<PAGE>
As filed with the Securities and Exchange Commission on September 27, 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. 26
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 27
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,
<PAGE>
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.
<PAGE>
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.
<PAGE>
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. 26 (the "Amendment") to the
Registrant's registration statement on Form N-1A (File no. 33-54632) is being
filed to update Registrant's disclosure in the combined Prospectus and in
the Prospectus of each of The Pierpont Diversified Fund, The Pierpont Equity
Fund and The Pierpont Capital Appreciation Fund regarding contractual
arrangements between the Registrant and certain service providers. Financial
information for each of the above-referenced Funds is also being updated.
Each of the Registrant's currently effective Prospectuses for each other
series of shares of the Registrant is incorporated herein by reference as
most recently filed pursuant to Rule 497 under the Securities Act of 1933, as
amended.
<PAGE>
PROSPECTUS
THE PIERPONT FUNDS
60 STATE STREET, BOSTON, MASSACHUSETTS 02109
FOR INFORMATION CALL (800) 521-5411
THE PIERPONT FUNDS ARE A FAMILY OF NO-LOAD MUTUAL FUNDS FOR WHICH THERE ARE
NO SALES CHARGES OR EXCHANGE OR REDEMPTION FEES. EACH FUND (A "FUND",
COLLECTIVELY THE "FUNDS") IS A SERIES OF THE PIERPONT FUNDS, AN OPEN-END
MANAGEMENT INVESTMENT COMPANY ORGANIZED AS A MASSACHUSETTS BUSINESS TRUST (THE
"TRUST"). WITH A BROAD RANGE OF INVESTMENT CHOICES, THE PIERPONT FUNDS PROVIDE
DISCERNING INVESTORS WITH ATTRACTIVE ALTERNATIVES FOR MEETING THEIR INVESTMENT
NEEDS.
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN
PORTFOLIO OF SECURITIES, EACH PIERPONT FUND SEEKS TO ACHIEVE ITS INVESTMENT
OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE ASSETS IN A CORRESPONDING OPEN-END
MANAGEMENT INVESTMENT COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND
(A "PORTFOLIO", COLLECTIVELY THE "PORTFOLIOS"). THE FUNDS INVEST IN THEIR
RESPECTIVE PORTFOLIOS THROUGH A TWO-TIER MASTER-FEEDER INVESTMENT FUND
STRUCTURE. SEE SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE ON PAGE 10.
THE PIERPONT MONEY MARKET FUND SEEKS TO MAXIMIZE CURRENT INCOME AND MAINTAIN
A HIGH LEVEL OF LIQUIDITY. IT IS DESIGNED FOR INVESTORS WHO SEEK TO PRESERVE
CAPITAL AND EARN CURRENT INCOME FROM A PORTFOLIO OF HIGH QUALITY MONEY MARKET
INSTRUMENTS.
THE PIERPONT TAX EXEMPT MONEY MARKET FUND SEEKS TO PROVIDE A HIGH LEVEL OF
CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAX AND MAINTAIN A HIGH LEVEL OF
LIQUIDITY. IT IS DESIGNED FOR INVESTORS WHO SEEK CURRENT INCOME EXEMPT FROM
FEDERAL INCOME TAX, STABILITY OF CAPITAL AND LIQUIDITY.
THE PIERPONT TREASURY MONEY MARKET FUND SEEKS TO PROVIDE CURRENT INCOME,
MAINTAIN A HIGH LEVEL OF LIQUIDITY AND PRESERVE CAPITAL. IT IS DESIGNED FOR
INVESTORS WHO SEEK TO PRESERVE CAPITAL AND EARN CURRENT INCOME FROM A PORTFOLIO
OF DIRECT OBLIGATIONS OF THE U.S. TREASURY AND OBLIGATIONS OF CERTAIN U.S.
GOVERNMENT AGENCIES.
THE PIERPONT SHORT TERM BOND FUND SEEKS TO PROVIDE A HIGH TOTAL RETURN WHILE
ATTEMPTING TO LIMIT THE LIKELIHOOD OF NEGATIVE QUARTERLY RETURNS. IT IS DESIGNED
FOR INVESTORS WHO DO NOT REQUIRE THE STABLE NET ASSET VALUE TYPICAL OF A MONEY
MARKET FUND BUT WHO SEEK LESS PRICE FLUCTUATION THAN IS TYPICAL OF A LONGER-TERM
BOND FUND.
THE PIERPONT BOND FUND SEEKS TO PROVIDE A HIGH TOTAL RETURN CONSISTENT WITH
MODERATE RISK OF CAPITAL AND MAINTENANCE OF LIQUIDITY. IT IS DESIGNED FOR
INVESTORS WHO SEEK A TOTAL RETURN OVER TIME THAT IS HIGHER THAN THAT GENERALLY
AVAILABLE FROM A PORTFOLIO OF SHORT-TERM OBLIGATIONS WHILE RECOGNIZING THE
GREATER PRICE FLUCTUATION OF LONGER-TERM INSTRUMENTS.
THE PIERPONT TAX EXEMPT BOND FUND SEEKS TO PROVIDE A HIGH LEVEL OF CURRENT
INCOME EXEMPT FROM FEDERAL INCOME TAX CONSISTENT WITH MODERATE RISK OF CAPITAL
AND MAINTENANCE OF LIQUIDITY. IT IS DESIGNED FOR INVESTORS WHO SEEK TAX EXEMPT
YIELDS GREATER THAN THOSE GENERALLY AVAILABLE FROM A PORTFOLIO OF SHORT-TERM TAX
EXEMPT OBLIGATIONS AND WHO ARE WILLING TO INCUR THE GREATER PRICE FLUCTUATION OF
LONGER-TERM INSTRUMENTS.
THE PIERPONT EQUITY FUND SEEKS TO PROVIDE A HIGH TOTAL RETURN FROM A
PORTFOLIO OF SELECTED EQUITY SECURITIES. IT IS DESIGNED FOR INVESTORS WHO WANT
AN ACTIVELY MANAGED PORTFOLIO OF SELECTED EQUITY SECURITIES THAT SEEKS TO
OUTPERFORM THE S&P 500 INDEX.
THE PIERPONT CAPITAL APPRECIATION FUND SEEKS TO PROVIDE A HIGH TOTAL RETURN
FROM A PORTFOLIO OF EQUITY SECURITIES OF SMALL COMPANIES. IT IS DESIGNED FOR
INVESTORS WHO ARE WILLING TO ASSUME THE SOMEWHAT HIGHER RISK OF INVESTING IN
SMALL COMPANIES IN ORDER TO SEEK A HIGHER TOTAL RETURN OVER TIME THAN MIGHT BE
EXPECTED FROM A PORTFOLIO OF STOCKS OF LARGE COMPANIES.
THE PIERPONT INTERNATIONAL EQUITY FUND SEEKS TO PROVIDE A HIGH TOTAL RETURN
FROM A PORTFOLIO OF EQUITY SECURITIES OF FOREIGN CORPORATIONS. IT IS DESIGNED
FOR INVESTORS WITH A LONG-TERM INVESTMENT HORIZON WHO WANT TO DIVERSIFY THEIR
INVESTMENTS BY INVESTING IN AN ACTIVELY MANAGED PORTFOLIO OF NON-U.S. SECURITIES
THAT SEEKS TO OUTPERFORM THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE,
AUSTRALIA AND FAR EAST INDEX.
THE PIERPONT EMERGING MARKETS EQUITY FUND SEEKS TO PROVIDE A HIGH TOTAL
RETURN FROM A PORTFOLIO OF EQUITY SECURITIES OF COMPANIES IN EMERGING MARKETS.
IT IS DESIGNED FOR LONG-TERM INVESTORS WHO WANT TO DIVERSIFY THEIR INVESTMENTS
BY ADDING EXPOSURE TO THE RAPIDLY GROWING EMERGING MARKETS.
THE PIERPONT DIVERSIFIED FUND SEEKS TO PROVIDE A HIGH TOTAL RETURN FROM A
DIVERSIFIED PORTFOLIO OF EQUITY AND FIXED INCOME SECURITIES. IT IS DESIGNED FOR
INVESTORS WHO WISH TO INVEST FOR LONG-TERM OBJECTIVES SUCH AS RETIREMENT AND WHO
SEEK OVER TIME TO ATTAIN REAL APPRECIATION IN THEIR INVESTMENTS, BUT WITH
SOMEWHAT LESS PRICE FLUCTUATION THAN A PORTFOLIO CONSISTING SOLELY OF EQUITY
SECURITIES.
EACH PORTFOLIO IS ADVISED BY MORGAN GUARANTY TRUST COMPANY OF NEW YORK
("MORGAN GUARANTY" OR "ADVISOR").
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT EACH PIERPONT
FUND INCLUDED IN THIS PROSPECTUS THAT A PROSPECTIVE INVESTOR OUGHT TO KNOW
BEFORE INVESTING AND SHOULD BE RETAINED FOR FUTURE REFERENCE. AN ADDITIONAL
FUND, THE PIERPONT NEW YORK TOTAL RETURN BOND FUND, IS COVERED IN A SEPARATE
PROSPECTUS. ADDITIONAL INFORMATION ABOUT EACH FUND HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IN A STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER 27, 1996 (AS SUPPLEMENTED FROM TIME TO TIME). THIS INFORMATION
IS INCORPORATED HEREIN BY REFERENCE AND IS AVAILABLE WITHOUT CHARGE UPON WRITTEN
REQUEST FROM THE FUNDS' DISTRIBUTOR, 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 PIERPONT FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY
OTHER BANK. SHARES OF THE PIERPONT FUNDS ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENTAL AGENCY. AN INVESTMENT IN ANY OF THE FUNDS IS SUBJECT TO RISK THAT
MAY CAUSE THE VALUE OF THE INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS
REDEEMED, THE VALUE MAY BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED
BY THE INVESTOR. ALTHOUGH THE PIERPONT MONEY MARKET FUND, THE PIERPONT TAX
EXEMPT MONEY MARKET FUND AND THE PIERPONT TREASURY MONEY MARKET FUND SEEK TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, THERE CAN BE NO ASSURANCE
THAT THEY WILL BE ABLE TO CONTINUE TO DO SO.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COM-
MISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PRO-
SPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 27, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
---------
Investors for Whom the Funds are Designed... 1
Financial Highlights........................ 4
Special Information Concerning Investment
Structure................................... 10
Investment Objectives and Policies.......... 11
Additional Investment Information and Risk
Factors.................................... 23
Investment Restrictions..................... 27
Management of the Trust and the
Portfolios.................................. 29
Shareholder Servicing....................... 33
PAGE
---------
Purchase of Shares.......................... 33
Redemption of Shares........................ 35
Exchange of Shares.......................... 36
Dividends and Distributions................. 36
Net Asset Value............................. 37
Organization................................ 37
Taxes....................................... 38
Additional Information...................... 40
Appendix.................................... A-1
</TABLE>
<PAGE>
THE PIERPONT FUNDS
INVESTORS FOR WHOM THE FUNDS ARE DESIGNED
The Pierpont Funds offer investors the advantages of no-load mutual funds and
are designed to meet a broad range of investment objectives. Each of the Funds
seeks to achieve its investment objective by investing all of its investable
assets in its corresponding Portfolio, which has the same investment objective
as the Fund. Since the investment characteristics and experience of each Fund
will correspond directly with those of its corresponding Portfolio, the
discussion in this Prospectus focuses on the various investments and investment
policies of each Portfolio.
For investors interested in current income, preserving capital and
maintaining liquidity, there are The Pierpont Money Market Fund, The Pierpont
Tax Exempt Money Market Fund and The Pierpont Treasury Money Market Fund. For
investors seeking higher current income in exchange for some risk of capital,
The Pierpont Short Term Bond Fund, The Pierpont Bond Fund and The Pierpont Tax
Exempt Bond Fund and The Pierpont New York Total Return Bond Fund are available.
