (4/30/96): Average annual total return, 1 year: 8.49%; average annual
total return, 5 years: 7.52%; average annual total return, commencement of
operations(*) to period end: 7.88%; aggregate total return, 1 year: 8.49%;

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aggregate total return, 5 years: 43.68%; aggregate total return, commencement of
operations(*) to period end: 84.58%.

TAX EXEMPT BOND FUND (2/29/96): Average annual total return, 1 year: 9.38%;
average annual total return, 5 years: 7.22%; average annual total return, 10
years: 7.03%; aggregate total return, 1 year: 9.38%; aggregate total return, 5
years: 41.71%; aggregate total return, 10 years: 97.32%.

NEW YORK TOTAL RETURN BOND FUND (3/31/96): Average annual total return, 1 year:
7.16; average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 6.39%; aggregate total return, 1
year: 7.16%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 12.61%.

DIVERSIFIED FUND (12/31/95): Average annual total return, 1 year: 26.47%;
average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 11.59%; aggregate total return, 1
year: 26.47%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 28.80%.

EQUITY FUND (4/30/96): Average annual total return, 1 year: 27.97%; average
annual total return, 5 years: 15.39%; average annual total return, 10 years
14.00%; aggregate total return, 1 year: 27.97%; aggregate total return, 5 years:
104.53%; aggregate total return, 10 years: 270.69%.

CAPITAL APPRECIATION FUND (4/30/96): Average annual total return, 1 year:
32.79%; average annual total return, 5 years: 16.77%; average annual total
return, 10 years: 11.33%; aggregate total return, 1 year: 32.79%; aggregate
total return, 5 years: 117.08%; aggregate total return, 10 years: 192.49%.

INTERNATIONAL EQUITY FUND (4/30/96): Average annual total return, 1 year:
11.91%; average annual total return, 5 years: 7.10%; average annual total
return, commencement of operations(*) to period end: 5.17%; aggregate total
return, 1 year: 7.10%; aggregate total return, 5 years: 40.92%; aggregate total
return, commencement of operations(*) to period end: 34.77%.

EMERGING MARKETS EQUITY FUND (4/30/96): Average annual total return, 1 year:
11.72%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 2.86%; aggregate total return, 1
year: 11.72%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 7.04%.

EUROPEAN EQUITY FUND (6/30/96): Average annual total return, 1 year: N/A;
average annual total return, 5 years: N/A; average annual total return
commencement of operations(*) to period end: 6.85%; aggregate total return,
1 year: N/A; aggregate total return, 5 years: N/A; aggregate total return
commencement of operations(*) to period end: 6.85%.

JAPAN EQUITY FUND (6/30/96): Average annual total return, 1 year: N/A; average
annual total return, 5 years: N/A; average annual total return commencement of
operations(*) to period end: 5.85%; aggregate total return, 1 year: N/A;
aggregate total return, 5 years: N/A; aggregate total return commencement of
operations(*) to period end: 5.85%.

ASIA GROWTH FUND (6/30/96): Average annual total return, 1 year: N/A; average
annual total return, 5 years: N/A; average annual total return commencement of
operations(*) to period end: 4.42%; aggregate total return, 1 year: N/A;

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aggregate total return, 5 years: N/A; aggregate total return commencement of
operations(*) to period end: 4.42%.
_____________________________________

* The Treasury Money Market, Short Term Bond, Bond, New York Total Return Bond,
Diversified, International Equity, Emerging Markets Equity, European Equity,
Japan Equity and Asia Growth Funds commenced operations on January 4, 1993, July
8, 1993, March 11, 1988, April 11, 1994, December 15, 1993, June 1, 1990,
November 15, 1993, May 13, 1996, May 6, 1996, and May 13, 1996, respectively.

GENERAL. A Fund's performance will vary from time to time depending upon
market conditions, the composition of its corresponding Portfolio, and its
operating expenses. Consequently, any given performance quotation should not be
considered representative of a Fund's performance for any specified period in
the future. In addition, because performance will fluctuate, it may not provide
a basis for comparing an investment in a Fund with certain bank deposits or
other investments that pay a fixed yield or return for a stated period of time.

Comparative performance information may be used from time to time in
advertising the Funds' shares, including appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.

In order to illustrate the benefits of balanced investing across asset
classes over longer periods of time, the Diversified Fund may use performance
data that will be based on the return of, as appropriate, the S&P 500 Index, the
Salomon Brothers Broad Investment Grade Bond Index, the Frank Russell 2000 and
2500 Indexes, and the EAFE Index. The quoted performance will illustrate what
results could have been achieved had the Fund invested specified percentages of
the Fund's assets in classes of securities that would have produced a return
equal to the relevant index over the time period at issue.

From time to time, the Funds may quote performance in terms of yield,
actual distributions, total return, or capital appreciation in reports, sales
literature, and advertisements published by the Funds. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See "Additional
Information" in the Prospectus.

PORTFOLIO TRANSACTIONS

The Advisor places orders for all Portfolios for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of all the Portfolios. See "Investment Objectives and Policies."

Fixed income and debt securities and municipal bonds and notes are
generally traded at a net price with dealers acting as principal for their own
accounts without a stated commission. The price of the security usually
includes profit to the dealers. In underwritten offerings, securities are
purchased at a fixed price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
On occasion, certain securities may be purchased directly from an issuer, in
which case no commissions or discounts are paid.

MONEY MARKET, TAX EXEMPT MONEY MARKET, TREASURY MONEY MARKET, BOND, SHORT
TERM BOND, TAX EXEMPT BOND AND NEW YORK TOTAL RETURN BOND FUNDS. Portfolio
transactions for the Portfolios corresponding to the Money Market, Tax Exempt
Money Market, Treasury Money Market, Bond, Short Term Bond, Tax Exempt Bond and
New York Total Return Bond Funds will be undertaken principally to accomplish a
Portfolio's objective in relation to expected movements in the general level of

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interest rates. The Portfolios corresponding to the Money Market, Treasury
Money Market, Bond, Tax Exempt Bond, New York Total Return Bond and Short Term
Bond Funds may engage in short-term trading consistent with their objectives.
See "Investment Objectives and Policies -- Portfolio Turnover." The Tax Exempt
Money Market Portfolio will not seek profits through short-term trading, but the
Portfolio may dispose of any portfolio security prior to its maturity if it
believes such disposition is appropriate even if this action realizes profits or
losses.

In connection with portfolio transactions for the Portfolios, the Advisor
intends to seek best price and execution on a competitive basis for both
purchases and sales of securities.

The Portfolios corresponding to the Money Market, Tax Exempt Money Market
and Treasury Money Market Funds have a policy of investing only in securities
with maturities of less than thirteen months, which policy will result in high
portfolio turnovers. The Portfolio corresponding to the Short Term Bond Fund has
a policy of maintaining a short duration, which policy will also result in a
high portfolio turnover. Since brokerage commissions are not normally paid on
investments which the Portfolios make, turnover resulting from such investments
should not adversely affect the net asset value or net income of the Portfolios.

EQUITY, CAPITAL APPRECIATION, INTERNATIONAL EQUITY, EMERGING MARKETS
EQUITY, DIVERSIFIED, EUROPEAN EQUITY, JAPAN EQUITY AND ASIA GROWTH FUNDS. In
connection with portfolio transactions for the Equity Portfolios, the overriding
objective is to obtain the best possible execution of purchase and sale orders.

In selecting a broker, the Advisor considers a number of factors including:
the price per unit of the security; the broker's reliability for prompt,
accurate confirmations and on-time delivery of securities; the firm's financial
condition; as well as the commissions charged. A broker may be paid a brokerage
commission in excess of that which another broker might have charged for
effecting the same transaction if, after considering the foregoing factors, the
Advisor decides that the broker chosen will provide the best possible execution.
The Advisor monitors the reasonableness of the brokerage commissions paid in
light of the execution received. The Trustees of each Portfolio review
regularly the reasonableness of commissions and other transaction costs incurred
by the Portfolios in light of facts and circumstances deemed relevant from time
to time, and, in that connection, will receive reports from the Advisor and
published data concerning transaction costs incurred by institutional investors
generally. Research services provided by brokers to which the Advisor has
allocated brokerage business in the past include economic statistics and
forecasting services, industry and company analyses, portfolio strategy
services, quantitative data, and consulting services from economists and
political analysts. Research services furnished by brokers are used for the
benefit of all the Advisor's clients and not solely or necessarily for the
benefit of an individual Portfolio. The Advisor believes that the value of
research services received is not determinable and does not significantly reduce
its expenses. The Portfolios do not reduce their fee to the Advisor by any
amount that might be attributable to the value of such services.

The Portfolios or their predecessors corresponding to the Equity, Capital
Appreciation, International Equity, Emerging Markets Equity, Diversified,
European Equity, Japan Equity and Asia Growth Funds paid the following
approximate brokerage commissions for the indicated fiscal periods:

EQUITY FUND (May): 1995: $1,179,132; 1994: $744,676; 1993: $293,698.

CAPITAL APPRECIATION FUND (May): 1995: $1,217,016; 1994: $1,760,320; 1993:
$142,310.

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INTERNATIONAL EQUITY FUND (October): 1995: $1,691,642; 1994: $1,413,238; 1993:
$639,000.

DIVERSIFIED FUND (June): 1995: $145,589; 1994: $78,737; 1993: N/A.

EMERGING MARKETS EQUITY FUND (October): 1995: $1,475,147; 1994: $1,262,905;
1993: N/A.

EUROPEAN EQUITY FUND (December): 1995: $143,417.

JAPAN EQUITY FUND (December): 1995: $0.

ASIA GROWTH FUND (December): 1995: $27,322.

The increases in brokerage commissions reflected above were due to
increased portfolio activity and an increase in net investments by investors in
a Portfolio or its predecessor.

Subject to the overriding objective of obtaining the best possible
execution of orders, the Advisor may allocate a portion of a Portfolio's
brokerage transactions to affiliates of the Advisor. In order for affiliates of
the Advisor to effect any portfolio transactions for a Portfolio, the
commissions, fees or other remuneration received by such affiliates must be
reasonable and fair compared to the commissions, fees, or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. Furthermore, the Trustees of each Portfolio,
including a majority of the Trustees who are not "interested persons," have
adopted procedures which are reasonably designed to provide that any
commissions, fees, or other remuneration paid to such affiliates are consistent
with the foregoing standard.

Portfolio securities will not be purchased from or through or sold to or
through the Co-Administrator, the Distributor or the Advisor or any other
"affiliated person" (as defined in the 1940 Act) of the Co-Administrator,
Distributor or Advisor when such entities are acting as principals, except to
the extent permitted by law. In addition, the Portfolios will not purchase
securities during the existence of any underwriting group relating thereto of
which the Advisor or an affiliate of the Advisor is a member, except to the
extent permitted by law.

On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of a Portfolio as well as other customers
including other Portfolios, the Advisor to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for a Portfolio with those to be sold or purchased for
other customers in order to obtain best execution, including lower brokerage
commissions if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction will be
made by the Advisor in the manner it considers to be most equitable and
consistent with its fiduciary obligations to a Portfolio. In some instances,
this procedure might adversely affect a Portfolio.

If a Portfolio that writes options effects a closing purchase transaction
with respect to an option written by it, normally such transaction will be
executed by the same broker-dealer who executed the sale of the option. The
writing of options by a Portfolio will be subject to limitations established by
each of the exchanges governing the maximum number of options in each class
which may be written by a single investor or group of investors acting in
concert, regardless of whether the options are written on the same or different
exchanges or are held or written in one or more accounts or through one or more
brokers. The number of options which a Portfolio may write may be affected by
options

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written by the Advisor for other investment advisory clients. An exchange may
order the liquidation of positions found to be in excess of these limits, and it
may impose certain other sanctions.

MASSACHUSETTS TRUST

The Trust is a trust fund of the type commonly known as a "Massachusetts
business trust" of which each Fund is a separate and distinct series. A copy of
the Declaration of Trust for the Trust is on file in the office of the Secretary
of The Commonwealth of Massachusetts. The Declaration of Trust and the By-Laws
of the Trust are designed to make the Trust similar in most respects to a
Massachusetts business corporation. The principal distinction between the two
forms concerns shareholder liability described below.

Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust which is not the case for a corporation. However, the Trust's Declaration
of Trust provides that the shareholders shall not be subject to any personal
liability for the acts or obligations of any Fund and that every written
agreement, obligation, instrument or undertaking made on behalf of any Fund
shall contain a provision to the effect that the shareholders are not personally
liable thereunder.

No personal liability will attach to the shareholders under any undertaking
containing such provision when adequate notice of such provision is given,
except possibly in a few jurisdictions. With respect to all types of claims in
the latter jurisdictions, (i) tort claims, (ii) contract claims where the
provision referred to is omitted from the undertaking, (iii) claims for taxes,
and (iv) certain statutory liabilities in other jurisdictions, a shareholder may
be held personally liable to the extent that claims are not satisfied by the
Fund. However, upon payment of such liability, the shareholder will be entitled
to reimbursement from the general assets of the Fund. The Trustees intend to
conduct the operations of the Trust in such a way so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Funds.

The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of a Fund is liable to a
Fund or to a shareholder, and that no Trustee, officer, employee, or agent is
liable to any third persons in connection with the affairs of a Fund, except as
such liability may arise from his or its own bad faith, willful misfeasance,
gross negligence or reckless disregard of his or its duties to such third
persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of a
Fund. With the exceptions stated, the Trust's Declaration of Trust provides
that a Trustee, officer, employee, or agent is entitled to be indemnified
against all liability in connection with the affairs of a Fund.

The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.

DESCRIPTION OF SHARES

The Trust is an open-end management investment company organized as a
Massachusetts business trust in which each Fund represents a separate series of
shares of beneficial interest. See "Massachusetts Trust."

The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares ($0.001 par value) of one or more series and
classes within any series and to divide or combine the shares (of any series, if
applicable) without changing the proportionate beneficial interest of each

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shareholder in a Fund (or in the assets of other series, if applicable). To
date shares of the fifteen series described in this Statement of Additional
Information have been authorized and are available for sale to the public. Each
share represents an equal proportional interest in a Fund with each other share.
Upon liquidation of a Fund, holders are entitled to share pro rata in the net
assets of a Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of a Fund have no preemptive or conversion rights
and are fully paid and nonassessable. The rights of redemption and exchange are
described in the Prospectus and elsewhere in this Statement of Additional
Information.

The shareholders of the Trust are entitled to a full vote for each full
share held and to a fractional vote for each fractional share. Subject to the
1940 Act, the Trustees themselves have the power to alter the number and the
terms of office of the Trustees, to lengthen their own terms, or to make their
terms of unlimited duration subject to certain removal procedures, and appoint
their own successors, PROVIDED, HOWEVER, that immediately after such appointment
the requisite majority of the Trustees have been elected by the shareholders of
the Trust. The voting rights of shareholders are not cumulative so that holders
of more than 50% of the shares voting can, if they choose, elect all Trustees
being selected while the shareholders of the remaining shares would be unable to
elect any Trustees. It is the intention of the Trust not to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for
action by shareholder vote as may be required by either the 1940 Act or the
Trust's Declaration of Trust.

Shareholders of the Trust have the right, upon the declaration in writing
or vote of more than two-thirds of its outstanding shares, to remove a Trustee.
The Trustees will call a meeting of shareholders to vote on removal of a Trustee
upon the written request of the record holders of 10% of the Trust's shares. In
addition, whenever ten or more shareholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate either shares having a net asset value of at least $25,000 or at least
1% of the Trust's outstanding shares, whichever is less, shall apply to the
Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statements
filed, the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing to
sustain any of them. If the SEC shall enter an order refusing to sustain any of
such objections, or if, after the entry of an order sustaining one or more of
such objections, the SEC shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees

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shall mail copies of such material to all shareholders with reasonable
promptness after the entry of such order and the renewal of such tender.

The Trustees have authorized the issuance and sale to the public of shares
of fifteen series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.

For information relating to mandatory redemption of Fund shares or their
redemption at the option of the Trust under certain circumstances, see
"Redemption of Shares" in the Prospectus.

As of August 31, 1996, the following owned of record or, to the knowledge
of management, beneficially owned more than 5% of the outstanding shares of:

Money Market Fund--Morgan as Agent for Kingsley & Co. Fund Omnibus Account
(7.46%);

Treasury Money Market Fund--Morgan as Agent for Kingsley & Co. Fund Omnibus
Account (12.51%), Morgan as Agent for Market Street Trust Co. Omnibus
Account (7.26%);

Short Term Bond Fund--Edith Chang as Trustee of the Edit Chao Chang
Revocable Trust, 203 Kalia Road, Honolulu, HI 98615-1904 (30.06%), Estate
of A. Marek, 1740 Broadway, New York, NY 10019-4315 (7.83%), Barnett
Newman Foundation, Inc., 1285 Avenue of the Americas, New York, NY
10019-6040 (6.95%), Mary Kate Kennedy, 150 East 84th Street, New York, NY
10028-2033 (5.68%);

Bond Fund--B. Spitzer, 800 Fifth Avenue, Suite 405, New York, NY 10021-7216
(9.06%); Boston & Co., P.O. Box 3198, Pittsburgh, PA 15230-3198
(6.98%);

Tax Exempt Bond Fund--Morgan as Agent for Kingsley & Co. Omnibus Account
(6.59%);

New York Total Return Bond Fund--Manuel Barron, 250 Wireless Boulevard,
Hauppauge, NY 11788-3924 (7.56%), Morgan as Agent for J. Simon (5.61%);

Capital Appreciation--Forest Laboratories, Inc., 909 Third Avenue, New
York, NY 10022-4731 (5.86%);

Emerging Markets Equity--Morgan as Agent for Three M Operating Subsidiaries
Ltd. (6.67%);

<PAGE>

European Equity Fund--Morgan as Agent for E. Boulot and E Boulot (51.18%),
Morgan as Agent for D.J. Fermo and L Fermo (40.56%), H.B. Roberts, Jr.,
P.O. Box 5203, Charlottesville, VA 22905-5203 (5.17%);

Japan Equity Fund--Johol & Co., P.O. Box 995, Baltimore, MD 21297-0253
(68.76%), Jeffrey Lewis, 741 South Bristol Avenue, Los Angeles, CA
90049-4901 (18.92%), Finn Longinotto, 914 President Street, Brooklyn,
NY 11215 (7.29%); and

Asia Growth Fund--Morgan as Agent for R. James and A. James (67.00%),
Morgan as Agent for T.H. McElvain (13.16%), H.B. Roberts, Jr. P.O. Box
5203, Charlottesville, VA 22905-5203 (6.45%), State Street Bank and Trust
for Edward R. Wright Rollover IRA, 6 Biltmore Drive, Green Brook, NJ
08812-2602 (6.10%).

Unless otherwise noted, the address of each owner listed above is c/o
Morgan, 522 Fifth Avenue, New York, New York 10036. As of the date of this
Statement of Additional Information, the officers and Trustees as a group owned
less than 1% of the shares of each Fund.

TAXES

Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, a Fund must, among
other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to loans of stock and securities, gains from the
sale or other disposition of stock, securities or foreign currency and other
income (including but not limited to gains from options, futures, and forward
contracts) derived with respect to its business of investing in such stock,
securities or foreign currency; (b) derive less than 30% of its gross income
from the sale or other disposition of stock, securities, options, futures or
forward contracts (other than options, futures or forward contracts on foreign
currencies) held less than three months, or foreign currencies (or options,
futures or forward contracts on foreign currencies), but only if such currencies
(or options, futures or forward contracts on foreign currencies) are not
directly related to a Fund's principal business of investing in stocks or
securities (or options and futures with respect to stocks or securities); and
(c) diversify its holdings so that, at the end of each fiscal quarter, (i) at
least 50% of the value of the Fund's total assets is represented by cash, U.S.
Government securities,investments in other regulated investment companies and
other securities limited, in respect of any one issuer, to an amount not greater
than 5% of the Fund's total assets, and 10% of the outstanding voting securities
of such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities). As a regulated investment company, a Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gains that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gains in excess of net long-term capital losses for the taxable year is
distributed.

Under the Code, a Fund will be subject to a 4% excise tax on a portion of
its undistributed income if it fails to meet certain distribution requirements
by the end of the calendar year. Each Fund intends to make distributions in a
timely manner and accordingly does not expect to be subject to the excise tax.

For federal income tax purposes, dividends that are declared by a Fund in
October, November or December as of a record date in such month and actually
paid in January of the following year will be treated as if they were paid on
December 31 of the year declared. Therefore, such dividends will generally be
taxable to a shareholder in the year declared rather than the year paid.

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The Tax Exempt Money Market, Tax Exempt Bond and New York Total Return Bond
Funds intend to qualify to pay exempt-interest dividends to their respective
shareholders by having, at the close of each quarter of their respective taxable
years, at least 50% of the value of their respective total assets consist of tax
exempt securities. An exempt-interest dividend is that part of dividend
distributions made by the Funds which consists of interest received by the Funds
on tax exempt securities. Shareholders will not incur any federal income tax on
the amount of exempt-interest dividends received by them from the Funds, other
than the alternative minimum tax under certain circumstances. In view of each
Fund's investment policies, it is expected that a substantial portion of all
dividends will be exempt-interest dividends, although the Funds may from time to
time realize and distribute net short-term capital gains and may invest limited
amounts in taxable securities under certain circumstances. See "Investment
Objective(s) and Policies" in the Prospectus.

Distributions of net investment income and realized net short-term capital
gains in excess of net long-term capital losses (other than exempt interest
dividends) are generally taxable to shareholders of the Funds as ordinary income
whether such distributions are taken in cash or reinvested in additional shares.
The Equity, Capital Appreciation and Diversified Funds expect that a portion of
these distributions to corporate shareholders will be eligible for the
dividends-received deduction. Distributions to corporate shareholders of the
Money Market, Tax Exempt Money Market, Treasury Money Market, Tax Exempt Bond,
New York Total Return Bond, Bond, Short Term Bond, International Equity,
Emerging Markets Equity, European Equity, Japan Equity and Asia Growth Funds are
not eligible for the dividends received deduction. Distributions of net
long-term capital gains (i.e., net long-term capital gains in excess of net
short-term capital losses) are taxable to shareholders of a Fund as long-term
capital gains, regardless of whether such distributions are taken in cash or
reinvested in additional shares and regardless of how long a shareholder has
held shares in the Fund. See "Taxes" in the Prospectus for a discussion of the
federal income tax treatment of any gain or loss realized on the redemption or
exchange of a Fund's shares. Additionally, any loss realized on a redemption or
exchange of shares of a Fund will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30 days before
such disposition, such as pursuant to reinvestment of a dividend in shares of
the Fund.

To maintain a constant $1.00 per share net asset value, the Trustees of the
Money Market, Tax Exempt Money Market and Treasury Money Market Funds may direct
that the number of outstanding shares be reduced pro rata. If this adjustment
is made, it will reflect the lower market value of portfolio securities and not
realized losses. The adjustment may result in a shareholder having more
dividend income than net income in his account for a period. When the number of
outstanding shares of a Fund is reduced, the shareholder's basis in the shares
of the Fund may be adjusted to reflect the difference between taxable income and
net dividends actually distributed. This difference may be realized as a
capital loss when the shares are liquidated. See "Net Asset Value."

Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, a put is acquired or a
call option is written thereon. Other gains or losses on the sale of securities
will be short-term capital gains or losses. Gains and losses on the sale, lapse
or other termination of options on securities will be treated as gains and
losses from the sale of securities. If an option written by a Portfolio lapses
or is terminated through a closing transaction, such as a repurchase by the
Portfolio of the option from its holder, the Portfolio will realize a short-term
capital gain or loss, depending on whether the premium income is greater or less
than the amount paid by the Portfolio in the closing transaction. If securities
are purchased by a Portfolio pursuant to the exercise of a put option written by
it, the Portfolio will subtract the premium received from its cost basis in the
securities purchased.

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Under the Code, gains or losses attributable to disposition of foreign
currency or to certain foreign currency contracts, or to fluctuations in
exchange rates between the time a Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time a
Portfolio actually collects such income or pays such liabilities, are treated as
ordinary income or ordinary loss. Similarly, gains or losses on the disposition
of debt securities held by a Portfolio, if any, denominated in foreign currency,
to the extent attributable to fluctuations in exchange rates between the
acquisition and disposition dates are also treated as ordinary income or loss.

Forward currency contracts, options and futures contracts entered into by a
Portfolio may create "straddles" for U.S. federal income tax purposes and this
may affect the character and timing of gains or losses realized by the Portfolio
on forward currency contracts, options and futures contracts or on the
underlying securities. Straddles may also result in the loss of the holding
period of underlying securities for purposes of the 30% of gross income test
described above, and therefore, a Portfolio's ability to enter into forward
currency contracts, options and futures contracts may be limited.

Certain options, futures and foreign currency contracts held by a Portfolio
at the end of each fiscal year will be required to be "marked to market" for
federal income tax purposes -- i.e., treated as having been sold at market
value. For options and futures contracts, 60% of any gain or loss recognized on
these deemed sales and on actual dispositions will be treated as long-term
capital gain or loss, and the remainder will be treated as short-term capital
gain or loss regardless of how long the Portfolio has held such options or
futures. However, gain or loss recognized on certain foreign currency contracts
will be treated as ordinary income or loss.

The Equity Portfolios may invest in Equity Securities of foreign issuers.
If a Portfolio purchases shares in certain foreign corporations (referred to as
passive foreign investment companies ("PFICs") under the Code), the Portfolio
may be subject to federal income tax on a portion of an "excess distribution"
from such foreign corporation or gain from the disposition of such shares, even
though such income may have to be distributed as a taxable dividend by the Fund
to its shareholders. In addition, certain interest charges may be imposed on a
Fund or its shareholders in respect of unpaid taxes arising from such
distributions or gains. Alternatively, a Fund may each year include in its
income and distribute to shareholders a pro rata portion of the foreign
investment fund's income, whether or not distributed to the Fund.

Pursuant to proposed regulations, open-end regulated investment companies
such as the Portfolios would be entitled to elect to mark to market their stock
in certain PFICs. Marking to market in this context means recognizing as gain
for each taxable year the excess, as of the end of that year, of the fair market
value of each PFIC's stock over the owner's adjusted basis in that stock
(including mark to market gains of a prior year for which an election was in
effect).

FOREIGN SHAREHOLDERS. Dividends of net investment income and distributions
of realized net short-term gains in excess of net long-term losses to a
shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions of net
long term capital gains to foreign shareholders will not be subject to U.S. tax
unless the distributions are effectively connected with the shareholder's trade
or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States

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for more than 182 days during the taxable year and certain other conditions are
met.

In the case of a foreign shareholder who is a nonresident alien individual
and who is not otherwise subject to withholding as described above, a Fund may
be required to withhold U.S. federal income tax at the rate of 31% unless IRS
Form W-8 is provided. Transfers by gift of shares of a Fund by a foreign
shareholder who is a nonresident alien individual will not be subject to U.S.
federal gift tax, but the value of shares of the Fund held by such a shareholder
at his or her death will be includible in his or her gross estate for U.S.
federal estate tax purposes.

FOREIGN TAXES. It is expected that the Equity, Capital Appreciation,
International Equity, Emerging Markets Equity, Diversified, European Equity,
Japan Equity and Asia Growth Funds may be subject to foreign withholding taxes
with respect to income received from sources within foreign countries. In the
case of the International Equity, Emerging Markets Equity, European Equity,
Japan Equity and Asia Growth Funds, so long as more than 50% in value of the
total assets of the Fund's corresponding Portfolio at the close of any taxable
year consists of stock or securities of foreign corporations, the Fund may elect
to treat any foreign income taxes paid by it as paid directly by its
shareholders. These Funds will make such an election only if they deem it to be
in the best interest of their respective shareholders. The Funds will notify
their respective shareholders in writing each year if they make the election and
of the amount of foreign income taxes, if any, to be treated as paid by the
shareholders. If a Fund makes the election, each shareholder will be required
to include in his income his proportionate share of the amount of foreign income
taxes paid by the Fund and will be entitled to claim either a credit (subject to
the limitations discussed below) or, if he itemizes deductions, a deduction for
his share of the foreign income taxes in computing federal income tax liability.
(No deduction will be permitted in computing an individual's alternative minimum
tax liability.) A shareholder who is a nonresident alien individual or a
foreign corporation may be subject to U.S. withholding tax on the income
resulting from the election described in this paragraph, but may not be able to
claim a credit or deduction against such U.S. tax for the foreign taxes treated
as having been paid by such shareholder. A tax-exempt shareholder will not
ordinarily benefit from this election. Shareholders who choose to utilize a
credit (rather than a deduction) for foreign taxes will be subject to the
limitation that the credit may not exceed the shareholder's U.S. tax (determined
without regard to the availability of the credit) attributable to his or her
total foreign source taxable income. For this purpose, the portion of dividends
and distributions paid by each of the International Equity, Emerging Markets
Equity, European Equity, Japan Equity and Asia Growth Funds from its foreign
source net investment income will be treated as foreign source income. Each of
these Funds' gains and losses from the sale of securities will generally be
treated as derived from U.S. sources, however, and certain foreign currency
gains and losses likewise will be treated as derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign source
"passive income," such as the portion of dividends received from the Fund which
qualifies as foreign source income. In addition, the foreign tax credit is
allowed to offset only 90% of the alternative minimum tax imposed on
corporations and individuals. Because of these limitations, shareholders may be
unable to claim a credit for the full amount of their proportionate shares of
the foreign income taxes paid by the International Equity, Emerging Markets
Equity, European Equity, Japan Equity and Asia Growth Funds.

STATE AND LOCAL TAXES. Each Fund may be subject to state or local taxes in
jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of a Fund and its shareholders in those states which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.