For those investors who wish to participate primarily in the U.S. equity
markets, The Pierpont Equity Fund and The Pierpont Capital Appreciation Fund are
attractive alternatives. The Pierpont International Equity Fund and The Pierpont
Emerging Markets Equity Fund are available for investors who seek to diversify
their investments by adding international equities. For investors interested in
a diversified portfolio of equity and fixed income securities, The Pierpont
Diversified Fund is available.
The Pierpont Money Market Fund, The Pierpont Tax Exempt Money Market Fund and
The Pierpont Treasury Money Market Fund each seek to maintain a stable net asset
value of $1.00 per share; there can be no assurance that they will be able to
continue to do so. The net asset value of shares in the other Pierpont Funds
fluctuates with changes in the value of the investments in their corresponding
Portfolios. In view of the capitalization of the companies in which The Pierpont
Capital Appreciation Fund invests, the risks of investment in this Fund and the
volatility of the value of its shares may be greater than the general equity
markets. In addition, The Pierpont International Equity Fund's and The Pierpont
Emerging Markets Equity Fund's investments in securities of foreign issuers,
including issuers in emerging markets, involve foreign investment risks and may
be more volatile and less liquid than domestic securities. Each of these Funds
may make various types of investments in seeking its objectives. Among the
permissible investments and investment techniques for certain Funds are futures
contracts, options, forward contracts on foreign currencies and certain
privately placed securities. For further information about these investments and
investment techniques, and the Funds which may use them, see Investment
Objectives and Policies discussed below.
The required minimum initial investment in each of The Pierpont Funds is
$100,000, except that the minimum initial investment in The Pierpont Money
Market Fund, The Pierpont Tax Exempt Money Market Fund, and The Pierpont
Treasury Money Market Fund is $25,000. 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. For information about investments in
additional Funds or maintenance of a Fund account, see Purchase of Shares and
Redemption of Shares.
This Prospectus describes the financial history, investment objectives and
policies, management and operation of each of The Pierpont Funds to enable
investors to select the Funds which best suit their needs. The Pierpont Funds
operate in 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 not through a master-feeder
investment fund structure. The Trustees believe that each Fund may achieve
economies of scale over time by utilizing this investment structure. Where
indicated in this Prospectus, historical information for these Funds includes
information for their respective predecessor entities.
1
<PAGE>
The following table illustrates that investors in The Pierpont Funds incur no
shareholder transaction expenses; their investment in the Funds is subject only
to the operating expenses set forth below for each Fund and its corresponding
Portfolio, as a percentage of average net assets of the Fund. The Trustees of
the Trust believe that the aggregate per share expenses of each Fund and its
corresponding Portfolio will be approximately equal to and may be less than the
expenses that each Fund would incur if it retained the services of an investment
adviser and invested its assets directly in portfolio securities. Fund and
Portfolio expenses are discussed below under the headings Management of the
Trust and the Portfolios and Shareholder Servicing.
THE PIERPONT FUNDS
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases.................................. NONE
Sales Load Imposed on Reinvested Dividends....................... NONE
Deferred Sales Load.............................................. NONE
Redemption Fees.................................................. NONE
Exchange Fees.................................................... NONE
</TABLE>
EXPENSE TABLE
<TABLE>
<CAPTION>
TAX EXEMPT TREASURY CAPITAL
MONEY MONEY MONEY SHORT TERM TAX EXEMPT APPRECIATION
ANNUAL OPERATING EXPENSES* MARKET FUND MARKET FUND MARKET FUND BOND FUND BOND FUND BOND FUND EQUITY FUND FUND
- -------------------------- ----------- ----------- ----------- ----------- --------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Advisory Fees............. 0.12% 0.17% 0.20% 0.25% 0.30% 0.30% 0.40% 0.60%
Rule 12b-1 Fees........... None None None None None None None None
Other Expenses (after
applicable expense
reimbursement)........... 0.29% 0.31% 0.20% 0.25% 0.43% 0.40% 0.44% 0.30%
----------- ----------- ----------- ----------- --------- ----------- ----------- ------
Total Operating Expenses
(after applicable expense
reimbursement)........... 0.41% 0.48% 0.40% 0.50% 0.73% 0.70% 0.84% 0.90%
<CAPTION>
EMERGING
INTERNATIONAL MARKETS DIVERSIFIED
ANNUAL OPERATING EXPENSES* EQUITY FUND EQUITY FUND FUND
- -------------------------- --------------- ------------- -------------
<S> <C> <C> <C>
Advisory Fees............. 0.60% 1.00% 0.55%
Rule 12b-1 Fees........... None None None
Other Expenses (after
applicable expense
reimbursement)........... 0.60% 0.79% 0.43%
------ ------ ------
Total Operating Expenses
(after applicable expense
reimbursement)........... 1.20% 1.79% 0.98%
</TABLE>
* The expense information in the above table has been restated to reflect
current fees under contractual arrangements and other expenses described
below. For each of The Pierpont Treasury Money Market, Short Term Bond,
Capital Appreciation and Diversified Funds, fees and expenses in the expense
table are expressed as a percentage of a Fund's estimated average daily net
assets for its current fiscal year, after expense reimbursements. If the above
expense table reflected these expenses without current reimbursements, Other
Expenses and Total Operating Expenses would be equal on an annual basis to the
following percentages of such assets of the Funds:
<TABLE>
<CAPTION>
OTHER EXPENSES TOTAL OPERATING EXPENSES
----------------- ---------------------------
<S> <C> <C>
Treasury Money Market Fund 0.37% 0.57%
Short Term Bond Fund 1.20% 1.45%
Capital Appreciation Fund 0.45% 1.05%
Diversified Fund 0.67% 1.22%
</TABLE>
For each of The Pierpont Money Market, Tax Exempt Money Market, Bond, Tax Exempt
Bond, Equity, International Equity and Emerging Markets Equity Funds, fees and
expenses in the expense table are expressed as a percentage of a Fund's
estimated average daily net assets for its current fiscal year and reflect the
fact that no expense reimbursement arrangements are currently applicable. See
Management of the Trust and the Portfolios.
Historical expenses, without reimbursement for those Funds where expense
reimbursement arrangements were in effect, expressed as ratios to historical
average daily net assets were as follows for the end of the fiscal years
indicated:
<TABLE>
<S> <C> <C>
Money Market Fund November 30, 1995 0.41%
Tax Exempt Money Market Fund August 31, 1995 0.51%
Treasury Money Market Fund October 31, 1995 0.55%
Short Term Bond Fund October 31, 1995 1.48%
Bond Fund October 31, 1995 0.69%
Tax Exempt Bond Fund August 31, 1995 0.71%
Equity Fund May 31, 1996 0.81%
Capital Appreciation Fund May 31, 1996 1.03%
International Equity Fund October 31, 1995 1.28%
Emerging Markets Equity Fund October 31, 1995 1.80%
Diversified Fund June 30, 1996 1.36%
</TABLE>
2
<PAGE>
EXAMPLE
An investor would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
TAX EXEMPT TREASURY
MONEY MONEY MARKET MONEY MARKET SHORT TERM TAX EXEMPT
MARKET FUND FUND FUND BOND FUND BOND FUND BOND FUND EQUITY FUND
----------- ------------- ------------- ----------- ----- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year............... $ 4 $ 5 $ 4 $ 6 $ 7 $ 7 $ 9
3 Years.............. $ 13 $ 15 $ 13 $ 16 $ 23 $ 22 $ 27
5 Years.............. $ 23 $ 27 $ 22 $ 28 $ 41 $ 39 $ 47
10 Years............. $ 52 $ 60 $ 51 $ 63 $ 91 $ 87 $ 104
<CAPTION>
EMERGING
CAPITAL INTERNATIONAL MARKETS DIVERSIFIED
APPRECIATION FUND EQUITY FUND EQUITY FUND FUND
----------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C>
1 Year............... $ 9 $ 12 $ 18 $ 10
3 Years.............. $ 29 $ 38 $ 56 $ 31
5 Years.............. $ 50 $ 66 $ 97 $ 54
10 Years............. $ 111 $ 145 $ 211 $ 120
</TABLE>
The above expense table is designed to assist investors in understanding the
various direct and indirect costs and expenses that investors in each Fund bear.
The fees and expenses included in Other Expenses are the fees paid to Morgan
Guaranty under the Administrative Services Agreements and the Shareholder
Servicing Agreement, 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 applicable expense reimbursements, see Management of
the Trust and the Portfolios and Shareholder Servicing. In connection with the
above example, please note that $1,000 is less than the Funds' minimum
investment requirement and that there are no redemption or exchange fees of any
kind. See Purchase of Shares and Redemption of Shares. THE EXAMPLE IS
HYPOTHETICAL; IT IS SOLELY FOR ILLUSTRATIVE PURPOSES. IT SHOULD NOT BE
CONSIDERED A REPRESENTATION OF FUTURE PERFORMANCE; ACTUAL EXPENSES MAY BE MORE
OR LESS THAN THOSE SHOWN.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following selected data for a share outstanding of each of the Funds for
the indicated periods should be read in conjunction with the financial
statements and related notes which are contained in the annual report for each
Fund and are incorporated by reference into the Statement of Additional
Information. The following selected data have been audited by independent
accountants except as noted below. Each annual report includes a discussion of
those factors, strategies and techniques that materially affected the Fund's
performance during the period of the report, as well as certain related
information. A copy of any annual report will be made available without charge
upon request.
<TABLE>
<CAPTION>
THE PIERPONT MONEY MARKET FUND
FOR THE
SIX MONTHS
ENDED FOR THE FISCAL YEAR ENDED NOVEMBER 30
MAY 31, 1996 -----------------------------------------------------------------
(UNAUDITED) 1995 1994 1993(1) 1992 1991
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------------ ------------ ----------- ----------- -----------
Income From Investment
Operations:
Net Investment Income 0.0257 0.0557 0.0367 0.0281 0.0371 0.0612
Net Realized Gain
(Loss) on Investment 0.0001 0.0005 (0.0000)(a) 0.0003 0.0006 0.0002
-------- ------------ ------------ ----------- ----------- -----------
Total From Investment
Operations 0.0258 0.0562 0.0367 0.0284 0.0377 0.0614
-------- ------------ ------------ ----------- ----------- -----------
Less Distributions to
Shareholders From:
Net Investment Income (0.0257) (0.0557) (0.0367) (0.0281) (0.0371) (0.0612)
Net Realized Gain (0.0005) -0- -0- (0.0003) (0.0006) (0.0002)
-------- ------------ ------------ ----------- ----------- -----------
Total Distributions to
Shareholders (0.0262) (0.0557) (0.0367) (0.0284) (0.0377) (0.0614)
-------- ------------ ------------ ----------- ----------- -----------
Net Asset Value, End of
Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------------ ------------ ----------- ----------- -----------
-------- ------------ ------------ ----------- ----------- -----------
Total Return 2.65% (d) 5.71% 3.73% 2.89% (b) 3.83% (b) 6.31% (b)
Ratios and Supplemental
Data:
Net Assets at End of
Period (in thousands) $1,946,871 $2,153,469 $2,003,690 $2,562,713 $2,700,392 $3,058,559
Ratios to Average Net
Assets:
Expenses 0.40% (e) 0.41% 0.43% 0.43% 0.43% 0.43%
Net Investment Income 5.14% (e) 5.56% 3.64% 2.82% 3.74% 6.10%
Decrease Reflected in
Expense Ratio due to
Expense
Reimbursement 0.00% (c)(e) 0.00% (c) 0.01% 0.01% 0.01% 0.01%
<CAPTION>
1990 1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- ----------- -----------
Income From Investment
Operations:
Net Investment Income 0.0780 0.0877 0.0705 0.0606 0.0652 0.0781
Net Realized Gain
(Loss) on Investment -0- -0- -0- -0- 0.0002 0.0001
----------- ----------- ----------- ----------- ----------- -----------
Total From Investment
Operations 0.0780 0.0877 0.0705 0.0606 0.0654 0.0782
----------- ----------- ----------- ----------- ----------- -----------
Less Distributions to
Shareholders From:
Net Investment Income (0.0780) (0.0877) (0.0705) (0.0606) (0.0652) (0.0781)
Net Realized Gain -0- -0- -0- -0- (0.0002) (0.0001)
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions to
Shareholders (0.0780) (0.0877) (0.0705) (0.0606) (0.0654) (0.0782)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of
Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Total Return 8.09% (b) 9.15% (b) 7.25% (b) 6.23% (b) 6.73% (b) 8.15% (b)
Ratios and Supplemental
Data:
Net Assets at End of
Period (in thousands) $2,355,980 $2,156,326 $1,897,513 $1,239,022 $1,229,640 $811,831
Ratios to Average Net
Assets:
Expenses 0.47% 0.46% 0.49% 0.54% 0.58% 0.61%
Net Investment Income 7.80% 8.77% 7.05% 6.06% 6.52% 7.81%
Decrease Reflected in
Expense Ratio due to
Expense
Reimbursement -- -- -- -- -- --
<FN>
(1) In July, 1993, the Fund's predecessor contributed all of its investable
assets to The Money Market Portfolio.