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OTHER TAXATION. The Trust is organized as a Massachusetts business trust
and, under current law, neither the Trust nor any Fund is liable for any income
or franchise tax in The Commonwealth of Massachusetts, provided that the Fund
continues to qualify as a regulated investment company under Subchapter M of the
Code. The Portfolios are organized as New York trusts. The Portfolios are not
subject to any federal income taxation or income or franchise tax in the State
of New York or The Commonwealth of Massachusetts. The investment by a Fund in
its corresponding Portfolio does not cause the Fund to be liable for any income
or franchise tax in the State of New York.

ADDITIONAL INFORMATION

As used in this Statement of Additional Information and the Prospectus, the
term "majority of the outstanding voting securities" means the vote of (i) 67%
or more of the Fund's shares or the Portfolio's outstanding voting securities
present at a meeting, if the holders of more than 50% of the Fund's outstanding
shares or the Portfolio's outstanding voting securities are present or
represented by proxy, or (ii) more than 50% of the Fund's outstanding shares or
the Portfolio's outstanding voting securities, whichever is less.

Telephone calls to the Funds, Morgan or Eligible Institutions as
shareholder servicing agent may be tape recorded. With respect to the
securities offered hereby, this Statement of Additional Information and the
Prospectuses do not contain all the information included in the Trust's
Registration Statement filed with the SEC under the 1933 Act and the Trust's and
the Portfolios' Registration Statements filed under the 1940 Act. Pursuant to
the rules and regulations of the SEC, certain portions have been omitted. The
Registration Statements including the exhibits filed therewith may be examined
at the office of the SEC in Washington D.C.

Statements contained in this Statement of Additional Information and the
Prospectuses concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.

No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectuses and this Statement of Additional Information, in connection with
the offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Funds or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by any Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.

FINANCIAL STATEMENTS

The current financial statements of the Funds (excluding the Equity,
Capital Appreciation and Diversified Funds at May 31, May 31 and June 30, 1996,
respectively) and the European Equity, Japan Equity and Asia Growth Portfolios
are incorporated herein by reference from the Funds' and Portfolios' annual
reports and, if applicable, semi-annual reports as filed with the SEC pursuant
to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder. A copy of each
such report will be provided, without charge, to each person receiving this
Statement of Additional Information.

<PAGE>

APPENDIX A
DESCRIPTION OF SECURITY RATINGS

STANDARD & POOR'S

CORPORATE AND MUNICIPAL BONDS

AAA - Debt rated AAA has the highest ratings assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.

AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.

A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.

BB - Debt rated BB is regarded as having less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.

COMMERCIAL PAPER, INCLUDING TAX EXEMPT

A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree of safety.

A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.

SHORT-TERM TAX-EXEMPT NOTES

SP-1 - The short-term tax-exempt note rating of SP-1 is the highest rating
assigned by Standard & Poor's and has a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a "plus" (+) designation.

SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory capacity
to pay principal and interest.

MOODY'S

CORPORATE AND MUNICIPAL BONDS

Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade

A-1
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bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.

A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

COMMERCIAL PAPER, INCLUDING TAX EXEMPT

Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:

- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well established access to a range of financial markets and assured sources of
alternate liquidity.

SHORT-TERM TAX EXEMPT NOTES

MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest rating
assigned by Moody's for notes judged to be the best quality. Notes with this
rating enjoy strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.

MIG-2 - MIG-2 rated notes are of high quality but with margins of protection not
as large as MIG-1.

A-2
<PAGE>

APPENDIX B

ADDITIONAL INFORMATION CONCERNING NEW YORK MUNICIPAL OBLIGATIONS

The following information is a summary of special factors affecting
investments in New York municipal obligations. It does not purport to be a
complete description and is based on information from the supplement (dated
March 20, 1996) to the Annual Information Statement of the State of New York
dated June 23, 1995 and other sources of information.

GENERAL

New York (the "State") is among the most populous states in the nation and
has a relatively high level of personal wealth. The State's economy is diverse
with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location, air
transport facilities and natural harbors have made it an important link in
international commerce. Travel and tourism constitute an important part of the
economy. The State has a declining proportion of its workforce engaged in
manufacturing and an increasing proportion engaged in service industries. This
transition reflects a national trend.

The State has historically been one of the wealthiest states in the nation.
The State economy has grown more slowly than that of the nation as a whole,
resulting in the gradual erosion of its relative economic affluence. Statewide,
urban centers have experienced significant changes involving migration of the
more affluent to the suburbs and an influx of generally less affluent residents.
Regionally, the older northeast cities have suffered because of the relative
success that the South and the West have had in attracting people and business.
New York City (the "City") has also had to face greater competition as other
major cities have developed financial and business capabilities which make them
less dependent on the specialized services traditionally available almost
exclusively in the City.

Although industry and commerce are broadly spread across the State,
particular activities are concentrated in the following areas: Westchester
County -- headquarters for several major corporations; Buffalo -- diverse
manufacturing base; Rochester -- manufacture of photographic and optical
equipment; Syracuse and Utica-Rome area -- production of machinery and
transportation equipment; Albany-Troy-Schenectady -- government and education
center and production of electrical products; Binghampton -- original site of
the International Business Machines Corporation and continued concentration of
employment in computer and other high technology manufacturing; and New York
City -- headquarters for the nation's securities business and for a major
portion of the nation's major commercial banks, diversified financial
institutions and life insurance companies. In addition, the City houses the
home offices of major radio and television broadcasting networks, many national
magazines and a substantial portion of the nation's book publishers. The City
also retains leadership in the design and manufacture of men's and women's
apparel and is traditionally a tourist destination.

ECONOMIC OUTLOOK

The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the federal government, that
are not under the control of the State. The state financial plan is based upon
forecasts of national and State economic activity. Economic forecasts have at
times failed to predict precisely the timing and magnitude of changes in the

B-1
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national and the State economies. Many uncertainties exist in forecasts of both
the national and State economies, including consumer attitudes toward spending,
the extent of corporate and governmental restructuring, federal financial and
monetary policies, the availability of credit, the level of interest rates, and
the condition of the world economy. All these could have an adverse effect on
the State. There can be no assurance that the State's economy will not
experience financial results in the current fiscal year that are worse than
predicted, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.

The national economy achieved the desired "soft landing" in 1995, as growth
slowed from 6.2 percent in 1994 to a rate sufficiently slow to inhibit the
build-up of inflationary pressures. This was achieved without any material
pause in the economic expansion, although recession worries flared in the late
spring and early summer. Growth in the national economy is expected to moderate
during 1996, with the nation's gross domestic product projected to expand by 4.6
percent in 1996 versus 5.0 percent in 1995. Declining short-term interest
rates, slowing employment growth and continued moderate inflation also
characterize the projected path for the nation's economy in the year ahead.

The annual growth rates of most economic indicators for the State improved
from 1994 to 1995, as the pace of private sector employment expansion and
personal income and wage growth all accelerated. Government employment fell as
workforce reductions were implemented at federal, state and local levels.
Similar to the nation, some moderation of growth is expected in the year ahead.
Private sector employment is expected to continue to rise, although somewhat
more slowly than in 1995, while public employment should continue to fall,
reflecting government budget cutbacks. Anticipated continued restraint in wage
settlements, a lower rate of employment growth and falling interest rates are
expected to slow personal income growth significantly.

The State has for many years had a very high State and local tax burden
relative to other states. The State and its localities have used these taxes to
develop and maintain their transportation networks, public schools and colleges,
public health systems, other social services and recreational facilities.
Despite these benefits, the burden of State and local taxation, in combination
with the many other causes of regional economic dislocation, may have
contributed to the decisions of some businesses and individuals to relocate
outside, or not locate within, the State.

To stimulate the State's economic growth, the State has developed programs,
including the provision of direct financial assistance, designed to assist
businesses to expand existing operations located within the State and to attract
new businesses to the State. Local industrial development agencies raised an
aggregate of approximately $7.8 billion in separate tax-exempt bond issues
through December 31, 1993. There are currently over 100 county, city, town and
village agencies. In addition, the New York State Urban Development Corporation
is empowered to issue, subject to certain State constitutional restrictions and
to approval by the Public Authorities Control Board, bonds and notes on behalf
of private corporations for economic development projects. The State has also
taken advantage of changes in federal bank regulations to establish a free
international banking zone in the City.

In addition, the State has provided various tax incentives to encourage
business relocation and expansion. These programs include direct tax abatements
from local property taxes for new facilities (subject to locality approval) and
investment tax credits that are applied against the State corporation franchise
tax. Furthermore, legislation passed in 1986 authorizes the creation of up to
40 "economic development zones" in economically distressed regions of the State.
Businesses in these zones are provided a variety of tax and other incentives to
create jobs and make investments in the zones.

B-2
<PAGE>

The executive budget contains comparatively few tax initiatives. However,
the Governor has set aside $50 million to finance a program of additional tax
cuts designed to spur private sector job creation in the State. The Governor
intends to work jointly with the business community and the legislature to
determine the elements of the program. For financial plan purposes, the
$50 million is shown as a charge against the personal income tax, implemented
through a deposit to the refund reserve. Additional tax reductions were called
for by the Governor in his annual message to the legislature of January 3, 1996,
but no specific implementation plans have been announced.

STATE FINANCIAL PLAN

The State Constitution requires the Governor to submit to the legislature a
balanced executive budget which contains a complete plan of expenditures (the
"State Financial Plan") for the ensuing fiscal year and all moneys and revenues
estimated to be available therefor, accompanied by bills containing all proposed
appropriations or reappropriations and any new or modified revenue measures to
be enacted in connection with the executive budget. A final budget must be
approved before the statutory deadline of April 1. The State Financial Plan is
updated quarterly pursuant to law.

The State's fiscal year, which commenced on April 1, 1996, and ends on
March 31, 1997, is referred to herein as the State's 1996-97 fiscal year.

The State revised the cash-basis 1995-96 State Financial Plan on
December 15, 1995, in conjunction with the release of the executive budget for
the 1996-97 fiscal year.

The 1995-96 General Fund Financial Plan continues to be balanced, with
reductions in projected receipts offset by an equivalent reduction in projected
disbursements. Modest changes were made to the mid-year update, reflecting two
more months of actual results, deficiency requests by State agencies (the
largest of which is for school aid resulting from revisions to data submitted by
school districts), and administrative efficiencies achieved by State agencies.
Total General Fund receipts are expected to be approximately $73 million lower
than estimated at the time of the mid-year update. Tax receipts are now
projected to be $29.57 billion, $8 million less than in the earlier plan.
Miscellaneous receipts and transfers from other funds are estimated at
$3.15 billion, $65 million lower than in the mid-year update. The largest
single change in these estimates is attributable to the lag in achieving
$50 million in proceeds from sales of State assets, which are unlikely to be
completed prior to the end of the fiscal year.

Projected General Fund disbursements are reduced by a total of $73 million,
with changes made in most major categories of the 1995-96 State Financial Plan.
The reduction in overall spending masks the impact of deficiency requests
totaling more than $140 million, primarily for school aid and tuition assistance
to college students. Offsetting reductions in spending are attributable to the
continued maintenance of strict controls on spending through the fiscal year by
State agencies, yielding savings of $50 million. Reductions of $49 million in
support for capital projects reflect a stringent review of all capital spending.
Reductions of $30 million in debt service costs reflect savings from refundings
undertaken in the current fiscal year, as well as savings from lower interest
rates in the financial market. Finally, the 1995-96 Financial Plan reflects
reestimates based on actual results through November, the largest of which is a
reduction of $70 million in projected costs for income maintenance. This
reduction is consistent with declining caseload projections.

The balance in the General Fund at the close of the 1995-96 fiscal year is
expected to be $172 million, entirely attributable to monies in the Tax
Stabilization Reserve Fund following the required $15 million payment into that
Fund. A $40 million deposit to the Contingency Reserve Fund included as part of

B-3
<PAGE>

the enacted 1995-96 budget will not be made, and the minor balance of $1 million
currently in the Fund will be transferred to the General Fund. These
Contingency Reserve Fund monies are expected to support payments from the
General Fund for litigation related to the State's Medicaid program, and for
federal disallowances.

Changes in federal aid programs currently pending in Congress are not
expected to have a material impact on the State's 1995-96 Financial Plan,
although prolonged interruptions in the receipt of federal grants could create
adverse developments, the scope of which cannot be estimated at this time. The
major remaining uncertainties in the 1995-96 State Financial Plan continue to be
those related to the economy and tax collections, which could produce either
favorable or unfavorable variances during the balance of the year.

The Governor presented his 1996-97 executive budget to the legislature on
December 15, 1995, one month before the legal deadline. The executive budget
also contains financial projections for the State's 1997-98 and 1998-99 fiscal
years and an updated Capital Plan. As provided by the State Constitution, the
Governor submitted amendments to his 1996-97 executive budget within 30 days
following submission. Those amendments are reflected in the discussion of the
1996-97 executive budget contained herein. There can be no assurance that the
legislature will enact the executive budget as proposed by the Governor into
law, or that the State's adopted budget projections will not differ materially
and adversely from the projections.

The 1996-97 Financial Plan projects balance on a cash basis in the General
Fund. It reflects a continuing strategy of substantially reduced State
spending, including program restructuring, reductions in social welfare
spending, and efficiency and productivity initiatives. Total General Fund
receipts and transfers from other funds are projected to be $31.32 billion, a
decrease of $1.4 billion from total receipts projected in the current fiscal
year. Total General Fund disbursements and transfers to other funds are
projected to be $31.22 billion, a decrease of $l.5 billion from spending totals
projected for the current fiscal year. After adjustments and transfers for
comparability between the 1995-96 and 1996-97 State Financial Plans, the
executive budget proposes an absolute year-to-year decline in General Fund
spending of 5.8 percent. Spending from all funding sources (including federal
aid) is proposed to increase by 0.4 percent from the prior fiscal year after
adjustments and transfers for comparability.

The executive budget proposes $3.9 billion in actions to balance the
1996-97 Financial Plan. Before reflecting any actions proposed by the Governor
to restrain spending, General Fund disbursements for 1996-97 were projected at
$35 billion, an increase of $2.3 billion or 7 percent from 1995-96. This
increase would have resulted from growth in Medicaid, inflationary increases in
school aid, higher fixed costs such as pensions and debt service, collective
bargaining agreements, inflation, and the loss of non-recurring resources that
offset spending in 1995-96. Receipts would have been expected to fall by
$l.6 billion. This reduction would have been attributable to modest growth in
the State's economy and underlying tax base, the loss of non-recurring revenues
available in 1995-96 and implementation of previously enacted tax reduction
programs.

The executive budget proposes to close this gap primarily through a series
of spending reductions and cost containment measures. The executive budget
projects (i) over $1.8 billion in savings from cost containment and other
actions in social welfare programs, including Medicaid, welfare and various
health and mental health programs; (ii) $1.3 billion in savings from a reduced
State General Fund share of Medicaid made available from anticipated changes in
the federal Medicaid program, including an increase in the federal share of
Medicaid; (iii) over $450 million in savings from reforms and cost avoidance in
educational services (including school aid and higher education), while
providing fiscal

B-4
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relief from certain State mandates that increase local spending; and (iv)
$350 million in savings from efficiencies and reductions in other State
programs. The assumption regarding an increased share of federal Medicaid
funding has received bipartisan congressional support and would benefit the
State and 31 other states.

The 1996-97 Financial Plan projects receipts of $31.32 billion and spending
of $31.22 billion, allowing for a deposit of $85 million to the Contingency
Reserve Fund and a required repayment of $15 million to the Tax Stabilization
Reserve Fund. Detailed explanations of the 1996-97 Financial Plan follow a
discussion of the economic outlook.

The Governor has submitted several amendments to the executive budget.
These amendments have a nominal impact on the State's Financial Plan for 1996-97
and the subsequent years. The net impact of the amendments leaves unchanged the
total estimated amount of General Fund spending in 1996-97, which continues to
be projected at $31.22 billion. All funds spending in 1996-97 is increased by
$68 million, primarily reflecting adjustments to projections of federal funds,
and now totals $63.87 billion.

The budget amendments advanced by the Governor involving largely technical
revisions, with General Fund spending increases fully offset by spending
decreases. Reductions in estimated 1996-97 disbursements are recommended
primarily for welfare (associated with updated projections showing a declining
caseload) and debt service (reflecting lower interest rates and recent bond
sales). Disbursement increases are projected for snow and ice control, the AIDS
Institute, Health Department utilization review programs and other items.
Estimated disbursements for other funds are increased to accommodate updated
projections of federal funding in certain categorical grant programs and reduced
for welfare as noted for the General Fund.

GOVERNMENT FUNDS

The four governmental fund types that comprise the State Financial Plan are
the General Fund, the Special Revenue Funds, the Capital Projects Funds, and the
Debt Service Funds.

GENERAL FUND RECEIPTS

The 1996-97 Financial Plan projects General Fund receipts (including
transfers from other funds) of $31.32 billion, a decrease of $1.40 billion from
the 1995-96 projected level. Measured against 1995-96 levels that have been
adjusted for purposes of comparability, the decline is $1.83 billion or
5.5 percent. These 1995-96 comparability adjustments include adding back
personal income tax collections that were not recognized in 1995-96 as a result
of Local Government Assistance Corporation ("LGAC")-related transactions in that
year, and the addition of special revenue funds moved in the executive budget to
the General Fund. The estimate of taxes for 1996-97 reflects overall growth in
the yield of the tax structures (when adjusted for tax law and administrative
changes) of slightly less than 3.5 percent, reflecting a slower growing economy
and continued moderate inflation. The effects of this growth are offset by the
impact of previously enacted tax reductions. The value of these tax reductions
is currently estimated to be approximately $500 million in 1994-95, nearly
$1.5 billion in 1995-96 and over $3.7 billion in 1996-97.

Personal income tax collections for 1996-97 are now expected to be
$16.05 billion, a decline of nearly $827 million from the projected 1995-96
level. These estimates reflect growth in "constant law" liability of about
4.5 percent in 1996, down from an estimated 6.5 percent growth in 1995. This
increase is more than offset by personal income tax reductions already in law,
which are estimated to produce taxpayer savings in 1996-97 of almost
$2.5 billion, or $1.8 billion more than in the current year.

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User tax and fee receipts are projected at $6.7 billion in 1996-97, up
$48 million from 1995-96 projected levels. Total collections in this category
are dominated by the State sales and use tax, which accounts for 75 percent of
total receipts in the category. The moderate economic expansion experienced
this year and anticipated for next year produces estimated growth in the yield
of the sales and use tax of 3.2 percent in 1995-96 and 3.3 percent in 1996-97.

Total business taxes are now projected at $4.55 billion in 1996-97. While
"constant-law" liability growth is anticipated to continue in 1996-97, the
effect of additional tax reductions taking effect in 1996 will lead to a
year-to-year decline between 1996-96 and 1996-97 of $441 million. These
business tax reductions, which are estimated to depress receipts by over
$600 million in the current year, will grow to nearly $l.0 billion in 1996-97.

Other tax receipts are now projected at $1.01 billion, down $51 million
from the 1995-96 projected level. The decline in receipts in this category
reflects the effects of tax reductions enacted in the last two years as well as
the earmarking of a portion of the real estate transfer tax to the Environmental
Protection Fund. Tax cuts in this category, largely in the real property gains
tax and the estate tax, are estimated at $32 million in 1994-95, $67 million in
1995-96 and $115 million in 1996-97.

Miscellaneous receipts, which include license revenues, fee and fine
income, investment income and abandoned property proceeds, as well as the
proceeds of the largest share of the State's medical provider assessment and
various one-time transactions, are now estimated to total $1.41 billion in
1996-97. This represents a decline of $119 million from 1995-96 projected
levels. Transfers from other funds consist primarily of sales tax revenues in
excess of debt service requirements used to support debt service payments to
LGAC. Projected amounts in this category for 1996-97 total $1.61 billion, a
decline of $8 million from 1995-96 levels.

DISBURSEMENTS

The 1996-97 Financial Plan projects General Fund disbursements of
$31.22 billion. Projected spending decreases $1.48 billion, or 4.5 percent,
from the estimated current year. After adjustments to 1995-96 levels for
purposes of comparability, the decline is $l.91 billion or 5.8 percent. These
comparability adjustments are composed of two major actions. The first
eliminates the impact of LGAC financings, which depressed General Fund spending
in 1995-96 by $271 million. The second adjustment adds $159 million in
projected 1995-96 spending currently budgeted in Special Revenue Funds, but
recommended as part of the General Fund in the 1996-97 budget.

Support for local governments is projected to decrease $1.7 billion,
primarily reflecting decreased support for social programs. General Fund
support for Medicaid is projected to be $1.65 billion lower than 1995-96, as a
result of both new cost containment proposals and the anticipated use of
$1.3 billion in federal Medicaid revenues that would become available assuming
enactment of proposed federal changes in this program. This proposed offset to
the State share of Medicaid would require the implementation of a federal block
grant for Medicaid and an increase in the federal share of Medicaid from 50
percent to 60 percent. Welfare costs also decline ($164 million), reflecting
projected caseload declines, time limits on benefits, reductions in benefits,
and continuation of workfare and anti-fraud initiatives begun in 1995-96.

General Fund support for education programs would increase by $188 million.
However, this increase results from changes in the school aid payment schedule,
and the payment in 1995-96 of a portion of school aid from LGAC bond proceeds.
School aid is expected to increase $26 million on a school year basis. Support
for both State University (SUNY) and City University (CUNY) would decline, and
the State's tuition assistance program would be reduced to achieve savings.

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Support for State agency operations would decline to $6.0 billion in
1996-97 including transfers to support SUNY operations. Annual decreases for
agencies range widely from as low as 0.3 percent to as high as 25 percent. This
decline reflects the reductions to the State's workforce. The executive budget
recommends reductions of approximately 7,400 positions, undertaken primarily
through attrition and other actions. Assuming these reductions are implemented,
the State's workforce will have declined by more than 20,000 positions between
January 1995 and the end of the 1996-97 fiscal year.

General State charges are projected to total $2.32 billion in 1996-97, an
increase of $252 million from 1995-96 projected levels. Pension costs are
expected to increase by $177 million in 1996-97, primarily as a result of the
return of the New York State and Local Retirement System from the projected unit
credit actuarial method to the aggregate cost actuarial method. Health
insurance costs are projected to increase 6 percent for calendar years 1996 and
1997. Workers' compensation costs are projected to grow by 4.5 percent.

General Fund debt service includes short-term obligations of the State's
commercial paper program and debt service on its long-term bonds, which are
reflected as transfers to the General Debt Service Fund. Projected short-term
debt service costs are expected to be $12 million for 1996-97. Transfers in
support of debt service are projected to grow by 5.5 percent to $1.62 billion in
1996-97, as the State continues to use bonds to support its capital projects.
However, the rate of increase in debt service has slowed considerably from the
pace of the previous decade. In 1996-97, bonds are expected to support
44 percent of the State's capital project disbursements, compared to 48 percent
in 1995-96. The $172 million transfer to the Capital Projects Fund in 1996-97
has been reduced by $154 million from projected levels for 1995-96, reflecting
project eliminations and the deposit of funds released as a result of a
refunding of certain Housing Finance Agency bonds supported by State
appropriations. General Fund support for the operations of SUNY is proposed for
transfer into a single unified fund for all SUNY operations.

NON-RECURRING RESOURCES

The Division of the Budget estimates that the 1996-97 Financial Plan
includes approximately $123 million in non-recurring resources, comprising
0.4 percent of the General Fund budget--a decrease of almost 86 percent from
last year's level. These include $47 million in various Medicaid actions,
$40 million from a refunding of Housing Finance Agency bonds, $19 million in
recoupment of payments to providers in health and mental health, and $17 million
in revenue transfers. These non-recurring savings are almost entirely offset by
non-recurring costs within the 1996-97 budget. In addition, the recommendations
included in the executive budget are expected to provide fully annualized
savings in 1997-98 which more than offset the non-recurring resources used in
1996-97.

GENERAL FUND CLOSING FUND BALANCE

The 1996-97 closing fund balance in the General Fund is projected to be
$272 million. The required deposit to the Tax Stabilization Reserve Fund adds
$15 million to the 1995-96 balance of $172 million in that fund, bringing the
total to $187 million at the close of 1996-97. The retraining General Fund
balance reflects the deposit of $85 million to the Contingency Reserve Fund, to
provide resources to finance potential costs associated with litigation against
the State. This deposit is expected to be made pursuant to legislation
submitted with the executive budget which will require the State share of
certain non-recurring federal recoveries to be deposited to the Contingency
Reserve Fund.

SPECIAL REVENUE FUNDS

For 1996-97, the Financial Plan projects disbursements of $28.93 billion
from Special Revenue Funds. This includes $7.65 billion from Special Revenue

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Funds containing State revenues, and $21.28 billion from funds containing
federal grants, primarily for social welfare programs.

The 1996-97 executive budget recommends that all of the SUNY's revenues be
consolidated in a single fund, permitting SUNY more flexibility and control in
the use of its revenues. As a result of this proposal, General Fund support
would be transferred to this fund, rather than spent directly from the General
Fund. SUNY's spending from this fund is projected to total $2.55 billion in
1996-97. The Mass Transportation Operating Assistance Fund and the Dedicated
Mass Transportation Trust Fund, which receive taxes earmarked for mass
transportation programs throughout the State, are projected to have total
disbursements of $1.23 billion in 1996-97. Disbursements also include
$1.63 billion in lottery proceeds which, after payment of administrative
expenses, permit the distribution of $1.43 billion for education purposes. One
hundred million dollars of lottery proceeds will be reserved in a separate
account for a local school tax reduction program to be agreed upon by the
Governor and the legislature for disbursement in State fiscal year 1997-98.
Disbursements of $650 million in 1996-97 from the Disproportionate Share
Medicaid Assistance Fund constitutes most of the remaining estimated State
Special Revenue Funds disbursements.

Federal special revenue fund projections for 1996-97 were developed in the
midst of considerable uncertainty as to the ultimate composition of the federal
budget, including uncertainties regarding major federal entitlement reforms.
Disbursements are estimated at $21.27 billion in 1996-97, an increase of
$2.02 billion, or 10.5 percent from 1995-96. The projections included in the
1996-97 State Financial Plan assume that the federal Medicaid program will be
reformed generally along the lines of the congressional MediGrant program. This
would include an increase from 50 percent to 60 percent in the federal share of
New York's Medicaid expenses. A repeal of the federal Boren amendment regarding
provider rates is also anticipated. As a result of these changes, the executive
budget projects the receipt of $13.1 billion in total federal Medicaid
reimbursements in 1996-97, an increase of approximately $915 million from the
1995-96 level.

The second largest projected increase in federal reimbursement is for the
State's welfare program. The State is projected to receive $2.5 billion, up
$421 million from 1995-96 levels, primarily because of increased funding
anticipated from the proposed federal welfare block grant. All other federal
spending is projected at $5.7 billion for 1996-97, an increase of $626 million.

CAPITAL PROJECTS FUNDS

Disbursements from the Capital Projects funds in 1996-97 are estimated at
$3.76 billion. This estimate is $332 million less than the 1995-96 projections.
The spending reductions are the result of program restructuring, achieved in
1995-96 and continued in the 1996-97 Financial Plan. The spending plan
includes:

$2.5 billion in disbursements for the second year of the five-year
$12.6 billion state and local highway and bridge program;

Environmental Protection Fund spending of $106.5 million;

Correctional services spending of $153 million; and

SUNY and CUNY capital spending of $196 million and $87 million,
respectively.

The share of capital projects to be financed by "pay-as-you-go" resources
is projected to hold steady in 1996-97 at approximately 27 percent.
State-supported bond issuances finance 44 percent of capital projects, with
federal grants financing the remaining 29 percent.

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DEBT SERVICE FUNDS

Disbursements from Debt Service Funds are estimated at $2.64 billion in
1996-97, an increase of $206 million or 9 percent from 1995-96. Of this
increase, $85 million is attributable to transportation bonding for the state
and local highway and bridge programs which are financed by the Dedicated
Highway and Bridge Trust Fund, $35 million is for corrections including new debt
service on prisons recently purchased from New York City, and $27 million is for
the mental hygiene programs financed through the Mental Health Services Fund.
Debt service for LGAC bonds increases only slightly after years of significant
increases, as the new-money bond issuance portion of the LGAC program was
completed in state fiscal year 1995-96. Increased debt service costs primarily
reflect prior capital commitments financed by bonds issued by the state and its
public authorities, the reduced use of capitalized interest, and the use of
shorter term bonds, such as the 10 year average maturity for the Dedicated
Highway and Bridge Trust Fund bonds.

CASH FLOW

In State fiscal year 1996-97, the General Fund cash flow will not depend on
either short-term spring borrowing or the issuance of LGAC bonds. The new-money
bond issuance portion of the LGAC program was completed in 1995-96, and
provisions prohibiting the state from returning to a reliance upon cash flow
manipulation to balance its budget will remain in bond covenants until the LGAC
bonds are retired.

The 1996-97 cash flow projects substantial closing balances in each quarter
of the fiscal year, with excesses in receipts over disbursements for the first
three quarters until the last quarter of the fiscal year when local assistance
payments (primarily for school aid) drive a deficiency. The closing fund
balance is projected at $272 million. The cash flow projections assume
continuation of legislation enacted in 1995-96 that permits the state to use
balances in the Lottery Fund for cash flow purposes. These temporary transfers
are returned during the second quarter of the fiscal year so that all lottery
monies and advances of additional aid can be paid to school districts in
September.

OUTYEAR PROJECTIONS OF RECEIPTS AND DISBURSEMENTS

The 1996-97 executive budget includes actions that would have an impact on
receipts and disbursements in future fiscal years. The Governor has proposed
closing the 1996-97 budget gap primarily through expenditure reductions and
without increases in taxes or deferrals of scheduled tax reductions. After
accounting for proposed changes to the executive budget submitted during the
30-day amendment period, the net impact of these actions is expected to produce
a potential imbalance in the 1997-98 fiscal year of $l.44 billion and in the
1998-99 fiscal year of $2.46 billion, assuming implementation of the 1996-97
executive budget recommendations. For 1997-98, receipts are estimated at
$30.62 billion and disbursements at $32.05 billion. For 1998-99, receipts are
estimated at $31.85 billion and disbursements at $34.32 billion.