(a) Less than $0.0001 per share.
(b) Total return has been restated to reflect dividend reinvestment.
(c) Less than 0.01%.
(d) Not annualized.
(e) Annualized.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
THE PIERPONT TAX EXEMPT MONEY MARKET FUND
FOR THE
SIX MONTHS
ENDED
FEBRUARY 29, FOR THE FISCAL YEAR ENDED AUGUST 31
1996 ------------------------------------------------------------
(UNAUDITED) 1995 1994 1993(1) 1992 1991
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ---------- --------- ---------
Income From Investment
Operations:
Net Investment Income 0.0165 0.0336 0.0212 0.0214 0.0317 0.0460
Net Realized Gain
(Loss) on Investment 0.0000(a) (0.0002) (0.0000)(a) 0.0001 0.0002 (0.0000)(a)
------------ ------------ ------------ ---------- --------- ---------
Total From Investment
Operations 0.0165 0.0334 0.0212 0.0215 0.0319 0.0460
------------ ------------ ------------ ---------- --------- ---------
Less Distributions to
Shareholders From:
Net Investment Income (0.0165) (0.0336) (0.0212) (0.0214) (0.0317) (0.0460)
Net Realized Gain -- -- (0.0000)(a) (0.0002) -0- -0-
------------ ------------ ------------ ---------- --------- ---------
Total Distributions to
Shareholders (0.0165) (0.0336) (0.0212) (0.0216) (0.0317) (0.0460)
------------ ------------ ------------ ---------- --------- ---------
Net Asset Value, End of
Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ---------- --------- ---------
------------ ------------ ------------ ---------- --------- ---------
Total Return 1.66% (c) 3.41% 2.14% 2.15% 3.19% 4.60%
Ratios and Supplemental Data:
Net Assets at End of
Period (in thousands) $1,015,666 $985,069 $973,599 $1,007,330 $922,358 $877,422
Ratios to Average Net
Assets:
Expenses 0.49% (d) 0.51% 0.52% 0.52% 0.53% 0.55%
Net Investment Income 3.30% (d) 3.35% 2.10% 2.14% 3.16% 4.60%
Decrease Reflected in
Expense Ratio due to
Expense
Reimbursement -- 0.00% (b) 0.01% 0.01% 0.01% 0.01%
<CAPTION>
1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
Income From Investment
Operations:
Net Investment Income 0.0550 0.0581 0.0455 0.0387 0.0460
Net Realized Gain
(Loss) on Investment -0- 0.0001 0.0001 0.0005 0.0001
--------- --------- --------- --------- ---------
Total From Investment
Operations 0.0550 0.0582 0.0456 0.0392 0.0461
--------- --------- --------- --------- ---------
Less Distributions to
Shareholders From:
Net Investment Income (0.0550) (0.0581) (0.0455) (0.0387) (0.0460)
Net Realized Gain -0- (0.0001) (0.0001) (0.0005) (0.0001)
--------- --------- --------- --------- ---------
Total Distributions to
Shareholders (0.0550) (0.0582) (0.0456) (0.0392) (0.0461)
--------- --------- --------- --------- ---------
Net Asset Value, End of
Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total Return 5.50% 5.82% 4.56% 3.92% 4.61%
Ratios and Supplemental D
Net Assets at End of
Period (in thousands) $903,157 $876,051 $895,596 $980,544 $868,028
Ratios to Average Net
Assets:
Expenses 0.57% 0.53% 0.55% 0.56% 0.61%
Net Investment Income 5.51% 5.79% 4.54% 3.88% 4.59%
Decrease Reflected in
Expense Ratio due to
Expense
Reimbursement -- -- -- -- --
<FN>
(1) In July, 1993 the Fund's predecessor contributed all of its investable
assets to The Tax Exempt Money Market Portfolio.
(a) Less than $0.0001 per share.
(b) Less than 0.01%.
(c) Not annualized.
(d) Annualized.
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX THE PIERPONT TREASURY MONEY MARKET FUND FOR THE PERIOD
MONTHS ENDED FOR THE FISCAL YEAR ENDED OCTOBER JANUARY 4, 1993
APRIL 30, 1996 31, TO OCTOBER 31,
(UNAUDITED) 1995 1994 1993(1)
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------
Net Asset Value, Beginning of Period $1.00 $1.00 $1.00 $1.00
------- -------- -------- -------
Income From Investment Operations:
Net Investment Income 0.0247 0.0536 0.0333 0.0208
Net Realized Gain (Loss) on Investment 0.0005 0.0004 (0.0000)(a) 0.0002
------- -------- -------- -------
Total from Investment Operations 0.0252 0.0540 0.0333 0.0210
------- -------- -------- -------
Less Distributions to Shareholders From:
Net Investment Income (0.0247) (0.0536) (0.0333) (0.0208)
Net Realized Gain (0.0003) -- (0.0002) (0.0000)(a)
------- -------- -------- -------
Total Distributions to Shareholders (0.0250) (0.0536) (0.0335) (0.0208)
------- -------- -------- -------
Net Asset Value, End of Period $1.00 $1.00 $1.00 $1.00
------- -------- -------- -------
------- -------- -------- -------
Total Return 2.53%(b) 5.49% 3.41% 2.10%(b)
Ratios and Supplemental Data:
Net Assets at End of Period (in thousands) $176,709 $171,120 $118,631 $83,097
Ratios to Average Net Assets:
Expenses 0.40%(c) 0.40% 0.40% 0.48%(c)
Net Investment Income 4.95%(c) 5.36% 3.40% 2.53%(c)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 0.12%(c) 0.15% 0.22% 0.26%(c)
<FN>
(1) Commencement of Operations January 4, 1993.
(a) Less than $0.0001 per share.
(b) Not annualized.
(c) Annualized.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
THE PIERPONT SHORT TERM BOND FUND
FOR THE FOR THE FISCAL
SIX MONTHS YEAR ENDED FOR THE PERIOD
ENDED OCTOBER 31, JULY 8, 1993
APRIL 30, 1996 ----------------- TO OCTOBER 31,
(UNAUDITED) 1995 1994 1993(1)
<S> <C> <C> <C> <C>
---------------------------------------------------
Net Asset Value, Beginning of Period $ 9.84 $ 9.60 $ 9.99 $10.00
----- ------- ------- ------
Income From Investment Operations:
Net Investment Income 0.26 0.57 0.45 0.10
Net Realized and Unrealized (Loss) on Investment (0.07) 0.24 (0.39) (0.01)
----- ------- ------- ------
Total from Investment Operations 0.19 0.81 0.06 0.09
----- ------- ------- ------
Less Distributions to Shareholders From:
Net Investment Income (0.26) (0.57) (0.45) (0.10)
----- ------- ------- ------
Net Asset Value, End of Period $ 9.77 $ 9.84 $ 9.60 $ 9.99
----- ------- ------- ------
----- ------- ------- ------
Total Return 1.99%(a) 8.70% 0.61% 0.94%(a)
Ratios and Supplemental Data:
Net Assets at End of Period (in thousands) $9,358 $10,330 $6,008 $6,842
Ratios to Average Net Assets:
Expenses 0.67%(b) 0.67% 0.69% 0.67%(b)
Net Investment Income 5.41%(b) 5.88% 4.49% 3.44%(b)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 0.87%(b) 0.81% 1.36% 2.80%(b)
<FN>
(1) Commencement of Operations July 8, 1993.
(a) Not Annualized.
(b) Annualized.
</TABLE>
<TABLE>
<CAPTION>
FOR THE THE PIERPONT BOND FUND
SIX
MONTHS
ENDED
APRIL 30, FOR THE FISCAL YEAR ENDED OCTOBER 31
1996 -------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------
Net Asset Value, Beginning of Period $ 10.41 $ 9.64 $ 11.00 $ 10.52 $ 10.32
---------- ---------- ---------- ------ --------
Income From Investment Operations:
Net Investment Income 0.31 0.64 0.55 0.54 0.66
Net Realized and Unrealized Gain
(Loss) on Investment (0.28) 0.77 (0.91) 0.67 0.28
---------- ---------- ---------- ------ --------
Total From Investment Operations 0.03 1.41 (0.36) 1.21 0.94
---------- ---------- ---------- ------ --------
Less Distributions to Shareholders From:
Net Investment Income (0.31) (0.64) (0.55) (0.54) (0.66)
Net Realized Gain -- -0- (0.45) (0.19) (0.08)
---------- ---------- ---------- ------ --------
Total Distributions to Shareholders (0.31) (0.64) (1.00) (0.73) (0.74)
---------- ---------- ---------- ------ --------
Net Asset Value, End of Period $ 10.13 $ 10.41 $ 9.64 $ 11.00 $ 10.52
---------- ---------- ---------- ------ --------
---------- ---------- ---------- ------ --------
Total Return 0.24%(a) 15.10% (3.50)% 11.97% 9.35%
Ratios and Supplemental Data:
Net Assets at End of Period (in
thousands) $142,194 $143,004 $112,049 $103,572 $75,822
Ratios to Average Net Assets:
Expenses 0.66%(b) 0.69% 0.78% 0.81% 0.81%
Net Investment Income 5.98%(b) 6.40% 5.43% 5.01% 6.26%
Decrease Reflected in Expense Ratio
due to Expense Reimbursement -- -- 0.01% 0.08% 0.20%
Portfolio Turnover -- -- -- 236.39%(c) 267.04%
<CAPTION>
1991 1990 1989 1988(1)
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.93 $ 9.84 $ 9.84 $10.00
-------- -------- ------- ----------
Income From Investment Operations:
Net Investment Income 0.70 0.74 0.78 0.46
Net Realized and Unrealized Gain
(Loss) on Investment 0.41 0.09 -0- (0.16)
-------- -------- ------- ----------
Total From Investment Operations 1.11 0.83 0.78 0.30
-------- -------- ------- ----------
Less Distributions to Shareholders From:
Net Investment Income (0.70) (0.74) (0.78) (0.46)
Net Realized Gain (0.02) -0- -0- -0-
-------- -------- ------- ----------
Total Distributions to Shareholders (0.72) (0.74) (0.78) (0.46)
-------- -------- ------- ----------
Net Asset Value, End of Period $ 10.32 $ 9.93 $ 9.84 $ 9.84
-------- -------- ------- ----------
-------- -------- ------- ----------
Total Return 11.55% 8.78% 8.27% 3.12%(a)
Ratios and Supplemental Data:
Net Assets at End of Period (in
thousands) $41,616 $12,306 $8,449 $4,847
Ratios to Average Net Assets:
Expenses 0.81% 0.83% 0.84% 0.85%(b)
Net Investment Income 6.84% 7.58% 7.92% 7.40%(b)
Decrease Reflected in Expense Ratio
due to Expense Reimbursement 0.58% 1.26% 2.40% 3.13%(b)
Portfolio Turnover 166.78% 68.55% 81.92% 143.67%
<FN>
(1) Commencement of Operations March 11, 1988.
(a) Not annualized.
(b) Annualized.