The outyear receipts estimates assume implementation of current law tax
reductions and the impact of the recommendations affecting receipts proposed in
the executive budget, including new tax relief. Tax reductions proposed by the
Governor in his annual message to the legislature of January 3, 1996 are not
included in these estimates. Already enacted tax reductions, which are estimated
to total more than $3.7 billion in 1996-97, rise to approximately $5.6 billion
in 1997-98 and approximately $6.0 billion in the following year. Tax reductions
recommended in the executive budget have a fully annualized cost of $75 million.
The economic scenario assumes steady, moderate growth in the national economy
through the period. Underlying "constant law" growth in receipts approximates 4
percent in 1997-98 and 4.5 percent in 1998-99. No extraordinary one-time
receipts

B-9
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are anticipated at this time. In addition, the projections assume a continuation
of federal tax law in effect as of year end 1995.

Outyear projections of spending, absent the impact of recommendations in
the executive budget and future executive and legislative action, would grow by
3.0 and 3.5 percent in 1997-98 and 1998-99, respectively. Spending growth is
fueled mainly by Medicaid costs. The outyear value of the recommendations
contained in the executive budget grow steadily over the next two years,
moderating the outyear growth. Projected disbursements for 1997-98 grow by only
2.7 percent, with restrained growth in all categories of the State Financial
Plan. However, in 1998-99, the increased diversion of lottery proceeds to fund
school tax relief combines with an extra payroll and Medicaid cycle to drive
growth in disbursements of just over 7 percent.

Reduced bond issuances in 1996-97 will help hold down future debt service
growth. State-supported debt is projected to grow at 3.7 percent average annual
rate over the next five years. Outstanding debt as a percentage of personal
income is projected to decline to under 6 percent over this same period.

PRIOR FISCAL YEARS

New York State's financial operations have improved during recent fiscal
years. During the period 1989-90 through 1991-92, the State incurred General
Fund operating deficits that were closed with receipts from the issuance of tax
and revenue anticipation notes ("TRANs"). First, the national recession, and
then the lingering economic slowdown in the New York and regional economy,
resulted in repeated shortfalls in receipts and three budget deficits. Through
fiscal year 1995, the State recorded balanced budgets on a cash basis, with
substantial fund balances in each year as described below.

1994-95 FISCAL YEAR

New York State ended its 1994-95 fiscal year with the General Fund in
balance. The closing fund balance of $158 million reflects $157 million in the
Tax Stabilization Reserve Fund and $1 million in the Contingency Reserve Fund
("CRF"). The CRF was established in State Fiscal year 1993-94, funded partly
with surplus moneys, to assist the State in financing the 1994-95 fiscal year
costs of extraordinary litigation known or anticipated at that time; the opening
fund balance in State fiscal year 1994-95 was $265 million. The $241 million
change in the fund balance reflects the use of $264 million in the CRF as
planned, as well as the required deposit of $23 million to the Tax Stabilization
Reserve Fund. In addition, $278 million was on deposit in the tax refund reserve
account, $250 million of which was deposited at the end of the State's 1994-95
fiscal year to continue the process of restructuring the State's cash flow as
part of the LGAC program.

Compared to the State Financial Plan for 1994-95 as formulated on June 16,
1994, reported receipts fell short of original projections by $1.163 billion,
primarily in the categories of personal income and business taxes. Of this
amount, the personal income tax accounts for $800 million, reflecting weak
estimated tax collections and lower withholding due to reduced wage and salary
growth, more severe reductions in brokerage industry bonuses than projected
earlier, and deferral of capital gains realizations in anticipation of potential
federal tax changes. Business taxes fell short by $373 million, primarily
reflecting lower payments from banks as substantial overpayments of 1993
liability depressed net collections in the 1994-95 fiscal year. These shortfalls
were offset by better performance in the remaining taxes, particularly the user
taxes and fees, which exceeded projections by $210 million. Of this amount
$227 million was attributable to certain restatements for accounting treatment
purposes pertaining to the CRF and LGAC; these restatements had no impact on
balance in the General Fund.

B-10
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Disbursements were also reduced from original projections by $848 million.
After adjusting for the net impact of restatements relating to the CRF and LGAC
which raised disbursements by $38 million, the variance is $886 million. Well
over two-thirds of this variance is in the category of grants to local
governments, primarily reflecting the conservative nature of the original
estimates of projected costs for social services and other programs. Lower
education costs are attributable to the availability of $110 million in
additional lottery proceeds and the use of LGAC bond proceeds.

The spending reductions also reflect $188 million in actions initiated in
January 1995 by the Governor to reduce spending to avert a potential gap in the
1994-95 State Financial Plan. These actions included savings from a hiring
freeze, halting the development of certain services, and the suspension of
non-essential capital projects. These actions, together with $71 million in
other measures comprised the Governor's $259 million gap-closing plan, submitted
to the legislature in connection with the 1995-96 executive budget.

1993-94 FISCAL YEAR

The State ended its 1993-94 fiscal year with a balance of $1.140 billion in
the tax refund reserve account, $265 million in the CRF and $134 million in its
Tax Stabilization Reserve Fund. These fund balances were primarily the result of
an improving national economy, State employment growth, tax collections that
exceeded earlier projections and disbursements that were below expectations.
Deposits to the personal income tax refund reserve have the effect of reducing
reported personal income tax receipts in the fiscal year when made and
withdrawals from such reserve increase receipts in the fiscal year when made.
The balance in the tax refund reserve account was used to pay taxpayer refunds.

Of the $1.140 billion deposited in the tax refund reserve account,
$1.026 billion was available for budgetary planning purposes in the 1994-95
fiscal year. The remaining $114 million was redeposited in the tax refund
reserve account at the end of the State's 1994-95 fiscal year to continue the
process of restructuring the State's cash flow as part of the LGAC program. The
balance in the CRF was reserved to meet the cost of litigation facing the State
in its 1994-95 fiscal year.

Before the deposit of $1.140 billion in the tax refund reserve account,
General Fund receipts in 1993-94 exceeded those originally projected when the
State Financial Plan for that year was formulated on April 16, 1993 by
$1.002 billion. Greater-than-expected receipts in the personal income tax, the
bank tax, the corporation franchise tax and the estate tax accounted for most of
this variance, and more than offset weaker-than-projected collections from the
sales and use tax and miscellaneous receipts. Collections from individual taxes
were affected by various factors including changes in federal business laws,
sustained profitability of banks, strong performance of securities firms, and
higher-than-expected consumption of tobacco products following price cuts.

The higher receipts resulted, in part, because the New York economy
performed better than forecasted. Employment growth started in the first quarter
of the State's 1993-94 fiscal year, and, although this lagged behind the
national economic recovery, the growth in New York began earlier than
forecasted. The New York economy exhibited signs of strength in the service
sector, in construction, and in trade. Long Island and the Mid-Hudson Valley
continued to lag behind the rest of the State in economic growth. The State
Division of the Budget believes that approximately 100,000 jobs were added
during the 1993-94 fiscal year.

Disbursements and transfers from the General Fund were $303 million below
the level projected in April 1993, an amount that would have been $423 million
had the State not accelerated the payment of Medicaid billings, which in the
April 1993 State Financial Plan were planned to be deferred into the 1994-95
fiscal year. Compared to the estimates included in the State Financial Plan

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formulated in April 1993, lower disbursements resulted from lower spending for
Medicaid, capital projects, and debt service (due to refundings) and
$114 million used to restructure the State's cash flow as part of the LGAC
program. Disbursements were higher than expected for general support for public
schools, the State share of income maintenance, overtime for prison guards, and
highway snow and ice removal. The State also made the first of six required
payments to the State of Delaware related to the settlement of Delaware's
litigation against the State regarding the disposition of abandoned property
receipts.

During the 1993-94 fiscal year, the State also established and funded the
CRF as a way to assist the State in financing the cost of litigation affecting
the State. The CRF was initially funded with a transfer of $100 million
attributable to the positive margin recorded in the 1992-93 fiscal year. In
addition, the State augmented this initial deposit with $132 million in debt
service savings attributable to the refinancing of State and public authority
bonds during 1993-94. A year-end transfer of $36 million was also made to the
CRF, which, after a disbursement for authorized fund purposes, brought the CRF
balance at the end of 1993-94 to $265 million. This amount was $165 million
higher than the amount originally targeted for this reserve fund.

1992-93 FISCAL YEAR

The State ended its 1992-93 fiscal year with a balance of $671 million in
the tax refund reserve account and $67 million in the Tax Stabilization Reserve
Fund.

The State's 1992-93 fiscal year was characterized by performance that was
better than projected for the national and regional economies. National gross
domestic product, State personal income, and State employment and unemployment
performed better than originally projected in April 1992. This favorable
economic performance, particularly at year end, combined with a tax-induced
acceleration of income into 1992, was the primary cause of the General Fund
surplus. Personal income tax collections were more than $700 million higher than
originally projected (before reflecting the tax refund reserve account
transaction), primarily in the withholding and estimated payment components of
the tax.

There were large, but mainly offsetting, variances in other categories of
receipts. Significantly higher-than-projected business tax collections and the
receipt of unbudgeted payments from the Medical Malpractice Insurance
Association ("MMIA") and the New York Racing Association approximately offset
the loss of an anticipated $200 million federal reimbursement, the loss of
certain budgeted hospital differential revenue as a result of unfavorable court
decisions, and shortfalls in certain miscellaneous revenues.

Disbursements and transfers to other funds were $45 million above
projections in April 1992, although this includes a $150 million payment to
health insurers (financed with a receipt from the MMIA made pursuant to
legislation passed in January 1993). All other disbursements were $105 million
lower than projected. This reduction primarily reflected lower costs in
virtually all categories of spending, including Medicaid, local health programs,
agency operations, fringe benefits, capital projects and debt service as
partially offset by higher-than-anticipated costs for education programs.

CERTAIN LITIGATION

The legal proceedings noted below involve State finances, State programs
and miscellaneous tort, real property and contract claims in which the State is
a defendant and the monetary damages sought are substantial. These proceedings
could affect adversely the financial condition of the State in the 1995-96
fiscal year or thereafter. The State will describe newly initiated proceedings.

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Among the more significant of these cases are those that involve: (i) the
validity of agreements and treaties by which various Indian tribes transferred
to New York title to certain land in New York; (ii) certain aspects of New
York's Medicaid rates and regulations, including reimbursements to providers of
mandatory and optional Medicaid services, and the eligibility for and nature of
home care services; (iii) challenges to provisions of Section 2807-C of the
Public Health Law, which impose a 13% surcharge on inpatient hospital bills paid
by commercial insurers and employee welfare benefit plans and portions of
Chapter 55 of the laws of 1992, which require hospitals to impose and remit to
the State an 11% surcharge on hospital bills paid by commercial insurers and
which require health maintenance organizations to remit to the State a surcharge
of up to 9%; (iv) two cases challenge provisions of Section 2807-c of the Public
Health Law, which impose a 13 percent surcharge on inpatient hospital bills paid
by commercial insurers and employee welfare benefit plans, and portions of
Chapter 55 of the Laws of 1992 which require hospitals to impose and remit to
the State an 11 percent surcharge on hospital bills paid by commercial insurers
and which require health maintenance organizations to remit to the State a
surcharge of up to 9 percent--in The Travelers Insurance Company v. Cuomo, et
al., commenced June 2, 1992, and The Health Insurance Association of America, et
al. v. Chassin, a al., commenced July 20, 1992, both in the United States
District Court for the Southern District of New York and consolidated,
plaintiffs allege that the surcharges are preempted by federal law (by decision
dated April 26, 1995, the United States Supreme Court upheld the surcharges as
not preempted by federal law); (v) challenges to the practice of reimbursing
certain Office of Mental Health patient care expenses from the client's Social
Security benefits; and (vi) alleged responsibility of New York officials to
assist in remedying racial segregation in the City of Yonkers. In addition,
aspects of petroleum business taxes are the subject of administrative claims and
litigation.

THE CITY OF NEW YORK

The fiscal health of the State of New York is closely related to the fiscal
health of its localities, particularly the City, which has required and
continues to require significant financial assistance from New York. The City's
independently audited operating results for each of its 1981 through 1993 fiscal
years showed a General Fund surplus reported in accordance with GAAP. In
addition, the City's financial statements for the 1995 fiscal year received an
unqualified opinion from the City's independent auditors, the eleventh
consecutive year the City received such an opinion.

As required by the Office of the State Deputy Comptroller for the City of
New York (the "OSDC"), the 1997-1998 Financial Plan reflects a program of
proposed actions by the City to close the gaps between projected revenues and
expenditures of $1.4 billion, $2.2 billion and 2.9 billion for the 1998, 1999
and 2000 fiscal years, respectively. These actions, a substantial number of
which are not specified in detail, include additional agency spending
reductions, reduction in entitlements, government procurement initiatives,
revenue initiatives and the availability of the general reserve.

The OSDC and the State Financial Control Board continue their respective
budgetary oversight activities.

In response to the City's fiscal crisis in 1975, the State took action to
assist the City in returning to fiscal stability. Among those actions, the State
established the Municipal Assistance Corporation for the City of New York (the
"MAC") to provide financing assistance to the City; the New York State Financial
Control Board (the "Control Board") to oversee the City's financial affairs; the
Office of the State Deputy Comptroller for the City of New York to assist the
Control Board in exercising its powers and responsibilities; and a "Control
Period" from 1975 to 1986 during which the City was subject to certain
statutorily-prescribed fiscal-monitoring arrangements. Although the Control
Board terminated the Control Period in 1986 when certain statutory conditions
were met,

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thus suspending certain Control Board powers, the Control Board, MAC and OSDC
continue to exercise various fiscal-monitoring functions over the City, and upon
the occurrence or "substantial likelihood and imminence" of the occurrence of
certain events, including, but not limited to a City operating budget deficit of
more than $100 million, the Control Board is required by law to reimpose a
Control Period. Currently, the City and its Covered Organizations (I.E., those
which receive or may receive monies from the City directly, indirectly or
contingently) operate under a four-year financial plan which the City prepares
annually and periodically updates.

The staffs of the OSDC and the Control Board issue periodic reports on the
City's financial plans, as modified, analyzing forecasts of revenues and
expenditures, cash flow, and debt service requirements, as well as compliance
with the financial plan, as modified, by the City and its Covered Organizations.
OSDC staff reports issued during the mid-1980's noted that the City's budgets
benefitted from a rapid rise in the City's economy, which boosted the City's
collection of property, business and income taxes. These resources were used to
increase the City's work force and the scope of discretionary and mandated City
services. Subsequent OSDC staff reports examined the 1987 stock market crash and
the 1989-92 recession, which affected the New York City region more severely
than the nation, and attributed an erosion of City revenues and increasing
strain on City expenditures to that recession. According to a recent OSDC staff
report, the City's economy is now slowly recovering, but the scope of that
recovery is uncertain and unlikely, in the foreseeable future, to match the
expansion of the mid-1980's. Also, staff reports of OSDC and the Control Board
have indicated that the City's recent balanced budgets have been accomplished,
in part, through the use of non-recurring resources, tax increases and
additional State assistance; that the City has not yet brought its long-term
expenditures in line with recurring revenues; and that the City is therefore
likely to continue to face future projected budget gaps requiring the City to
increase revenues and/or reduce expenditures. According to the most recent staff
reports of OSDC and the Control Board, during the four-year period covered by
the current financial plan, the City is relying on obtaining substantial
resources from initiatives needing approval and cooperation of its municipal
labor unions, Covered Organizations, and City Council, as well as the State and
federal governments, among others.

The City requires significant amounts of financing for seasonal and capital
purposes. The City's capital financing program projects long-term financing
requirements of approximately $16.1 billion for the City's fiscal years 1997
through 2000. The major capital requirements include expenditures for the
City's water supply and sewage disposal systems, roads, bridges, mass transit,
schools, hospitals and housing.

OTHER LOCALITIES

In addition to the City, certain localities, including the City of Yonkers,
could have financial problems leading to requests for additional State
assistance during the State's 1995-96 fiscal year and thereafter.
Municipalities and school districts have engaged in substantial short-term and
long-term borrowings.

From time to time, federal expenditure reductions could reduce, or in some
cases, eliminate, federal funding of some local programs, and, accordingly,
might impose substantial increased expenditure requirements on affected
localities. If the State, the City or any of the public authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within the State could be adversely affected. Localities also face
anticipated and potential problems resulting from certain pending litigation,
judicial decisions and long-range economic trends. Long-range potential problems
of declining urban population, increasing expenditures and other economic trends
could adversely affect localities and require increasing State assistance in the
future.

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AUTHORITIES

The fiscal stability of the State is related, in part, to the fiscal
stability of its public authorities. Public authorities are not subject to the
constitutional restrictions on the incurrence of debt which apply to the State
itself and may issue bonds and notes within the amounts, and as otherwise
restricted by, their legislative authorization. As of September 30, 1994, there
were 18 public authorities that had aggregate outstanding debt of $70.3 billion.
Some authorities also receive moneys from State appropriations to pay for the
operating costs of certain of their programs.

The Metropolitan Transit Authority (the "MTA"), which receives the bulk of
the appropriated moneys from the State, oversees the operation of the City's bus
and subway system by its affiliates, the New York City Transit Authority and
Manhattan and Bronx Surface Transit Operating Authority (collectively, the
"TA"). The MTA has depended and will continue to depend upon federal, state and
local government support to operate the transit system because fare revenues are
insufficient.

Over the past several years, the State has enacted several taxes (including
a surcharge on the profits of banks, insurance corporations and general business
corporations doing business in the 12-county region served by the MTA and a
special one-quarter of one percent regional sales and use tax) that provide
additional revenues for mass transit purposes, including assistance to the MTA.
In addition, a one-quarter of one percent regional mortgages recording tax paid
on certain mortgages creates an additional source of recurring revenues for the
MTA. Further, in 1993, the State dedicated a portion of the State petroleum
business tax to assist the MTA. For the 1995-96 State fiscal year, total State
assistance to the MTA is estimated at approximately $1.1 billion.

In 1993, State legislation authorized the funding of a five-year
$9.56 billion MTA capital plan for the five-year period, 1992 through 1996 (the
"1992-96 Capital Program"). The MTA has received approval of the 1992-96 Capital
Program based on this legislation from the 1992-96 Capital Program Review Board,
as State law requires. This is the third five-year plan since the legislature
authorized procedures for the adoption, approval and amendment of a five-year
plan in 1981 for a capital program designed to upgrade the performance of the
MTA's transportation systems and to supplement, replace and rehabilitate
facilities and equipment. The MTA, the Triborough Bridge and Tunnel Authority,
and the TA are collectively authorized to issue an aggregate of $3.1 billion of
bonds (net of certain statutory exclusions) to finance a portion of the 1992-96
Capital Program. The 1992-96 Capital Program is expected to be financed in
significant part through dedication of State petroleum business taxes referred
to above.

There can be no assurance that all the necessary governmental actions for
the Capital Program will be taken, that funding sources currently identified
will not be decreased or eliminated, or that the 1992-96 Capital Program, or
parts thereof, will not be delayed or reduced. Furthermore, the power of the MTA
to issue certain bonds expected to be supported by the appropriation of State
petroleum business taxes is currently the subject of a court challenge. If the
Capital Program is delayed or reduced, ridership and fare revenues may decline,
which could, among other things, impair the MTA's ability to meet its operating
expenses without additional State assistance.

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APPENDIX C
INVESTING IN JAPAN AND ASIAN GROWTH MARKETS

JAPAN AND ITS SECURITIES MARKETS

The Japan Equity Portfolio will be subject to general economic and
political conditions in Japan. These include future political and economic
developments, the possible imposition of, or changes in, exchange controls or
other Japanese governmental laws or restrictions applicable to such investments,
diplomatic developments, political or social unrest and natural disasters.

Japan is largely dependent upon foreign economies for raw materials. For
instance, almost all of its oil is imported, the majority from the Middle East.
Oil prices therefore have a major impact on the domestic economy, as is
evidenced by the current account deficits triggered by the two oil crises of the
1970s. While Japan is working to reduce its dependence on foreign materials,
its lack of natural resources poses a significant obstacle to this effort.

GEOLOGICAL FACTORS. The islands of Japan lie in the western Pacific Ocean,
off the eastern coast of the continent of Asia. Japan has in the past
experienced earthquakes and tidal waves of varying degrees of severity, and the
risks of such phenomena, and damage resulting therefrom, continue to exist.

ASIAN GROWTH MARKETS

The Asia Growth Portfolio will be subject to certain risks and special
considerations, including those set forth below, which are not typically
associated with investing in securities of U.S. companies. In particular,
securities markets in Asian growth markets have been subject to substantial
price volatility, often without warning. This potential for sudden market
declines should be weighed and balanced against the potential for rapid growth
in Asian growth markets. Further, certain securities that the Portfolio may
purchase, and investment techniques in which the Portfolio may engage, involve
risks, including those set forth below.

INVESTMENT AND REPATRIATION RESTRICTIONS

Foreign investment in the securities markets of several Asian growth
markets is restricted or controlled to varying degrees. These restrictions may
limit investment in certain of the Asian growth markets and may increase
expenses of the Portfolio. For example, certain countries may require
governmental approval prior to investments by foreign persons in a particular
company or industry sector or limit investment by foreign persons to only a
specific class of securities of a company which may have less advantageous terms
(including price) than securities of the company available for purchase by
nationals. Certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. In addition,
the repatriation of both investment income and capital from several of the Asian
growth markets is subject to restrictions such as the need for certain
government consents. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of the operation of the Portfolio. For example, Taiwan imposes a
waiting period on the repatriation of investment capital for certain foreign
investors. Although these restrictions may in the future make it undesirable to
invest in the countries to which they apply, the Advisor does not believe that
any current repatriation restrictions would preclude the Portfolio from
effectively managing its assets.

If, because of restrictions on repatriation or conversion, the Portfolio
were unable to distribute substantially all of its net investment income and
long-term capital gains within applicable time periods, the Portfolio could be
subject to U.S. federal income and excise taxes which would not otherwise be
incurred and may cease to qualify for the favorable tax treatment afforded to

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regulated investment companies under the Code, in which case it would become
subject to U.S. federal income tax on all of its income and gains.

Generally, there are restrictions on foreign investment in certain Asian
growth markets, although these restrictions vary in form and content. In India,
Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand, the
Portfolio may be limited by government regulation or a company's charter to a
maximum percentage of equity ownership in any one company.

The Advisor has applied for approval from Indian governmental authorities
to invest in India on behalf of the Portfolio as a foreign institutional
investor (an "FII"). Under the guidelines that apply currently for FIIs, no FII
(or members of an affiliated group investing through one or more FIIs) may hold
more than 5% of the total issued capital of any Indian company. In addition,
all non-resident portfolio investments, including those of all FIIs and their
clients, may not exceed 24% of the issued share capital of any Indian company;
however, the 24% limit does not apply to investments by FIIs through authorized
offshore funds and offshore equity issues. Further, at least 70% of the total
investments made by an FII pursuant to its FII authorization must be in equity
and equity related instruments such as convertible debentures and tradeable
warrants. Under a recently adopted policy, FIIs may purchase new issues of
equity securities directly from an Indian company, subject to certain
conditions. The procedures for such direct subscription by FIIs of such equity
securities are unclear and it is likely that a further limit, in addition to the
24% limit referred to above, may be imposed. The guidelines that apply for FIIs
are relatively recent and thus experience as to their application has been
limited. At present, FII authorizations are granted for five years and may be
renewed with the approval of India governmental authorities.

Korea generally prohibits foreign investment in Won-denominated debt
securities and Sri Lanka prohibits foreign investment in government debt
securities. In the Philippines, the Portfolio may generally invest in "B"
shares of Philippine issuers engaged in partly nationalized business activities,
which shares are made available to foreigners, and the market prices, liquidity
and rights of which may vary from shares owned by nationals. Similarly, in the
People's Republic of China (the "PRC"), the Portfolio may only invest in "B"
shares of securities traded on The Shanghai Securities Exchange and The Shenzhen
Stock Exchange, currently the two officially recognized securities exchanges in
the PRC. "B" shares traded on The Shanghai Securities Exchange are settled in
U.S. dollars and those traded on The Shenzhen Stock Exchange are generally
settled in Hong Kong dollars.

In Hong Kong, Korea, the Philippines, Taiwan and Thailand, there are
restrictions on the percentage of permitted foreign investment in shares of
certain companies, mainly those in highly regulated industries, although in
Taiwan there are limitations on foreign ownership of shares of any listed
company. In addition, Korea also prohibits foreign investment in specified
telecommunications companies and the Philippines prohibits foreign investment in
mass media companies and companies providing certain professional services.

MARKET CHARACTERISTICS

DIFFERENCES BETWEEN THE U.S. AND ASIAN SECURITIES MARKETS. The securities
markets of Asian growth markets have substantially less volume than the New York
Stock Exchange, and equity and debt securities of most companies in Asian growth
markets are less liquid and more volatile than equity and debt securities of
U.S. companies of comparable size. Some of the stock exchanges in Asian growth
markets, such as those in the PRC, are in the earliest stages of their
development. Many companies traded on securities markets in Asian growth
markets are smaller, newer and less seasoned than companies whose securities are
traded on securities markets in the United States. Investments in smaller
companies involve greater risk than is customarily associated with investing in
larger

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companies. Smaller companies may have limited product lines, markets or
financial or managerial resources and may be more susceptible to losses and
risks of bankruptcy. Additionally, market making and arbitrage activities are
generally less extensive in such markets, which may contribute to increased
volatility and reduced liquidity of such markets. Accordingly, each of these
markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. To the extent that any Asian
growth market experiences rapid increases in its money supply and investment in
equity securities for speculative purposes, the equity securities traded in any
such country may trade at price-earnings multiples higher than those of
comparable companies trading on securities markets in the United States, which
may not be sustainable. Securities markets in Asian growth markets may also be
subject to substantial governmental control, which may cause sudden or prolonged
disruptions in market prices unrelated to supply and demand considerations.
This may also be true of currency markets.

Brokerage commissions and other transaction costs on securities exchanges
in Asian growth markets are generally higher than in the United States. In
addition, security settlements may in some instance be subject to delays and
related administrative uncertainties, including risk of loss associated with the
credit of local brokers.

GOVERNMENT SUPERVISION OF ASIAN SECURITIES MARKETS; LEGAL SYSTEMS. There
is less government supervision and regulation of foreign securities exchanges,
listed companies and brokers in Asian growth markets than exists in the United
States. Less information, therefore, may be available to the Fund than in
respect of investments in the United States. Further, in certain Asian growth
markets, less information may be available to the Fund than to local market
participants. Brokers in Asian growth markets may not be as well capitalized as
those in the United States, so that they are more susceptible to financial
failure in times of market, political, or economic stress. In addition,
existing laws and regulations are often inconsistently applied. As legal
systems in some of the Asian growth markets develop, foreign investors may be
adversely affected by new laws and regulations, changes to existing laws and
regulations and preemption of local laws and regulations by national laws. In
circumstances where adequate laws exist, it may not be possible to obtain swift
and equitable enforcement of the law. Currently a mixture of legal and
structural restrictions affect the securities markets of certain Asian growth
markets.

Korea, in an attempt to avoid market manipulation, requires institutional
investors to deposit in their broker's account a percentage of the amount to be
invested prior to execution of a purchase order. That deposit requirement will
expose the Fund to the broker's credit risk. These examples demonstrate that
legal and structural developments can be expected to affect the Portfolio,
potentially affecting liquidity of positions held by the Portfolio, in
unexpected and significant ways from time to time.

FINANCIAL INFORMATION AND STANDARDS. Issuers in Asian growth markets
generally are subject to accounting, auditing and financial standards and
requirements that differ, in some cases significantly, from those applicable to
U.S. issuers. In particular, the assets and profits appearing on the financial
statements of an Asian growth market issuer may not reflect its financial
position or results of operations in accordance with U.S. generally accepted
accounting principles. In addition, for an issuer that keeps accounting records
in local currency, inflation accounting rules may require, for both tax and
accounting purposes, that certain assets and liabilities be restated on the
issuer's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits. Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the real condition of
those issuers and securities markets. Moreover, substantially less information
may be publicly

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available about issuers in Asian growth markets than is available about U.S.
issuers.

SOCIAL, POLITICAL AND ECONOMIC FACTORS

Asian growth markets may be subject to a greater degree of social,
political and economic instability than is the case in the United States and
Western European countries. Such instability may result from, among other
things, the following: (i) authoritarian governments or military involvement in
political and economic decision-making, and changes in government through
extra-constitutional means; (ii) popular unrest associated with demand for
improved political, economic and social conditions; (iii) internal insurgencies,
(iv) war or hostile relations with neighboring countries; and (v) ethnic,
religious and racial disaffection. Such social, political and economic
instability could significantly disrupt the principal financial markets in which
the Portfolio invests and adversely affect the value of the Portfolio's assets.
In addition, there may be the possibility of asset expropriations or future
confiscatory levels of taxation affecting the Portfolio.

Few Asian growth markets have western-style or fully democratic
governments. Some governments in the region are authoritarian and influenced by
security forces. During the course of the last 25 years, governments in the
region have been installed or removed as a result of military coups, while
others have periodically demonstrated repressive police state characteristics.
Disparities of wealth, among other factors, have also led to social unrest in
some Asian growth markets, accompanied, in certain cases, by violence and labor
unrest. Ethnic, religious and racial disaffection, as evidenced in India,
Pakistan and Sri Lanka, have created social, economic and political problems.