(c) 1993 Portfolio Turnover reflects the period November 1, 1992 to July 11,
1993 and has not been annualized. In July, 1993, the Fund's predecessor
contributed all of its investable assets to The U.S. Fixed Income Portfolio.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
FOR THE THE PIERPONT TAX EXEMPT BOND FUND
SIX
MONTHS
ENDED
FEBRUARY FOR THE FISCAL YEAR ENDED AUGUST 31
29, 1996 --------------------------------------------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of
Period $11.73 $11.45 $12.04 $11.60 $11.19 $10.75 $10.85 $10.72 $10.84 $11.15
-------- -------- ------ ------ -------- -------- -------- -------- -------- --------
Income From
Investment
Operations:
Net Investment
Income 0.28 0.55 0.51 0.55 0.62 0.68 0.70 0.71 0.71 0.69
Net Realized and
Unrealized Gain
(Loss) on
Investment 0.17 0.29 (0.35 ) 0.56 0.41 0.44 (0.10) 0.13 (0.12) (0.27)
-------- -------- ------ ------ -------- -------- -------- -------- -------- --------
Total From
Investment
Operations 0.45 0.84 0.16 1.11 1.03 1.12 0.60 0.84 0.59 0.42
-------- -------- ------ ------ -------- -------- -------- -------- -------- --------
Less Distributions
to Shareholders
From:
Net Investment
Income (0.28) (0.55) (0.51 ) (0.55 ) (0.62) (0.68) (0.70) (0.71) (0.71) (0.69)
Net Realized
Gain (0.01) (0.01) (0.24 ) (0.12 ) -0- -0- -0- -0- -0- (0.04)
-------- -------- ------ ------ -------- -------- -------- -------- -------- --------
Total
Distributions to
Shareholders (0.29) (0.56) (0.75 ) (0.67 ) (0.62) (0.68) (0.70) (0.71) (0.71) (0.73)
-------- -------- ------ ------ -------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $11.89 $11.73 $11.45 $12.04 $11.60 $11.19 $10.75 $10.85 $10.72 $10.84
-------- -------- ------ ------ -------- -------- -------- -------- -------- --------
-------- -------- ------ ------ -------- -------- -------- -------- -------- --------
Total Return 3.88%(b) 7.63% 1.35% 9.88% 9.47% 10.67% 5.65% 8.11% 5.64% 3.43%
Ratios and
Supplemental
Data:
Net Assets at
End of Period
(in thousands) $377,413 $352,005 $392,460 $485,013 $360,343 $239,709 $151,755 $133,638 $118,066 $137,944
Ratios to
Average Net
Assets:
Expenses 0.61%(c) 0.71% 0.71% 0.74% 0.77% 0.78% 0.79% 0.80% 0.80% 0.80%
Net Investment
Income 4.65%(c) 4.87% 4.39% 4.64% 5.45% 6.12% 6.43% 6.62% 6.62% 6.17%
Decrease
Reflected in
Expense Ratio
due to
Expense
Reimbursement -- -- -- 0.01% 0.01% 0.02% 0.04% 0.06% 0.08% 0.05%
Portfolio
Turnover -- -- -- 40.80%(a) 19.94% 16.39% 7.45% 10.19% 20.03% 51.77%
<CAPTION>
1986
<S> <C>
Net Asset Value,
Beginning of
Period $10.30
--------
Income From
Investment
Operations:
Net Investment
Income 0.75
Net Realized and
Unrealized Gain
(Loss) on
Investment 0.92
--------
Total From
Investment
Operations 1.67
--------
Less Distributions
to Shareholders
From:
Net Investment
Income (0.75)
Net Realized
Gain (0.07)
--------
Total
Distributions to
Shareholders (0.82)
--------
Net Asset Value,
End of Period $11.15
--------
--------
Total Return 16.05%
Ratios and
Supplemental
Data:
Net Assets at
End of Period
(in thousands) $125,475
Ratios to
Average Net
Assets:
Expenses 0.80%
Net Investment
Income 6.94%
Decrease
Reflected in
Expense Ratio
due to
Expense
Reimbursement 0.11%
Portfolio
Turnover 38.12%
<FN>
(a) 1993 Portfolio Turnover reflects the period September 1, 1992 to July 11,
1993 and has not been annualized. In July, 1993, the Fund's predecessor
contributed all of its investable assets to The Tax Exempt Bond Portfolio.
(b) Not Annualized.
(c) Annualized.
</TABLE>
<TABLE>
<CAPTION>
THE PIERPONT EQUITY FUND
FOR THE FISCAL YEAR ENDED MAY 31
----------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------
Net Asset Value,
Beginning of
Period $19.42 $19.38 $19.30 $19.02 $ 18.21 $16.51 $14.54 $12.04 $14.23 $12.86
------ ---------- ---------- -------- -------- ------- ------- ------- ------- -------
Income From
Investment
Operations:
Net Investment
Income 0.38 0.32 0.27 0.38 0.37 0.44 0.44 0.46 0.42 0.43
Net Realized and
Unrealized Gain
(Loss) on
Investment 4.23 2.17 1.32 1.35 2.13 1.90 2.20 2.49 (1.53) 1.55
------ ---------- ---------- -------- -------- ------- ------- ------- ------- -------
Total From
Investment
Operations 4.61 2.49 1.59 1.73 2.50 2.34 2.64 2.95 (1.11) 1.98
------ ---------- ---------- -------- -------- ------- ------- ------- ------- -------
Less Distributions
to Shareholders
From:
Net Investment
Income (0.29) (0.28) (0.29) (0.36) (0.40) (0.45) (0.44) (0.45) (0.41) (0.39)
Net Realized Gain (1.59) (2.17) (1.22) (1.09) (1.29) (0.19) (0.23) -0- (0.67) (0.22)
------ ---------- ---------- -------- -------- ------- ------- ------- ------- -------
Total Distributions
to Shareholders (1.88) (2.45) (1.51) (1.45) (1.69) (0.64) (0.67) (0.45) (1.08) (0.61)
------ ---------- ---------- -------- -------- ------- ------- ------- ------- -------
Net Asset Value,
End of Period $22.15 $19.42 $19.38 $19.30 $ 19.02 $18.21 $16.51 $14.54 $12.04 $14.23
------ ---------- ---------- -------- -------- ------- ------- ------- ------- -------
------ ---------- ---------- -------- -------- ------- ------- ------- ------- -------
Total Return 25.18% 15.11% 8.54% 10.02% 14.60% 14.81% 18.75% 25.12% (8.08)% 16.03%
Ratios and
Supplemental
Data:
Net Assets at End
of Period (in
thousands) $330,014 $259,338 $231,306 $202,474 $109,246 $55,144 $40,032 $27,677 $24,970 $30,268
Ratios to Average
Net Assets:
Expenses 0.81% 0.90% 0.90% 0.90% 0.90% 0.91% 0.93% 1.00% 1.00% 0.99%
Net Investment
Income 1.87% 1.74 1.43% 2.20% 2.16% 2.81% 2.97% 3.52% 3.26% 3.26%
Decrease
Reflected in
Expense Ratio
due to Expense
Reimbursement -- 0.01% 0.03% 0.08% 0.19% 0.38% 0.41% 0.45% 0.34% 0.57%
Portfolio
Turnover -- -- 10.00%(a) 59.61% 99.20% 43.26% 23.20% 17.76% 29.46% 32.31%
<FN>
(a) Portfolio Turnover reflects the period June 1, 1993 to July 18, 1993 and has
not been annualized. In July, 1993, the Fund's predecessor contributed all
of its investable assets to The Selected U.S. Equity Portfolio.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
THE PIERPONT CAPITAL APPRECIATION FUND
FOR THE FISCAL YEAR ENDED MAY 31
-----------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of
Period $22.02 $21.40 $25.12 $20.03 $17.98 $18.68 $16.83 $12.91 $15.71 $14.34
------ --------- -------- -------- -------- -------- -------- -------- -------- --------
Income From
Investment
Operations:
Net Investment
Income (Loss)(a) 0.26 0.22 0.20 (0.01) (0.04) (0.02) (0.03) (0.03) (0.02) -0-
Net Realized and
Unrealized Gain
(Loss) on
Investment 6.96 2.13 0.19 5.10 2.09 (0.33) 1.88 3.95 (2.13) 1.56
------ --------- -------- -------- -------- -------- -------- -------- -------- --------
Total From
Investment
Operations 7.22 2.35 0.39 5.09 2.05 (0.35) 1.85 3.92 (2.15) 1.56
------ --------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions
to Shareholders
From:
Net Investment
Income (0.26) (0.21) (0.09) -0- -0- -0- -0- -0- -0- (0.02)
Net Realized Gain (2.78) (1.52) (4.02) -0- -0- (0.35) -0- -0- (0.65) (0.17)
------ --------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions
to Shareholders (3.04) (1.73) (4.11) -0- -0- (0.35) -0- -0- (0.65) (0.19)
------ --------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End
of Period $26.20 $22.02 $21.40 $25.12 $20.03 $17.98 $18.68 $16.83 $12.91 $15.71
------ --------- -------- -------- -------- -------- -------- -------- -------- --------
------ --------- -------- -------- -------- -------- -------- -------- -------- --------
Total Return 35.48% 12.28% 1.14% 25.41% 11.40% (1.90)% 10.99% 30.36% (14.25)% 10.83%
Ratios and
Supplemental Data:
Net Assets at End
of Period (in
thousands) $220,917 $179,130 $204,445 $186,887 $97,548 $58,859 $47,921 $42,403 $30,866 $42,780
Ratios to Average
Net Assets:
Expenses 0.90% 0.90% 0.90% 0.90% 0.90% 0.91% 0.93% 1.00% 1.00% 1.00%
Net Investment
Income (Loss) 1.10% 1.02% 0.75% (0.06)% (0.25)% (0.15)% (0.18)% (0.23)% (0.15)% (0.01)%
Decrease
Reflected in
Expense Ratio
due to Expense
Reimbursement 0.13% 0.22% 0.20% 0.05% 0.13% 0.31% 0.32% 0.36% 0.31% 0.38%
Portfolio Turnover -- -- 13.58%(b) 49.50% 58.33% 55.65% 65.77% 38.30% 77.99% 78.70%
<FN>
(a) Based on shares outstanding at the beginning and end of each period except
for the fiscal year ended May 31, 1991, where average shares outstanding
were used.
(b) Portfolio Turnover reflects the period June 1, 1993, to July 18, 1993 and
has not been annualized. In July, 1993, the Fund's predecessor contributed
all of its investable assets to The U.S. Small Company Portfolio.
</TABLE>
<TABLE>
<CAPTION>
FOR THE THE PIERPONT INTERNATIONAL EQUITY FUND
SIX
MONTHS
ENDED
APRIL 30, FOR THE FISCAL YEAR ENDED OCTOBER 31
1996 ---------------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991 1990(1)
<S> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 10.68 $ 11.50 $ 11.15 $ 8.58 $ 9.69 $ 9.33 $ 10.00
--------- --------- --------- --------- --------- -------- ---------
Income From Investment Operations:
Net Investment Income 0.04 0.09 0.05 0.01 0.04 0.11 0.05
Net Realized and Unrealized Gain (Loss) on
Investment and Foreign Currency 1.38 (0.42) 0.57 2.64 (1.11) 0.42 (0.72)
--------- --------- --------- --------- --------- -------- ---------
Total From Investment Operations 1.42 (0.33) 0.62 2.65 (1.07) 0.53 (0.67)
--------- --------- --------- --------- --------- -------- ---------
Less Distributions to Shareholders From:
Net Investment Income (0.24) -0- (0.04) (0.08) (0.04) (0.05) -0-
Net Realized Gain (0.34) (0.49) (0.23) -0- -0- (0.12) -0-
--------- --------- --------- --------- --------- -------- ---------
Total Distributions to Shareholders (0.58) (0.49) (0.27) (0.08) (0.04) (0.17) -0-
--------- --------- --------- --------- --------- -------- ---------
Net Asset Value, End of Period $ 11.52 $ 10.68 $ 11.50 $ 11.15 $ 8.58 $ 9.69 $ 9.33
--------- --------- --------- --------- --------- -------- ---------
--------- --------- --------- --------- --------- -------- ---------
Total Return 13.69%(a) (2.71)% 5.73% 31.18% (11.08)% 5.89% (6.70)%(a)
Ratios and Supplemental Data:
Net Assets at End of Period (in thousands) $205,073 $185,541 $210,435 $182,822 $41,484 $27,426 $19,358
Ratios to Average Net Assets:
Expenses 1.10%(b) 1.28% 1.38% 1.38% 1.38% 1.38% 1.36%(b)
Net Investment Income 0.63%(b) 0.80% 0.46% 0.79% 1.03% 1.34% 1.49%(b)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement -- 0.00%(d) 0.07% 0.13% 0.45% 0.66% 1.52%(b)
Portfolio Turnover -- -- -- 34.15%(c) 30.12% 18.84% 0.00%
<FN>
(1) Commencement of Operations June 1, 1990.
(a) Not annualized.
(b) Annualized.
(c) 1993 Portfolio Turnover reflects the period November 1, 1992 to October 3,
1993 and has not been annualized. In October, 1993, the Fund's predecessor
contributed all of its investable assets to The Non-U.S. Equity Portfolio.
(d) Less than 0.01%.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
THE PIERPONT EMERGING MARKETS
FOR THE SIX EQUITY FUND
MONTHS
ENDED FOR THE FISCAL FOR THE PERIOD
APRIL 30, 1996 YEAR ENDED NOVEMBER 15, 1993 TO
(UNAUDITED) OCTOBER 31, 1995 OCTOBER 31, 1994(1)
<S> <C> <C> <C>
------------------------------------------------------------
Net Asset Value, Beginning of Period $9.65 $12.43 $10.00
----------- ----------- ------------
Income From Investment Operations:
Net Investment Income 0.04 0.05 0.02
Net Realized and Unrealized Gain (Loss) on
Investment and Foreign Currency 1.10 (2.66) 2.41
----------- ----------- ------------
Total from Investment Operations 1.14 (2.61) 2.43
----------- ----------- ------------
Less Distributions to Shareholders From:
Net Investment Income (0.07) (0.03) --
Net Realized Gain -- (0.14) --
----------- ----------- ------------
Total Distributions to Shareholders (0.07) (0.17) --
----------- ----------- ------------
Net Asset Value, End of Period $10.72 $ 9.65 $12.43
----------- ----------- ------------
----------- ----------- ------------
Total Return 11.95%(a) (21.15)% 24.30%(a)
Ratios and Supplemental Data:
Net Assets at End of Period (in thousands) $60,770 $49,295 $53,431
Ratios to Average Net Assets:
Expenses 1.68%(b) 1.80% 1.84%(b)
Net Investment Income 0.70%(b) 0.55% 0.25%(b)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement -- -- 0.12%
<FN>
(1) Commencement of Operations November 15, 1993.
(a) Not annualized.
(b) Annualized.
</TABLE>
<TABLE>
<CAPTION>
THE PIERPONT DIVERSIFIED FUND
FOR THE FISCAL
YEAR ENDED
JUNE 30 FOR THE PERIOD
------------------------------- DECEMBER 15, 1993 TO
1996 1995 JUNE 30, 1994(1)
------- -------------- --------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $11.20 $ 9.81 $10.00
----- --------- ------------
Income From Investment Operations:
Net Investment Income 0.30 0.28 0.09
Net Realized and Unrealized Gain (Loss) on
Investment, Foreign Currency and Futures 1.48 1.37 (0.27)
----- --------- ------------
Total From Investment Operations 1.78 1.65 (0.18)
----- --------- ------------
Less Dividends to Shareholders From:
Net Investment Income (0.32) (0.20) (0.01)
Net Realized Gain on Investment, Foreign
Currency and Futures (0.44) (0.06) --
----- --------- ------------
Total Distributions to Shareholders (0.76) (0.26) (0.01)
----- --------- ------------
Net Asset Value, End of Period $12.22 $11.20 $ 9.81
----- --------- ------------
----- --------- ------------
Total Return 16.51% 17.08% (1.82%)(a)
Ratios and Supplemental Data:
Net Assets at End of Period (in thousands) $53,198 $22,396 $7,023
Ratios to Average Net Assets:
Expenses 0.98% 0.98% 0.98%(b)
Net Investment Income 3.04% 3.39% 2.80%(b)
Decrease Reflected in Expense Ratio due to Fee
Waivers and Expense Reimbursement 0.38% 0.91% 1.52%(b)
<FN>
(1) Commencement of Operations December 15, 1993.
(a) Not annualized.
(b) Annualized.
</TABLE>
9
<PAGE>
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each of the Funds is an open-end management investment
company which seeks to achieve its investment objective by investing all of its
investable assets in its corresponding Portfolio, a separate registered
investment company with the same investment objective as its corresponding Fund.
The investment objective of a Fund or a Portfolio may be changed only with the
approval of the holders of the outstanding shares of each Fund and its
corresponding Portfolio. The use of the master-feeder investment fund structure
has been approved by the shareholders of Funds that had predecessor entities.
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 a Fund, the corresponding
Portfolio may sell beneficial interests to other mutual funds or institutional
investors. Such investors will invest in the Portfolio on the same terms and
conditions and will bear a proportionate share of the Portfolio's expenses.
However, the other investors investing in the Portfolio may sell shares of their
own fund using a different pricing structure than the Fund. Such different
pricing structures may result in differences in returns experienced by investors
in other funds that invest in the same Portfolio. Such differences in returns
are not uncommon and are present in other mutual fund structures. Information
concerning other holders of interests in each Portfolio is available from Morgan
Guaranty at (800) 521-5411.
The Trust may withdraw the investment of any Fund from its corresponding
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interests of a Fund to do so. Upon any such withdrawal, the Board
of Trustees would consider what action might be taken, including the investment
of all the assets of the Fund in another pooled investment entity having the
same investment objective and restrictions as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described below with respect to its corresponding Portfolio.
Certain changes in a Portfolio's investment objective, policies or
restrictions, or a failure by a Fund's shareholders to approve a change in the
corresponding Portfolio's investment objective or restrictions, may require
withdrawal of that Fund's interest in that Portfolio. Any such withdrawal could
result in a distribution in kind of portfolio securities (as opposed to a cash
distribution) from that Portfolio which may or may not be readily marketable.
The distribution in kind may result in that Fund having a less diversified
portfolio of investments or adversely affect the Fund's liquidity, and that Fund
could incur brokerage, tax or other charges in converting the securities to
cash. Notwithstanding the above, there are other means for meeting shareholder
redemption requests, such as borrowing.
Smaller funds investing in a Portfolio may be materially affected by the
actions of larger funds investing in that Portfolio. For example, if a large
fund withdraws from a Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, because that Portfolio would become smaller, it may become less
diversified, resulting in potentially increased portfolio risk (however, these
possibilities also exist for traditionally structured funds which have large or
institutional investors who may withdraw from a fund). Also, funds with a
greater pro rata ownership in a Portfolio could have effective voting control of
the operations of a Portfolio. Whenever a Fund is requested to vote on matters
pertaining to its corresponding Portfolio (other than a vote by a Fund to
continue the operation of its corresponding Portfolio upon the withdrawal of
another investor in the Portfolio), the Trust will hold a meeting of
shareholders of the Fund and will cast all of its votes proportionately as
instructed by the Fund's shareholders. The Trust will vote the shares held by
Fund shareholders who do not give voting instructions in the same proportion as
the shares of Fund shareholders who do give voting instructions. Shareholders of
the Fund who do not vote will have no effect on the outcome of such matters.
For more information about a Portfolio's investment objective, policies and
restrictions, see Investment Objectives and Policies, Additional Investment
Information and Risk Factors and Investment Restrictions. For more information
about a Portfolio's management and expenses, see Management of the Trust and the
Portfolios. For more information about changing the investment objective,
policies and restrictions of a Fund or Portfolio, see Investment Restrictions.
10
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of each of the Funds included in this Prospectus is
described below, together with the policies it employs in its efforts to achieve
this objective. As noted above, each of the Funds seeks to achieve its
investment objective by investing all of its investable assets in its
corresponding Portfolio, which has the same investment objective as its
corresponding Fund. Since the investment characteristics of each Fund will
correspond directly with those of its Portfolio, the following is a discussion
of the various investments and investment policies of each Portfolio. Additional
information about the investment policies of each Portfolio appears in the
Statement of Additional Information under Investment Objectives and Policies.
There can be no assurance that the investment objective of each Fund or its
corresponding Portfolio will be achieved.
THE PIERPONT MONEY MARKET FUND
The Pierpont Money Market Fund's investment objective is to maximize current
income and maintain a high level of liquidity. The Fund is designed for
investors who seek to preserve capital and earn current income from a portfolio
of high quality money market instruments. The Fund attempts to achieve its
objective by investing all of its investable assets in The Money Market
Portfolio, a diversified open-end management investment company having the same
investment objective as the Fund.
The Portfolio seeks to achieve its investment objective by maintaining a
dollar-weighted average portfolio maturity of not more than 90 days and by
investing in the following high quality U.S. dollar-denominated securities which
have effective maturities of not more than thirteen months. The Portfolio's
ability to achieve maximum current income is affected by its high quality
standards (discussed below).
U. S. GOVERNMENT OBLIGATIONS. The Portfolio may invest in obligations issued
or guaranteed by the U.S. Government and backed by the full faith and credit of
the United States. These securities include Treasury securities, obligations of
the Government National Mortgage Association, the Farmers Home Administration
and the Export Import Bank. The Portfolio may also invest in obligations issued
or guaranteed by U.S. Government agencies or instrumentalities where the
Portfolio must look principally to the issuing or guaranteeing agency for
ultimate repayment; some examples of agencies or instrumentalities issuing these
obligations are the Federal Farm Credit System, the Federal Home Loan Banks and
the Federal National Mortgage Association.
BANK OBLIGATIONS. The Portfolio may invest in high quality U.S.
dollar-denominated negotiable certificates of deposit, time deposits and
bankers' acceptances of (i) banks, savings and loan associations and savings
banks which have more than $2 billion in total assets and are organized under
U.S. federal or state law, (ii) foreign branches of these banks or of foreign
banks of equivalent size (Euros) and (iii) U.S. branches of foreign banks of
equivalent size (Yankees). The Portfolio may also invest in obligations of
international banking institutions designated or supported by national
governments to promote economic reconstruction, development or trade between
nations (e.g., the European Investment Bank, the Inter-American Development
Bank, or the World Bank). These obligations may be supported by appropriated but
unpaid commitments of their member countries, and there is no assurance these
commitments will be undertaken or met in the future.
COMMERCIAL PAPER; BONDS. The Portfolio may invest in high quality commercial
paper and corporate bonds issued by U.S. corporations. The Portfolio may also
invest in bonds and commercial paper of foreign issuers if the obligation is
U.S. dollar-denominated and is not subject to foreign withholding tax.
ASSET-BACKED SECURITIES. The Portfolio may also invest in securities
generally referred to as asset-backed securities, which directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets such as motor vehicle or
credit card receivables. Asset-backed securities provide periodic payments that
generally consist of both interest and principal payments. Consequently, the
life of an asset-backed security varies with the prepayment experience of the
underlying debt instruments.
QUALITY INFORMATION. The Portfolio will limit its investments to those
securities which, in accordance with guidelines adopted by the Trustees, present
minimal credit risks. In addition, the Portfolio will not purchase any security
(other than a U.S. Government security) unless (i) it is rated with the highest
rating assigned to short-term debt securities by at least two nationally
recognized statistical rating organizations such as Moody's Investors Service,
Inc. ("Moody's") and Standard & Poor's Corporation ("Standard & Poor's"), (ii)
it is rated by only one agency with the highest such rating, or (iii) it is not
rated and is determined to be of comparable quality. Determinations of
comparable quality shall be made in accordance with procedures established by
the
11
<PAGE>
Trustees. For a more detailed discussion of applicable quality requirements, see
Investment Objectives and Policies in the Statement of Additional Information.