Several Asian growth markets have or in the past have had hostile
relationships with neighboring nations or have experienced internal insurgency.
Thailand has experienced border conflicts with Laos and Cambodia, and India is
engaged in border disputes with several of its neighbors, including the PRC and
Pakistan. Tension between the Tamil and Sinhalese communities in Sri Lanka has
resulted in periodic outbreaks of violence. An uneasy truce exists between
North Korea and South Korea, and the recurrence of hostilities remains possible.
Reunification of North Korea and South Korea could have a detrimental effect on
the economy of South Korea. Also, the PRC continues to claim sovereignty over
Taiwan. The PRC is acknowledged to possess nuclear weapons capability; North
Korea is alleged to possess or be in the process of developing such a
capability.

The economies of most Asian growth markets are heavily dependent upon
international trade and are accordingly affected by protective barriers and the
economic conditions of their trading partners, principally, the United States,
Japan, the PRC and the European Community. The enactment by the United States
or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of the Asian growth markets. In addition, the
economies of some Asian growth markets, Indonesia and Malaysia, for example, are
vulnerable to weakness in world prices for their commodity exports, including
crude oil.

Governments in certain Asian growth markets participate to a significant
degree, through ownership interest or regulation, in their respective economies.
Action by these governments could have a significant adverse effect on market
prices of securities and payment of dividends.

The PRC has only recently permitted private economic activities and the PRC
government has exercised and continues to exercise substantial control over
virtually every sector of the PRC economy through regulation and state
ownership. Continued economic growth and development in the PRC, as well as
opportunities for foreign investment, and prospects of private sector
enterprises, in the PRC,

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will depend in many respects on the implementation of the PRC's current program
of economic reform, which cannot be assured.

In Hong Kong, British proposals to extend limited democracy have caused a
political rift with the PRC, which is scheduled to assume sovereignty over the
colony in 1997. Although the PRC has committed by treaty to preserve the
economic and social freedoms enjoyed in Hong Kong for 50 years after regaining
control of Hong Kong, the continuation of the current form of the economic
system in Hong Kong after the reversion will depend on the actions of the
government of the PRC. In addition, such reversion has increased sensitivity in
Hong Kong to political developments and statements by public figures in the PRC.
Business confidence in Hong Kong, therefore, can be significantly affected by
such developments and statements, which in turn can affect markets and business
performance.

With respect to investments in Taiwan, it should be noted that Taiwan lacks
formal diplomatic relations with many nations, although it conducts trade and
financial relations with most major economic powers. Both the government of the
PRC and the government of the Republic of China in Taiwan claim sovereignty over
all of China. Although relations between Taiwan and the PRC are currently
peaceful, renewed frictions or hostility could interrupt operations of Taiwanese
companies in which the Portfolio invests and create uncertainty that could
adversely affect the value and marketability of its Taiwan investments.

With regard to India, agriculture occupies a more prominent position in the
Indian economy than in the United States, and the Indian economy therefore is
more susceptible to adverse changes in weather. The government of India has
exercised and continues to exercise significant influence over many aspects of
the economy, and the number of public sector enterprises in India is
substantial. Accordingly government actions in the future could have a
significant effect on the Indian economy which could affect private sector
companies, market conditions and prices and yields of securities held by the
Portfolio. Religious and ethnic unrest persists in India. The long standing
grievances between the Hindu and Muslim populations resulted in communal
violence during 1993 in the aftermath of the destruction of a mosque in Ayodhya
by radical elements of the Hindu population. The Indian government is also
confronted by separatist movements in several states and the long standing
border dispute with Pakistan over the State of Jammu and Kashmir, a majority of
whose population is Muslim, remains unsolved. In addition, Indian stock
exchanges have in the past been subject to repeated closure including for ten
days in December 1993 due to a broker's strike, and there can be no assurance
that this will not recur.

THINLY TRADED MARKETS

Compared to securities traded in the United States, all securities of Asian
growth market issuers may generally be considered to be thinly traded. Even
relatively widely held securities in such countries may not be able to absorb
trades of a size customarily transacted by institutional investors, without
price disruptions. Accordingly, the Portfolio's ability to reposition itself
will be more constrained than would be the case for a typical equity mutual
fund.

SETTLEMENT PROCEDURES AND DELAYS

Settlement procedures in Asian growth markets are less developed and
reliable than those in the United States and in other developed markets, and the
Portfolio may experience settlement delays or other material difficulties. This
problem is particularly severe in India where settlement is through physical
delivery and, where currently, a severe shortage of vault capacity exists among
custodial banks, although efforts are being undertaken to alleviate the
shortage. In addition, significant delays are common in registering transfers
of securities, and the Portfolio may be unable to sell such securities until the
registration process is completed and may experience delays in receipt of

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dividends and other entitlement. The recent and anticipated inflow of funds
into the Indian securities market has placed added strains on the settlement
system and transfer process. In addition, the Portfolio may be subject to
significant limitations in the future on the volume of trading during any
particular period, imposed by its sub-custodian in India or otherwise as a
result of such physical or other operational constraints.

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PART C

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial Statements

The following financial statements are included in Part A:

Financial Highlights: The Pierpont Money Market Fund, The Pierpont Tax Exempt
Money Market Fund, The Pierpont Treasury Money Market Fund, The Pierpont Short
Term Bond Fund, The Pierpont Bond Fund, The Pierpont Tax Exempt Bond Fund, The
Pierpont Equity Fund, The Pierpont Capital Appreciation Fund, The Pierpont
International Equity Fund, The Pierpont Diversified Fund, The Pierpont Emerging
Markets Equity Fund, The Pierpont New York Total Return Bond Fund, The Pierpont
European Equity Fund, The Pierpont Japan Equity Fund and The Pierpont Asia
Growth Fund.

The following financial statements are incorporated by reference into Part B:

The Pierpont Money Market Fund
Statement of Assets and Liabilities at November 30, 1995
Statement of Operations for the fiscal year ended November 30, 1995
Statement of Changes in Net Assets
Financial Highlights
Statement of Assets and Liabilities at May 31, 1996 (unaudited)
Statement of Operations for the six months ended May 31, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements May 31, 1996 (unaudited)

The Money Market Portfolio
Schedule of Investments at November 30, 1995
Statement of Assets and Liabilities at November 30, 1995
Statement of Operations for the fiscal year ended November 30, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements November 30, 1995
Schedule of Investments at May 31, 1996 (unaudited)
Statement of Assets and Liabilities at May 31, 1996 (unaudited)
Statement of Operations for the six months ended May 31, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements May 31, 1996 (unaudited)

The Pierpont Tax Exempt Money Market Fund
Statement of Assets and Liabilities at August 31, 1995
Statement of Operations for the fiscal year ended August 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements August 31, 1995
Statement of Assets and Liabilities at February 28, 1996 (unaudited)
Statement of Operations for the six months ended February 28, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements February 28, 1996 (unaudited)

The Tax Exempt Money Market Portfolio
Schedule of Investments at August 31, 1995
Statement of Assets and Liabilities at August 31, 1995

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<PAGE>

Statement of Operations for the fiscal year ended August 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements August 31, 1995
Schedule of Investments at February 28, 1996 (unaudited)
Statement of Assets and Liabilities at February 28, 1996 (unaudited)
Statement of Operations for the six months ended February 28, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements February 28, 1996 (unaudited)

The Pierpont Treasury Money Market Fund
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1995
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1996 (unaudited)

The Treasury Money Market Portfolio
Schedule of Investments at October 31, 1995
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements October 31, 1995
Schedule of Investments at April 30, 1996 (unaudited)
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1996 (unaudited)

The Pierpont Short Term Bond Fund
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1995
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1996 (unaudited)

The Short Term Bond Portfolio
Schedule of Investments at October 31, 1995
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements October 31, 1995
Schedule of Investments at April 30, 1996 (unaudited)
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1996 (unaudited)

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The Pierpont Bond Fund
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1995
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1996 (unaudited)

The U.S. Fixed Income Portfolio
Schedule of Investments at October 31, 1995
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements October 31, 1995
Schedule of Investments at April 30, 1996 (unaudited)
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1996 (unaudited)

The Pierpont Tax Exempt Bond Fund
Statement of Assets and Liabilities at August 31, 1995
Statement of Operations for the fiscal year ended August 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements August 31, 1995
Statement of Assets and Liabilities at February 28, 1996 (unaudited)
Statement of Operations for the six months ended February 28, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements February 28, 1996 (unaudited)

The Tax Exempt Bond Portfolio
Schedule of Investments at August 31, 1995
Statement of Assets and Liabilities at August 31, 1995
Statement of Operations for the fiscal year ended August 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements August 31, 1995
Schedule of Investments at February 28, 1996 (unaudited)
Statement of Assets and Liabilities at February 28, 1996 (unaudited)
Statement of Operations for the six months ended February 28, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements February 28, 1996 (unaudited)

The Pierpont Equity Fund
Statement of Assets and Liabilities at May 31, 1995
Statement of Operations for the Fiscal Year Ended May 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements May 31, 1995
Statement of Assets and Liabilities at November 30, 1995 (unaudited)
Statement of Operations for the six months ended November 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)

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Notes to Financial Statements November 30, 1995 (unaudited)

The Selected U.S. Equity Portfolio
Schedule of Investments at May 31, 1995
Statement of Assets and Liabilities at May 31, 1995
Statement of Operations for the Fiscal Year Ended May 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements May 31, 1995
Schedule of Investments at November 30, 1995 (unaudited)
Statement of Assets and Liabilities at November 30, 1995 (unaudited)
Statement of Operations for the six months ended November 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements November 30, 1995 (unaudited)

The Pierpont Capital Appreciation Fund
Statement of Assets and Liabilities at May 31, 1995
Statement of Operations for the Fiscal Year Ended May 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements May 31, 1995
Statement of Assets and Liabilities at November 30, 1995 (unaudited)
Statement of Operations for the six months ended November 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements November 30, 1995 (unaudited)

The U.S. Small Company Portfolio
Schedule of Investments at May 31, 1995
Statement of Assets and Liabilities at May 31, 1995
Statement of Operations for the Fiscal Year Ended May 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements May 31, 1995
Schedule of Investments at November 30, 1995 (unaudited)
Statement of Assets and Liabilities at November 30, 1995 (unaudited)
Statement of Operations for the six months ended November 30, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements November 30, 1995 (unaudited)

The Pierpont International Equity Fund
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1995
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1996 (unaudited)

The Non-U.S. Equity Portfolio
Schedule of Investments at October 31, 1995
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements October 31, 1995
Schedule of Investments at April 30, 1996 (unaudited)

C-4

<PAGE>

Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1996 (unaudited)

The Pierpont Diversified Fund
Statement of Assets and Liabilities at June 30, 1995
Statement of Operations for the Fiscal Year Ended June 30, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements June 30, 1995
Statement of Assets and Liabilities at December 31, 1995 (unaudited)
Statement of Operations for the six months ended December 31, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements December 31, 1995 (unaudited)

The Diversified Portfolio
Schedule of Investments at June 30, 1995
Statement of Assets and Liabilities at June 30, 1995
Statement of Operations for the Fiscal Year Ended June 30, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements June 30, 1995
Schedule of Investments at December 31, 1995 (unaudited)
Statement of Assets and Liabilities at December 31, 1995 (unaudited)
Statement of Operations for the six months ended December 31, 1995 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements December 31, 1995 (unaudited)

The Pierpont Emerging Markets Equity Fund
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements October 31, 1995
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements April 30, 1996 (unaudited)

The Emerging Markets Equity Portfolio
Schedule of Investments at October 31, 1995
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statement October 31, 1995
Schedule of Investments at April 30, 1996 (unaudited)
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements April 30, 1996 (unaudited)

The Pierpont New York Total Return Bond Fund
Statement of Assets and Liabilities at March 31, 1996
Statement of Operations for the fiscal year ended March 31, 1996
Statement of Changes in Net Assets

C-5

<PAGE>

Financial Highlights
Notes to Financial Statements March 31, 1996

The New York Total Return Bond Portfolio
Schedule of Investments at March 31, 1996
Statement of Assets and Liabilities at March 31, 1996
Statement of Operations for the fiscal year ended March 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements March 31, 1996

The Pierpont Japan Equity Fund
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the period May 6, 1996 (commencement of operations)
through June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements June 30, 1996 (unaudited)

The Japan Equity Portfolio
Schedule of Investments at December 31, 1995
Statement of Assets and Liabilities at December 31, 1995
Statement of Operations for the period March 28, 1995 (commencement of
operations) through December 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements December 31, 1995
Schedule of Investments at June 30, 1996 (unaudited)
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the six months ended June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements June 30, 1996 (unaudited)

The Pierpont European Equity Fund
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the period May 13, 1996 (commencement of operations)
through June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements June 30, 1996 (unaudited)

The European Equity Portfolio
Schedule of Investments at December 31, 1995
Statement of Assets and Liabilities at December 31, 1995
Statement of Operations for the period March 28, 1995 (commencement of
operations) through December 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements December 31, 1995
Schedule of Investments at June 30, 1996 (unaudited)
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the six months ended June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements June 30, 1996 (unaudited)

The Pierpont Asia Growth Fund
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the period May 13, 1996 (commencement of operations)
through June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)

C-6

<PAGE>

Financial Highlights (unaudited)
Notes to Financial Statements June 30, 1996 (unaudited)

The Asia Growth Portfolio
Schedule of Investments at December 31, 1995
Statement of Assets and Liabilities at December 31, 1995
Statement of Operations for the period April 4, 1995 (commencement of
operations) through December 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements December 31, 1995
Schedule of Investments at June 30, 1996 (unaudited)
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the six months ended June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements June 30, 1996 (unaudited)

(b) Exhibits

Exhibit Number

1. Declaration of Trust, as amended, was filed as Exhibit No. 1 to
Post-Effective Amendment No. 14 to the Registration Statement filed on
July 28, 1995 ("Post-Effective Amendment No. 14").

2. Restated By-Laws were filed as Exhibit No. 2 to Post-Effective
Amendment No. 14.

6. Form of Distribution Agreement between Registrant and Funds
Distributor, Inc. ("FDI") was filed as Exhibit 6 to Post-Effective
Amendment No. 24 to the Registration Statement as filed on July 1,
1996 ("Post-Effective Amendment No. 24").

8. Custodian Contract between Registrant and State Street Bank and Trust
Company ("State Street") was filed as Exhibit No. 8 to Post-Effective
Amendment No. 11 to the Registration Statement filed on November 1,
1994 ("Post-Effective Amendment No. 11").

9(a). Form of Co-Administration Agreement between Registrant and FDI was
filed as Exhibit 9(a) to Post-Effective Amendment No. 24.

9(b). Restated Shareholder Servicing Agreement between Registrant and Morgan
Guaranty Trust Company of New York ("Morgan Guaranty") was filed as
Exhibit 9(b) to Post-Effective Amendment No. 20 to the Registration
Statement filed on February 27, 1996.

9(c). Transfer Agency and Service Agreement between Registrant and State
Street was filed as Exhibit No. 9(c) to Post-Effective Amendment No.
11.

9(d). Form of Fund Services Agreement, as amended, between Registrant and
Pierpont Group, Inc. was filed as Exhibit 9(d) to Post-Effective
Amendment No. 24.