These standards must be satisfied at the time an investment is made. If the
quality of the investment later declines below the quality required for
purchase, the Portfolio shall dispose of the investment, subject in certain
circumstances to a finding by the Trustees that disposing of the investment
would not be in the Portfolio's best interest.
The Portfolio may also invest in securities on a when-issued or delayed
delivery basis and in certain privately placed securities. The Portfolio may
also enter into repurchase and reverse repurchase agreements and loan its
portfolio securities. For a discussion of these investments and for more
information on foreign investments, see Additional Investment Information and
Risk Factors.
THE PIERPONT TAX EXEMPT
MONEY MARKET FUND
The Pierpont Tax Exempt Money Market Fund's investment objective is to
provide a high level of current income that is exempt from federal income tax
and maintain a high level of liquidity. The Fund is designed for investors who
seek current income exempt from federal income tax, stability of capital and
liquidity. See Taxes. The Fund attempts to achieve its objective by investing
all of its investable assets in The Tax Exempt Money Market Portfolio, a
diversified open-end management investment company having the same investment
objective as the Fund.
The Portfolio attempts to achieve its investment objective by investing
primarily in the following municipal securities which earn interest exempt from
federal income tax in the opinion of bond counsel for the issuer and which have
effective maturities not greater than thirteen months and by maintaining a
dollar-weighted average portfolio maturity of not more than 90 days. During
normal market conditions, the Portfolio will invest at least 80% of its net
assets in tax exempt obligations. Interest on these securities may be subject to
state and local taxes. For more detailed information regarding tax matters,
including the applicability of the alternative minimum tax, see Taxes.
MUNICIPAL BONDS. The Portfolio may invest in bonds issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies, authorities and
instrumentalities. These obligations may be general obligation bonds secured by
the issuer's pledge of its full faith, credit and taxing power for the payment
of principal and interest, or they may be revenue bonds payable from specific
revenue sources, but not generally backed by the issuer's taxing power. These
include industrial development bonds where payment is the responsibility of the
private industrial user of the facility financed by the bonds. The Portfolio may
invest more than 25% of its assets in industrial development bonds, but may not
invest more than 25% of its assets in these bonds in projects of similar type or
in the same state.
MUNICIPAL NOTES. The Portfolio may also invest in municipal notes of various
types, including notes issued in anticipation of receipt of taxes, the proceeds
of the sale of bonds, other revenues or grant proceeds, as well as municipal
commercial paper and municipal demand obligations such as variable rate demand
notes and master demand obligations. The interest rate on variable rate demand
notes is adjustable at periodic intervals as specified in the notes. Master
demand obligations permit the investment of fluctuating amounts at periodically
adjusted interest rates. They are governed by agreements between the municipal
issuer and Morgan Guaranty acting as agent, for no additional fee, in its
capacity as Advisor to the Portfolio and as fiduciary for other clients.
Although master demand obligations are not marketable to third parties, the
Portfolio considers them to be liquid because they are payable on demand. There
is no specific percentage limitation on these investments. For more information
about municipal notes, see Investment Objectives and Policies in the Statement
of Additional Information.
QUALITY INFORMATION. The Portfolio will limit its investments to those
securities which, in accordance with guidelines adopted by the Trustees, present
minimal credit risks. In addition, the Portfolio will not purchase any municipal
obligation unless (i) it is rated with the highest rating assigned to short-term
debt securities (or, in the case of New York State municipal notes, with one of
the two highest ratings assigned to short-term debt securities) by at least two
nationally recognized statistical rating organizations such as Moody's and
Standard & Poor's, (ii) it is rated by only one agency with such rating, or
(iii) it is not rated and is determined to be of comparable quality.
Determinations of comparable quality shall be made in accordance with procedures
established by the Trustees. For a more detailed discussion of applicable
quality requirements, see Investment Objectives and Policies in the Statement of
Additional Information. These standards must be satisfied at the time an
investment is made. If the quality of the investment later declines below the
quality required for purchase, the Portfolio shall dispose of the investment,
subject in certain circumstances to a
12
<PAGE>
finding by the Trustees that disposing of the investment would not be in the
Portfolio's best interest. The credit quality of variable rate demand notes and
other municipal obligations is frequently enhanced by various arrangements with
domestic or foreign financial institutions, such as letters of credit,
guarantees and insurance, and these arrangements are considered, along with the
credit quality of such institutions, when investment quality is evaluated.
Favorable or unfavorable changes in the credit quality of these institutions may
cause gains or losses to the Portfolio and affect the Fund's share price.
The Portfolio may also invest up to 20% of the value of its total assets in
taxable securities and may purchase municipal obligations together with puts. In
addition, the Portfolio may purchase municipal obligations on a when-issued or
delayed delivery basis, enter into repurchase and reverse repurchase agreements,
loan its portfolio securities and purchase synthetic variable rate instruments.
For a discussion of these transactions, see Additional Investment Information
and Risk Factors.
THE PIERPONT TREASURY
MONEY MARKET FUND
The Pierpont Treasury Money Market Fund's investment objective is to provide
current income, maintain a high level of liquidity, and preserve capital. The
Fund attempts to achieve its investment objective by investing all of its
investable assets in The Treasury Money Market Portfolio, a diversified open-end
management investment company having the same investment objective as the Fund.
The Portfolio seeks to achieve its investment objective by investing in
direct obligations of the U.S. Treasury and, to a lesser extent, in obligations
of the U.S. Government agencies described below. The Portfolio maintains a
dollar-weighted average portfolio maturity of not more than 90 days and invests
in the following securities which have effective maturities of not more than
thirteen months.
TREASURY SECURITIES; CERTAIN U.S. GOVERNMENT AGENCY OBLIGATIONS. The
Portfolio will invest in Treasury Bills, Notes, and Bonds, all of which are
backed as to principal and interest payments by the full faith and credit of the
United States ("Treasury Securities"). Treasury Bills have initial maturities of
one year or less; Treasury Notes have initial maturities of one to ten years;
and Treasury Bonds generally have initial maturities of greater than ten years.
During ordinary market conditions at least 65% of the Portfolio's net assets
will be invested in Treasury Securities and repurchase agreements collateralized
by Treasury Securities. The balance of the Portfolio may be invested in
obligations issued by the following U.S. Government agencies where the Portfolio
must look to the issuing agency for ultimate repayment: the Federal Farm Credit
System and the Federal Home Loan Banks ("Permitted Agency Securities"). Each
such obligation must have a remaining maturity of thirteen months or less at the
time of purchase by the Portfolio.
The market value of obligations in which the Portfolio invests is not
guaranteed and may rise and fall in response to changes in interest rates.
Neither the shares of the Fund nor the interests in the Portfolio are guaranteed
or insured by the U.S. Government.
The Portfolio also may purchase Treasury Securities and Permitted Agency
Securities on a when-issued or delayed delivery basis and may engage in
repurchase and reverse repurchase agreement transactions involving such
securities. For a discussion of these transactions, see Additional Investment
Information and Risk Factors.
THE PIERPONT SHORT TERM BOND FUND
The Pierpont Short Term Bond Fund's investment objective is to provide a high
total return while attempting to limit the likelihood of negative quarterly
returns. Total return will consist of income plus realized and unrealized
capital gains and losses. The Fund seeks to achieve this high total return to
the extent consistent with modest risk of capital and the maintenance of
liquidity. The Fund attempts to achieve its investment objective by investing
all of its investable assets in The Short Term Bond Portfolio, a diversified
open-end management investment company having the same investment objective as
the Fund.
The Pierpont Short Term Bond Fund is designed for investors who place a
strong emphasis on conservation of capital but who also want a return greater
than that of a money market fund and other very low risk investment vehicles. It
is appropriate for investors who do not require the stable net asset value
typical of a money market fund but do want less price fluctuation than is
typical of a longer-term bond fund.
The Advisor actively manages the Portfolio's duration, the allocation of
securities across market sectors and the selection of securities within sectors.
Based on fundamental, economic and capital markets research, the Advisor adjusts
the duration of the Portfolio in accordance with the Advisor's outlook for
interest rates. The Advisor also actively allocates the Portfolio's assets among
the broad sectors of the fixed income market including, but not limited to,
13
<PAGE>
U.S. Government and agency securities, corporate securities, private placements,
asset-backed and mortgage-related securities. Specific securities which the
Advisor believes are undervalued are selected for purchase within the sectors
using advanced quantitative tools, analysis of credit risk, the expertise of a
dedicated trading desk, and the judgment of fixed income portfolio managers and
analysts.
The Advisor also seeks to limit the likelihood of negative quarterly returns
by balancing the Portfo-
lio's level of income with the possibility of capital losses. This balancing
effort helps determine the Portfolio's duration.
Duration is a measure of the weighted average maturity of the bonds held in
the Portfolio and can be used as a measure of the sensitivity of the Portfolio's
market value to changes in interest rates. Generally, the longer the duration of
the Portfolio, the more sensitive its market value will be to changes in
interest rates. Under normal market conditions, the Portfolio's duration will
range between one and three years. The maturities of the individual securities
in the Portfolio may vary widely, however.
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. Portfolio transactions are undertaken principally to
accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates, but the Portfolio may also engage in short-term
trading consistent with its objective. To the extent the Portfolio engages in
short-term trading, it may incur increased transaction costs. See Taxes below.
CORPORATE BONDS, ETC. The Portfolio may invest in a broad range of debt
securities of domestic and foreign issuers. These include debt securities of
various types and maturities, e.g., debentures, notes, mortgage securities,
equipment trust certificates and other collateralized securities and zero coupon
securities. Collateralized securities are backed by a pool of assets such as
loans or receivables which generate cash flow to cover the payments due on the
securities. Collateralized securities are subject to certain risks, including a
decline in the value of the collateral backing the security, failure of the
collateral to generate the anticipated cash flow or in certain cases more rapid
prepayment because of events affecting the collateral, such as accelerated
prepayment of mortgages or other loans backing these securities or destruction
of equipment subject to equipment trust certificates. In the event of any such
prepayment the Portfolio will be required to reinvest the proceeds of
prepayments at interest rates prevailing at the time of reinvestment, which may
be lower. In addition, the value of zero coupon securities which do not pay
interest is more volatile than that of interest bearing debt securities with the
same maturity. The Portfolio does not intend to invest in common stock but may
invest to a limited extent in convertible debt or preferred stock. The Portfolio
may invest in debt securities of foreign issuers only if such securities are
denominated in the U.S. dollar. The Portfolio does not expect to invest more
than 25% of its assets in securities of foreign issuers. See Additional
Investment Information and Risk Factors for further information on foreign
investments and convertible securities.
GOVERNMENT OBLIGATIONS, ETC. The Portfolio may invest in obligations issued
or guaranteed by the U.S. Government and backed by the full faith and credit of
the United States. These securities include Treasury securities, obligations of
the Government National Mortgage Association ("GNMA Certificates"), the Farmers
Home Administration and the Export Import Bank. GNMA Certificates are
mortgage-backed securities which evidence an undivided interest in mortgage
pools. These securities are subject to more rapid repayment than their stated
maturity would indicate because prepayments of principal on mortgages in the
pool are passed through to the holder of the securities. During periods of
declining interest rates, prepayments of mortgages in the pool can be expected
to increase. The pass-through of these prepayments would have the effect of
reducing the Portfolio's positions in these securities and requiring the
Portfolio to reinvest the prepayments at interest rates prevailing at the time
of reinvestment. The Portfolio may also invest in obligations issued or
guaranteed by U.S. Government agencies or instrumentalities where the Portfolio
must look principally to the issuing or guaranteeing agency for ultimate
repayment; some examples of agencies or instrumentalities issuing these
obligations are the Federal Farm Credit System, the Federal Home Loan Banks and
the Federal National Mortgage Association. Although these governmental issuers
are responsible for payments on their obligations, they do not guarantee their
market value. The Portfolio may also invest in municipal obligations which may
be general obligations of the issuer or payable only from specific revenue
sources. However, the Portfolio will invest only in municipal obligations that
have been issued on a taxable basis or have an attractive yield excluding tax
considerations. In addition, the Portfolio may invest in debt securities of
foreign governments and governmental entities. See Additional Investment
Information and Risk Factors for further information on foreign investments.
MONEY MARKET INVESTMENTS. The Portfolio may invest in the types of money
market instruments in which The Pierpont Money Market Fund may invest, subject
to the quality requirements of The Pierpont Short Term Bond Fund. See Quality
Information below and Money Market Instruments in the Statement of Additional
Information. Under normal
14
<PAGE>
circumstances, the Portfolio will purchase these securities to invest temporary
cash balances or to maintain liquidity to meet withdrawals. However, the
Portfolio may also invest in money market instruments as a temporary defensive
measure taken during, or in anticipation of, adverse market conditions.
QUALITY INFORMATION. Under normal market circumstances at least 80% of the
Portfolio's total assets will consist of debt securities that are rated at least
A by Moody's or Standard & Poor's or that are unrated and in the Advisor's
opinion are of comparable quality. In the case of the remaining 20% of the
Portfolio's investments, the Portfolio may purchase debt securities that are
rated Baa or better by Moody's or BBB or better by Standard & Poor's or are
unrated and in the Advisor's opinion are of comparable quality. Securities that
are rated Baa by Moody's or BBB by Standard & Poor's are considered investment
grade, but have some speculative characteristics. These standards must be
satisfied at the time an investment is made. If the quality of the investment
later declines, the Portfolio may continue to hold the investment. See Appendix
A in the Statement of Additional Information for more detailed information on
these ratings.
The Portfolio may also purchase obligations on a when-issued or delayed
delivery basis, enter into repurchase and reverse repurchase agreements, loan
its portfolio securities, purchase certain privately placed securities and enter
into certain hedging transactions that may involve options on securities and
securities indexes, futures contracts and options on futures contracts. For a
discussion of these investments and investment techniques, see Additional
Investment Information and Risk Factors.
THE PIERPONT BOND FUND
The Pierpont Bond Fund's investment objective is to provide a high total
return consistent with moderate risk of capital and maintenance of liquidity.
Total return will consist of income plus realized and unrealized capital gains
and losses. Although the net asset value of the Fund will fluctuate, the Fund
attempts to preserve the value of its investments to the extent consistent with
its objective. The Fund attempts to achieve its objective by investing all of
its investable assets in The U.S. Fixed Income Portfolio, a diversified open-end
management investment company having the same investment objective as the Fund.
The Pierpont Bond Fund is designed for investors who seek a total return over
time that is higher than that generally available from a portfolio of
shorter-term obligations while recognizing the greater price fluctuation of
longer-term instruments. It may also be a convenient way to add fixed income
exposure to diversify an existing portfolio.
The Advisor actively manages the Portfolio's duration, the allocation of
securities across market sectors, and the selection of specific securities
within sectors. Based on fundamental, economic and capital markets research, the
Advisor adjusts the duration of the Portfolio in light of market conditions and
the Advisor's interest rate outlook. For example, if interest rates are expected
to fall, the duration may be lengthened to take advantage of the expected
associated increase in bond prices. The Advisor also actively allocates the
Portfolio's assets among the broad sectors of the fixed income market including,
but not limited to, U.S. Government and agency securities, corporate securities,
private placements, asset-backed and mortgage-related securities. Specific
securities which the Advisor believes are undervalued are selected for purchase
within the sectors using advanced quantitative tools, analysis of credit risk,
the expertise of a dedicated trading desk, and the judgment of fixed income
portfolio managers and analysts. Under normal circumstances, the Advisor intends
to keep the Portfolio essentially fully invested with at least 65% of the
Portfolio's assets invested in bonds.
Duration is a measure of the weighted average maturity of the bonds held in
the Portfolio and can be used as a measure of the sensitivity of the Portfolio's
market value to changes in interest rates. Generally, the longer the duration of
the Portfolio, the more sensitive its market value will be to changes in
interest rates. Under normal market conditions the Portfolio's duration will
range between one year shorter and one year longer than the duration of the U.S.
investment grade fixed income universe, as represented by the Salomon Brothers
Broad Investment Grade Bond Index, the Portfolio's benchmark. Currently, the
benchmark's duration is approximately 5 years. The maturities of the individual
securities in the Portfolio may vary widely, however.
Since the Portfolio has a longer duration than that of The Pierpont Short
Term Bond Fund, over the long term its total return generally can be expected to
be higher and its net asset value less stable than that of The Pierpont Short
Term Bond Fund.
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. Portfolio transactions are undertaken principally to
accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates, but the Portfolio may also engage in short-term
trading consistent with its objective. See Financial Highlights for historical
portfolio turnover information on the Fund's predecessor. To the extent the
Portfolio engages in short-term trading, it may incur increased transaction
costs. See Taxes below.
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CORPORATE BONDS, ETC. The Portfolio may invest in the corporate debt
obligations permitted for The Pierpont Short Term Bond Fund.
GOVERNMENT OBLIGATIONS, ETC. The Portfolio may invest in the government debt
obligations permitted for The Pierpont Short Term Bond Fund.
MONEY MARKET INSTRUMENTS. The Portfolio may invest in the types of money
market instruments in which The Pierpont Money Market Fund may invest, subject
to the quality requirements of The Pierpont Bond Fund. See Quality Information
below and Money Market Instruments in the Statement of Additional Information.
Under normal circumstances, the Portfolio will purchase these securities to
invest temporary cash balances or to maintain liquidity to meet withdrawals.
However, the Portfolio may also invest in money market instruments as a
temporary defensive measure taken during, or in anticipation of, adverse market
conditions.
QUALITY INFORMATION. It is a current policy of the Portfolio that under
normal circumstances at least 65% of its total assets will consist of securities
that are rated at least A by Moody's or Standard & Poor's or that are unrated
and in the Advisor's opinion are of comparable quality. In the case of 30% of
the Portfolio's investments, the Portfolio may purchase debt securities that are
rated Baa or better by Moody's or BBB or better by Standard & Poor's or are
unrated and in the Advisor's opinion are of comparable quality. The remaining 5%
of the Portfolio's assets may be invested in debt securities that are rated Ba
or better by Moody's or BB or better by Standard & Poor's or are unrated and in
the Advisor's opinion are of comparable quality. Securities rated Baa by Moody's
or BBB by Standard & Poor's are considered investment grade, but have some
speculative characteristics. Securities rated Ba by Moody's or BB by Standard &
Poor's are below investment grade and considered to be speculative with regard
to payment of interest and principal. These standards must be satisfied at the
time an investment is made. If the quality of the investment later declines, the
Portfolio may continue to hold the investment. See Appendix A in the Statement
of Additional Information for more detailed information on these ratings.
The Portfolio may also purchase obligations on a when-issued or delayed
delivery basis, enter into repurchase and reverse repurchase agreements, loan
its portfolio securities, purchase certain privately placed securities and enter
into certain hedging transactions that may involve options on securities and
securities indexes, futures contracts and options on futures contracts. For a
discussion of these investments and investment techniques, see Additional
Investment Information and Risk Factors.
THE PIERPONT TAX EXEMPT BOND FUND
The Pierpont Tax Exempt Bond Fund's investment objective is to provide a high
level of current income exempt from federal income tax consistent with moderate
risk of capital and maintenance of liquidity. See Taxes. The Fund attempts to
achieve its investment objective by investing all of its investable assets in
The Tax Exempt Bond Portfolio, a diversified open-end management investment
company having the same investment objective as the Fund.
The Fund is designed for investors who seek tax exempt yields greater than
those generally available from a portfolio of short term tax exempt obligations
and who are willing to incur the greater price fluctuation of longer-term
instruments.
The Portfolio attempts to achieve its investment objective by investing
primarily in municipal securities of the types permitted for The Pierpont Tax
Exempt Money Market Fund which earn interest exempt from federal income tax in
the opinion of bond counsel for the issuer. During normal market conditions, the
Portfolio will invest at least 80% of its net assets in tax exempt obligations.
Interest on these securities may be subject to state and local taxes. For more
detailed information regarding tax matters, including the applicability of the
alternative minimum tax, see Taxes.
The Advisor believes that based upon current market conditions, the Portfolio
will consist of a portfolio of securities with a duration of four to seven
years. In view of the duration of the Portfolio, under normal market conditions,
the Fund's yield can be expected to be higher and its net asset value less
stable than those of The Pierpont Tax Exempt Money Market Fund. Duration is a
measure of the weighted average maturity of the bonds held in the Portfolio and
can be used as a measure of the sensitivity of the Portfolio's market value to
changes in interest rates. The maturities of the individual securities in the
Portfolio may vary widely, however, as the Advisor adjusts the Portfolio's
holdings of long-term and short-term debt securities to reflect its assessment
of prospective changes in interest rates, which may adversely affect current
income.
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. See Financial Highlights for historical portfolio turnover
information on the Fund's predecessor. Portfolio transactions are undertaken
principally to accomplish the Portfolio's objective in relation to expected
movements in the general level of interest rates, but the Portfolio may also
engage in short-term trading consistent with its objective. To the extent the
Portfolio engages in short-term trading, it may incur increased transaction
costs. See Taxes below.
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<PAGE>
The value of Portfolio's investments will generally fluctuate inversely with
changes in prevailing interest rates. The value of the Portfolio's investments
will also be affected by changes in the creditworthiness of issuers and other
market factors. The quality criteria applied in the selection of portfolio
securities are intended to minimize adverse price changes due to credit
considerations. The value of the Portfolio's municipal securities can also be
affected by market reaction to legislative consideration of various tax reform
proposals. Although the net asset value of Portfolio fluctuates, the Portfolio
attempts to preserve the value of its investments to the extent consistent with
its objective.
MUNICIPAL BONDS. The municipal securities in which the Portfolio may invest
include municipal bonds of the types permitted for The Pierpont Tax Exempt Money
Market Fund. The Portfolio may invest more than 25% of its assets in industrial
development bonds, but may not invest more than 25% of its assets in industrial
development bonds in projects of similar type or in the same state.
MONEY MARKET INSTRUMENTS. The Portfolio may invest in the types of short term
municipal obligations in which The Pierpont Tax Exempt Money Market Fund may
invest. These obligations will meet the quality requirements described below
except that short-term municipal obligations of New York State issuers may be
rated MIG-2 by Moody's or SP-2 by Standard & Poor's. Under normal circumstances,
the Portfolio will purchase these securities to invest temporary cash balances
or to maintain liquidity to meet withdrawals. However, the Portfolio may also
invest in money market instruments as a temporary defensive measure taken
during, or in anticipation of, adverse market conditions.
QUALITY INFORMATION. The Portfolio will not purchase any municipal obligation
unless it is rated at least A, MIG-1 or Prime-1 by Moody's or A, SP-1 or A1 by
Standard & Poor's (except for short-term obligations of New York State issuers
as described above) or it is unrated and in the Advisor's opinion it is of
comparable quality. These standards must be satisfied at the time an investment
is made. If the quality of the investment later declines, the Portfolio may
continue to hold the investment.
In certain circumstances, the Portfolio may also invest up to 20% of the
value of its total assets in taxable securities. In addition, the Portfolio may
purchase municipal obligations together with puts, securities on a when-issued
or delayed delivery basis, enter into repurchase and reverse repurchase
agreements, purchase synthetic variable rate instruments, loan its portfolio
securities, purchase certain privately placed securities and enter into certain
hedging transactions that may involve options on securities and securities
indexes, futures contracts and options on futures contracts. For a discussion of
these transactions, see Additional Investment Information and Risk Factors.
THE PIERPONT EQUITY FUND
The Pierpont Equity Fund's investment objective is to provide a high total
return from a portfolio of selected equity securities. Total return will consist
of realized and unrealized capital gains and losses plus income. The Fund
attempts to achieve its investment objective by investing all of its investable
assets in The Selected U.S. Equity Portfolio, a diversified open-end management
investment company having the same investment objective as the Fund. The
Portfolio invests primarily in the common stock of large and medium sized U.S.
corporations.