9(e). Form of Restated Administrative Services Agreement between Registrant
and Morgan Guaranty was filed as Exhibit 9(e) to Post-Effective
Amendment No. 24.

10. Opinion and consent of Sullivan & Cromwell was filed as Exhibit No. 10
to Pre-Effective Amendment No. 1 to the Registration Statement filed on
December 30, 1992 ("Pre-Effective Amendment No. 1").

C-7

<PAGE>

11. Consents of independent accountants.*

13. Purchase Agreement was filed as Exhibit No. 13 to Pre-Effective
Amendment No. 1.

16. Schedule for computation of performance quotations was filed as Exhibit
No. 16 to Post-Effective Amendment No. 9 to the Registration Statement
filed on June 1, 1994.

17. Financial Data Schedules.*

18. Powers of Attorney.*
_________________________

*Filed herewith.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

Not applicable.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

Shares of Beneficial Interest ($0.001 par value).
Title of Class: Number of Record Holders as of August 31, 1996.

The Pierpont Money Market Fund: 3494
The Pierpont Tax Exempt Money Market Fund: 1704
The Pierpont Treasury Money Market Fund: 333
The Pierpont Short Term Bond Fund: 68
The Pierpont Bond Fund: 561
The Pierpont Tax Exempt Bond Fund: 1013
The Pierpont New York Total Return Bond Fund: 130
The Pierpont Diversified Fund: 376
The Pierpont Equity Fund: 1865
The Pierpont Capital Appreciation Fund: 1584
The Pierpont International Equity Fund: 1261
The Pierpont Emerging Markets Equity Fund: 1058
The Pierpont European Equity Fund: 5
The Pierpont Asia Growth Fund: 10
The Pierpont Japan Equity Fund: 6

ITEM 27. INDEMNIFICATION.

Reference is made to Section 5.3 of Registrant's Declaration of Trust and
Section 5 of Registrant's Distribution Agreement.

Registrant, its Trustees and officers are insured against certain expenses in
connection with the defense of claims, demands, actions, suits, or proceedings,
and certain liabilities that might be imposed as a result of such actions, suits
or proceedings.

Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to directors, trustees,
officers and controlling persons of the Registrant and the principal underwriter
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, trustee, officer, or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suite or proceeding) is asserted against the Registrant

C-8

<PAGE>

by such director, trustee, officer or controlling person or principal
underwriter in connection with the shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

Not Applicable.

ITEM 29. PRINCIPAL UNDERWRITERS.

(a) FDI, located at 60 State Street, Suite 1300, Boston, Massachusetts 02109, is
the principal underwriter of the Registrant's shares. FDI is an indirectly
wholly owned subsidiary of Boston Institutional Group, Inc., a holding company,
all of whose outstanding shares are owned by key employees. FDI is a
broker-dealer registered under the Securities Exchange Act of 1934, as amended.

FDI acts as principal underwriter of the following investment companies other
than the Registrant:

BJB Investment Funds
Foreign Fund, Inc.
Fremont Mutual Funds
H.T. Insight Funds, Inc.
The Harris Insight Funds Trust
LKCM Fund
The Munder Funds, Inc.
The Munder Funds Trust
The PanAgora Institutional Funds
RCM Capital Funds, Inc.
RCM Equity Funds, Inc.
Skyline Funds
St. Clair Funds, Inc.
Waterhouse Investors Cash Management Funds, Inc.
The JPM Advisor Funds
The JPM Institutional Funds

FDI does not act as depositor or investment adviser of any investment companies.

(b) The following is a list of officers, directors and partners of FDI. The
principal address of all officers and directors is 60 State Street, Suite 1300,
Boston, Massachusetts 02109.

Name; Positions and Offices with Underwriter; Position and Offices with
Registrant:

Marie E. Connolly; Director, President and Chief Executive Officer; Vice
President and Assistant Treasurer

Richard W. Ingram; Senior Vice President; President and Treasurer

John E. Pelletier; Senior Vice President and General Counsel; Vice President and
Secretary

Donald R. Roberson; Senior Vice President; None

C-9

<PAGE>

John F. Tower III; Senior Vice President, Chief Financial Officer and Treasurer;
Vice President and Assistant Treasurer

Rui M. Moura; First Vice President; None

Bernard A. Whalen; First Vice President; None

John W. Gomez; Chairman and Director; None

William J. Nutt; Director; None

The information required by this Item 29 with respect to each director and
officer of FDI is incorporated herein by reference to Schedule A of Form BD
filed by FDI pursuant to the Securities Exchange Act of 1934 (SEC File
No. 20518).

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.

PIERPONT GROUP, INC.: 461 Fifth Avenue, New York, New York 10017 (records
relating to its assisting the Trustees in carrying out their duties in
supervising the Registrant's affairs).

MORGAN GUARANTY TRUST COMPANY OF NEW YORK: 60 Wall Street, New York, New York
10260-0060, 522 Fifth Avenue, New York, New York 10036 or 9 West 57th Street,
New York, New York 10019 (records relating to its functions as shareholder
servicing agent, and administrative services agent).

STATE STREET BANK AND TRUST COMPANY: 1776 Heritage Drive, North Quincy,
Massachusetts 02171 (records relating to its functions as custodian, transfer
agent and dividend disbursing agent).

FUNDS DISTRIBUTOR, INC.: 60 State Street, Boston, Massachusetts 02109 (records
relating to its functions as distributor and co-administrator).

ITEM 31. MANAGEMENT SERVICES.

Not Applicable.

ITEM 32. UNDERTAKINGS.

(a) If the information called for by Item 5A of Form N-1A is contained in the
latest annual report to shareholders, the Registrant shall furnish each
person to whom a prospectus is delivered with a copy of the Registrant's
latest annual report to shareholders upon request and without charge.

(b) The Registrant undertakes to comply with Section 16(c) of the 1940 Act as
though such provisions of the 1940 Act were applicable to the Registrant,
except that the request referred to in the third full paragraph thereof may
only be made by shareholders who hold in the aggregate at least 10% of the
outstanding shares of the Registrant, regardless of the net asset value of
shares held by such requesting shareholders.

C-10

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this registration statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereto
duly authorized in the City of Boston, and Commonwealth of Massachusetts on the
10th day of September, 1996.

THE PIERPONT FUNDS

By /s/ Richard W. Ingram
---------------------------
Richard W. Ingram
President and Treasurer

Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities
indicated on September 10, 1996.

MATTHEW HEALEY*
- --------------------------
Matthew Healey
Trustee, Chairman and Chief Executive Officer

/s/ Richard W. Ingram
- --------------------------
Richard W. Ingram
Treasurer and Principal Accounting and Financial Officer

F.S. ADDY*
- --------------------------
Frederick S. Addy
Trustee

WILLIAM G. BURNS*
- --------------------------
William G. Burns
Trustee

ARTHUR C. ESCHENLAUER*
- --------------------------
Arthur C. Eschenlauer
Trustee

MICHAEL P. MALLARDI*
- --------------------------
Michael P. Mallardi
Trustee

*By /s/ Richard W. Ingram
--------------------------
Richard W. Ingram,
as attorney-in-fact pursuant to a power of attorney filed herewith.

C-11

<PAGE>

SIGNATURES

Each Portfolio has duly caused this registration statement on Form N-1A
("Registration Statement") of The Pierpont Funds (the "Trust") (File
No. 33-54632) to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston, and Commonwealth of Massachusetts on the 10th
day of September, 1996.

THE TREASURY MONEY MARKET PORTFOLIO, THE TAX EXEMPT MONEY MARKET PORTFOLIO, THE
TAX EXEMPT BOND PORTFOLIO AND THE NEW YORK TOTAL RETURN BOND PORTFOLIO

By /s/ Richard W. Ingram
-------------------------
Richard W. Ingram
President and Treasurer

Pursuant to the requirements of the Securities Act of 1933, the Trust's
Registration Statement has been signed below by the following persons in the
capacities indicated on September 10, 1996.

/s/ Richard W. Ingram
- ------------------------
Richard W. Ingram
President and Treasurer (Principal Financial and Accounting Officer) of the
Portfolios

MATTHEW HEALEY*
- ------------------------
Matthew Healey
Trustee, Chairman and Chief Executive Officer (Principal Executive Officer) of
the Portfolios

FREDERICK S. ADDY*
- ------------------------
Frederick S. Addy
Trustee of the Portfolios

WILLIAM G. BURNS*
- ------------------------
William G. Burns
Trustee of the Portfolios

ARTHUR C. ESCHENLAUER*
- ------------------------
Arthur C. Eschenlauer
Trustee of the Portfolios

MICHAEL P. MALLARDI*
- ------------------------
Michael P. Mallardi
Trustee of the Portfolios

*By /s/ Richard W. Ingram
------------------------
Richard W. Ingram
as attorney-in-fact pursuant to a power of attorney filed herewith.

C-12

<PAGE>

SIGNATURES

Each Portfolio has duly caused this registration statement on Form N-1A
("Registration Statement") of The Pierpont Funds (the "Trust") (File
No. 33-54632) to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of George Town, Grand Cayman, Cayman Islands, B.W.I., on
the 9th day of September, 1996.

THE MONEY MARKET PORTFOLIO, THE SHORT TERM BOND PORTFOLIO, THE U.S. FIXED INCOME
PORTFOLIO, THE SELECTED U.S. EQUITY PORTFOLIO, THE U.S. SMALL COMPANY PORTFOLIO,
THE NON-U.S. EQUITY PORTFOLIO, THE DIVERSIFIED PORTFOLIO, THE EMERGING MARKETS
EQUITY PORTFOLIO AND THE SERIES PORTFOLIO

/s/ Jacqueline Henning
By -------------------------
Jacqueline Henning
Assistant Secretary and Assistant Treasurer

Pursuant to the requirements of the Securities Act of 1933, the Trust's
Registration Statement has been signed below by the following persons in the
capacities indicated on September 10, 1996.

Richard W. Ingram*
- ------------------------
Richard W. Ingram
President and Treasurer (Principal Financial and Accounting Officer) of the
Portfolios

Matthew Healey*
- ------------------------
Matthew Healey
Trustee, Chairman and Chief Executive Officer (Principal Executive Officer) of
the Portfolios

Frederick S. Addy*
- ------------------------
Frederick S. Addy
Trustee of the Portfolios

William G. Burns*
- ------------------------
William G. Burns
Trustee of the Portfolios

Arthur C. Eschenlauer*
- ------------------------
Arthur C. Eschenlauer
Trustee of the Portfolios

Michael P. Mallardi*
- ------------------------
Michael P. Mallardi
Trustee of the Portfolios

/s/ Jacqueline Henning
*By ------------------------
Jacqueline Henning
as attorney-in-fact pursuant to a power of attorney filed herewith.

C-13

<PAGE>

INDEX TO EXHIBITS

Exhibit No. Description of Exhibit
- ----------- ----------------------

EX-99.B11 Consents of Independent Accountants.

EX-99.B18 Powers of Attorney.

EX-27.1 to
EX-27.15 Financial Data Schedules.

<PAGE>

Exhibit 11

1177 Avenue of the Americas Telephone 212 596 7000 [logo]
New York, NY 10036 Facsimile 212 596 8910

CONSENTS OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 25 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated July 25, 1995, relating to the financial
statements and financial highlights of The Pierpont Equity Fund and The Pierpont
Capital Appreciation Fund and the financial statements and supplementary data of
The Selected U.S. Equity Portfolio and The U.S. Small Company Portfolio
appearing in the May 31, 1995 Annual Reports, which are also incorporated by
reference into the Registration Statement.

We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated August 28, 1995, relating to the financial
statements and financial highlights of The Pierpont Diversified Fund and the
financial statements and supplementary data of The Diversified Portfolio
appearing in the June 30, 1995 Annual Report, which is also incorporated by
reference into the Registration Statement.

We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated October 24, 1995, relating to the financial
statements and financial highlights of The Pierpont Tax Exempt Money Market Fund
and The Pierpont Tax Exempt Bond Fund and the financial statements and
supplementary data of The Tax Exempt Money Market Portfolio and The Tax Exempt
Bond Portfolio appearing in the August 31, 1995 Annual Reports, which are also
incorporated by reference into the Registration Statement.

We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated December 15, 1995, relating to the financial
statements and financial highlights of The Pierpont Treasury Money Market Fund
and The Pierpont Short Term Bond Fund and the financial statements and
supplementary data of The Treasury Money Market Portfolio and The Short Term
Bond Portfolio, appearing in the October 31, 1995 Annual Reports, which are also
incorporated by reference into the Registration Statement.

<PAGE>

Consents of Independent Accountants
Page 2

Pierpont International Equity Fund and the financial statements and
supplementary data of The Emerging Markets Equity Portfolio, The U.S. Fixed
Income Portfolio and The Non-U.S. Equity Portfolio appearing in the October 31,
1995 Annual Reports, which are also incorporated by reference into the
Registration Statement.

We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated January 23, 1996, relating to the financial
statements and financial highlights of The Pierpont Money Market Fund and the
financial statements and supplementary data of The Money Market Portfolio
appearing in the November 30, 1995 Annual Report, which is also incorporated by
reference into the Registration Statement.

We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated February 23, 1996, relating to the financial
statements and supplementary data of The Asia Growth Portfolio, The Japan Equity
Portfolio, and The European Equity Portfolio appearing in the December 31, 1995
Annual Reports, which are also incorporated by reference into the Registration
Statement.

We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated May 23, 1996, relating to the financial
statements and financial highlights of The Pierpont New York Total Return Fund
and the financial statements and supplementary data of The New York Total Return
Bond Portfolio appearing in the March 31, 1996 Annual Report, which is also
incorporated by reference into the Registration Statement.

We also consent to the reference to us under the heading "Independent
Accountants" in the Statement of Additional Information.

/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
September 6, 1996

<PAGE>

Exhibit 18

POWER OF ATTORNEY

The undersigned hereby constitutes and appoints Matthew Healey, Richard W.
Ingram, Marie E. Connolly, Joseph F. Tower III, John E. Pelletier, Elizabeth A.
Bachman, Karen Jacoppo-Wood, Mary A. Nelson, Douglas C. Con[t]roy, Christopher
J. Kelley and Jacqueline Henning and Lenore J. McCabe, and each of them, with
full powers of substitution as his true and lawful attorneys and agents to
execute in his name and on his behalf in any and all capacities the Registration
Statements on Form N-1A, and any and all amendments thereto, filed by The
Pierpont Funds, The JPM Institutional Funds or The JPM Advisor Funds (each a
"Trust"), or the Registration Statement(s), and any and all amendments thereto,
filed by any other investor in any registered investment company in which any of
the Trusts invest, with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended, and any and all instruments which such attorneys and agents, or any of
them, deem necessary or advisable to enable each Trust to comply with such Acts,
the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction, and the undersigned hereby ratifies and confirms as his own act
and deed any and all acts that such attorneys and agents, or any of them, shall
do or cause to be done by virtue hereof. Any one of such attorneys and agents
have, and may exercise, all of the powers hereby conferred.