The Pierpont Equity Fund is designed for investors who want an actively
managed portfolio of selected equity securities that seeks to outperform the S&P
500 Index.
The Advisor seeks to enhance the Portfolio's total return relative to that of
the universe of large and medium sized U.S. companies, typically represented by
the S&P 500 Index, through fundamental analysis, systematic stock valuation and
disciplined portfolio construction. Based on internal fundamental research, the
Advisor uses a dividend discount model to rank companies within economic sectors
according to their relative value. From the universe of securities this model
shows as undervalued, the Advisor selects stocks for the Portfolio based on a
variety of criteria including the company's managerial strength, prospects for
growth and competitive position. The Advisor may modestly under or over-weight
selected economic sectors against the S&P 500 Index's sector weightings to seek
to enhance the Portfolio's total return or reduce the fluctuation in its market
value relative to the Index.
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. The Portfolio does not intend to respond to short-term
market fluctuations or to acquire securities for the purpose of short-term
trading; however, it may take advantage of short-term trading opportunities that
are consistent with its objective. See Financial Highlights for historical
portfolio turnover information on the Fund's predecessor. To the extent the
Portfolio engages in short-term trading, it may incur increased transaction
costs. See Taxes below. The portfolio turnover rate for the Portfolio for the
fiscal year ended May 31, 1996 was 84.55%.
EQUITY INVESTMENTS. During ordinary market conditions, the Advisor intends to
keep the Portfolio essentially fully invested with at least 65% of the
Portfolio's net assets invested in equity securities
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consisting of common stocks and other securities with equity characteristics
such as preferred stocks, warrants, rights and convertible securities. The
Portfolio's primary equity investments are the common stocks of large and medium
sized U.S. corporations and, to a limited extent, similar securities of foreign
corporations. The common stock in which the Portfolio may invest includes the
common stock of any class or series or any similar equity interest, such as
trust or limited partnership interests. These equity investments may or may not
pay dividends and may or may not carry voting rights. The Portfolio invests in
securities listed on a securities exchange or traded in an over-the-counter
market, and may invest in certain restricted or unlisted securities.
FOREIGN INVESTMENTS. The Portfolio may invest in equity securities of foreign
corporations included in the S&P 500 Index or listed on a national securities
exchange. However, the Portfolio does not expect to invest more than 5% of its
assets at the time of purchase in securities of foreign issuers. For further
information on foreign investments and foreign currency exchange transactions,
see Additional Investment Information and Risk Factors.
The Portfolio may also invest in securities on a when-issued or delayed
delivery basis, enter into repurchase and reverse repurchase agreements, loan
its portfolio securities, purchase certain privately placed securities and money
market instruments, and enter into certain hedging transactions that may involve
options on securities and securities indexes, futures contracts and options on
futures contracts. For a discussion of these investments and investment
techniques, see Additional Investment Information and Risk Factors.
THE PIERPONT CAPITAL APPRECIATION FUND
The Pierpont Capital Appreciation Fund's investment objective is to provide a
high total return from a portfolio of equity securities of small companies.
Total return will consist of realized and unrealized capital gains and losses
plus income. The Fund attempts to achieve its investment objective by investing
all of its investable assets in The U.S. Small Company Portfolio, a diversified
open-end management investment company having the same investment objective as
the Fund. The Portfolio invests primarily in the common stock of small U.S.
companies. The small company holdings of the Portfolio are primarily companies
included in the Russell 2500 Index.
The Pierpont Capital Appreciation Fund is designed for investors who are
willing to assume the somewhat higher risk of investing in small companies in
order to seek a higher return over time than might be expected from a portfolio
of stocks of large companies. The Fund may also serve as an efficient vehicle to
diversify an existing portfolio by adding the equities of smaller U.S.
companies.
The Advisor seeks to enhance the Portfolio's total return relative to that of
the U.S. small company universe. To do so, the Advisor uses fundamental
research, systematic stock valuation and a disciplined portfolio construction
process. The Advisor continually screens the universe of small capitalization
companies to identify for further analysis those companies which exhibit
favorable characteristics such as significant and predictable cash flow and high
quality management. Based on fundamental research and using a dividend discount
model, the Advisor ranks these companies within economic sectors according to
their relative value. The Advisor then selects for purchase the most attractive
companies within each economic sector.
The Advisor uses a disciplined portfolio construction process to seek to
enhance returns and reduce volatility in the market value of the Portfolio
relative to that of the U.S. small company universe. The Advisor believes that
under normal market conditions, the Portfolio will have sector weightings
comparable to that of the U.S. small company universe, although it may
moderately under or over-weight selected economic sectors. In addition, as a
company moves out of the market capitalization range of the small company
universe, it generally becomes a candidate for sale by the Portfolio.
The Portfolio intends to manage its investments actively in pursuit of its
investment objective. See Financial Highlights for historical portfolio turnover
information on the Fund's predecessor. Since the Portfolio has a long-term
investment perspective, it does not intend to respond to short-term market
fluctuations or to acquire securities for the purpose of short-term trading;
however, it may take advantage of short-term trading opportunities that are
consistent with its objective. To the extent the Portfolio engages in short-term
trading, it may incur increased transaction costs. See Taxes below. The
portfolio turnover rate for the Portfolio for the fiscal year ended May 31, 1996
was 92.58%.
PERMISSIBLE INVESTMENTS. The Portfolio may invest in the same types of
securities and use the same investment techniques, subject to the same
limitations, as permitted for The Pierpont Equity Fund except that the equity
investments of the Portfolio in small company holdings are primarily companies
included in the Russell 2500 Index and its foreign investments are limited to
equity securities of foreign issuers that are listed on a national securities
exchange or denominated or principally traded in U.S. dollars.
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<PAGE>
THE PIERPONT INTERNATIONAL EQUITY FUND
The Pierpont International Equity Fund's investment objective is to provide a
high total return from a portfolio of equity securities of foreign corporations.
Total return will consist of realized and unrealized capital gains and losses
plus income. The Fund attempts to achieve its investment objective by investing
all of its investable assets in The Non-U.S. Equity Portfolio, a diversified
open-end management investment company having the same investment objective as
the Fund.
The Pierpont International Equity Fund is designed for investors with a
long-term investment horizon who want to diversify their portfolios by investing
in an actively managed portfolio of non-U.S. securities that seeks to outperform
the Morgan Stanley Capital International Europe, Australia and Far East Index
(the "EAFE Index").
The Portfolio seeks to achieve its investment objective through country
allocation, stock selection and management of currency exposure. The Advisor
uses a disciplined portfolio construction process to seek to enhance returns and
reduce volatility in the market value of the Portfolio relative to that of the
EAFE Index.
Based on fundamental research, quantitative valuation techniques, and
experienced judgment, the Advisor uses a structured decision-making process to
allocate the Portfolio primarily across the developed countries of the world
outside the United States by under- or overweighting selected countries in the
EAFE Index. Currently, Japan has the heaviest weighting in the EAFE Index and in
the Portfolio. At November 30, 1995, the approximate Japan weighting was 41% in
the EAFE Index and 45% in the Portfolio.
Using a dividend discount model and based on analysts' industry expertise,
securities within each country are ranked within economic sectors according to
their relative value. Based on this valuation, the Advisor selects the
securities which appear the most attractive for the Portfolio. The Advisor
believes that under normal market conditions, economic sector weightings
generally will be similar to those of the EAFE Index.
Finally, the Advisor actively manages currency exposure, in conjunction with
country and stock allocation, in an attempt to protect and possibly enhance the
Portfolio's market value. Through the use of forward foreign currency exchange
contracts, the Advisor will adjust the Portfolio's foreign currency weightings
to reduce its exposure to currencies deemed unattractive, and, in certain
circumstances, increase exposure to currencies deemed attractive, as market
conditions warrant, based on fundamental research, technical factors, and the
judgment of a team of experienced currency managers. For further information on
foreign currency exchange transactions, see Additional Investment Information
and Risk Factors.
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. See Financial Highlights for historical portfolio turnover
information on the Fund's predecessor. The Portfolio does not expect to trade in
securities for short-term profits; however, when circumstances warrant,
securities may be sold without regard to the length of time held. To the extent
the Portfolio engages in short-term trading, it may incur increased transaction
costs. See Taxes below.
EQUITY INVESTMENTS. In normal circumstances, the Advisor intends to keep the
Portfolio essentially fully invested with at least 65% of the value of its total
assets in equity securities of foreign issuers consisting of common stocks and
other securities with equity characteristics 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 companies based in developed
countries outside the United States. Such investments will be made in at least
three foreign countries. The common stock in which the Portfolio may invest
includes the common stock of any class or series or any similar equity interest
such as trust or limited partnership interests. These equity investments may or
may not pay dividends and may or may not carry voting rights. The Portfolio may
also invest in securities of issuers located in developing countries. See
Additional Investment Information and Risk Factors. The Portfolio invests in
securities listed on foreign or domestic securities exchanges and securities
traded in foreign or domestic over-the-counter markets, and may invest in
certain restricted or unlisted securities.
The Portfolio may also invest in money market instruments denominated in U.S.
dollars and other currencies, securities on a when-issued or delayed delivery
basis, enter into repurchase and reverse repurchase agreements, loan its
portfolio securities, purchase certain privately placed securities, enter into
forward contracts on foreign currencies and enter into certain hedging
transactions that may involve options on securities and securities indexes,
futures contracts and options on futures contracts. For a discussion of these
investments and investment techniques, see Additional Investment Information and
Risk Factors.
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<PAGE>
THE PIERPONT EMERGING
MARKETS EQUITY FUND
The Pierpont Emerging Markets Equity Fund's investment objective is to
achieve a high total return from a portfolio of equity securities of companies
in emerging markets. Total return will consist of realized and unrealized
capital gains and losses plus income. The Fund attempts to achieve its
investment objective by investing all its investable assets in The Emerging
Markets Equity Portfolio, a diversified open-end management investment company
having the same investment objective as the Fund.
The Pierpont Emerging Markets Equity Fund is designed for long-term investors
who want exposure to the rapidly growing emerging markets. THE FUND DOES NOT
REPRESENT A COMPLETE INVESTMENT PROGRAM NOR IS THE FUND SUITABLE FOR ALL
INVESTORS. Many investments in emerging markets can be considered speculative,
and therefore may offer higher potential for gains and losses and may be more
volatile than investments in the developed markets of the world. See Additional
Investment Information and Risk Factors.
The Advisor considers "emerging markets" to be any country which is generally
considered to be an emerging or developing country by the World Bank, the
International Finance Corporation, the United Nations or its authorities. These
countries generally include every country in the world except Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy,
Japan, Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland, United
Kingdom and United States. The Portfolio will focus its investments in those
emerging markets countries which it believes have strongly developing economies
and in which the markets are becoming more sophisticated.
A company in an emerging market is one that: (i) has its principal securities
trading market in an emerging market country; (ii) is organized under the laws
of an emerging market; (iii) derives 50% or more of its total revenue from
either goods produced, sales made or services performed in emerging markets; or
(iv) has at least 50% of its assets located in emerging markets.
The Advisor seeks to achieve the Portfolio's investment objective by a
disciplined process of country allocation and company selection. Based on
fundamental research, quantitative analysis, and experienced judgment, the
Advisor identifies those countries where economic and political factors,
including currency movements, are likely to produce above-average returns. Based
on their relative value, the Advisor then selects those companies in each
country's major industry sectors which it believes are best positioned and
managed to take advantage of these economic and political factors.
The Portfolio'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 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 expect to trade in securities for
short-term profits; however, when circumstances warrant, securities may be sold
without regard to the length of time held. To the extent the Portfolio engages
in short-term trading, it may incur increased transaction costs. See Taxes
below.
INVESTING IN EMERGING MARKETS. The Portfolio invests primarily in equity
securities of companies in emerging markets. Investments in securities of
issuers in emerging markets countries may involve a high degree of risk and many
may be considered speculative. These investments carry all of the risks of
investing in securities of foreign issuers described herein to a heightened
degree.
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 emerging 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 established companies in the emerging
markets countries the Advisor has identified as attractive. The assets of the
Portfolio ordinarily will be invested in the securities of issuers in at least
three different countries considered to be emerging 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.
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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 markets, and may invest in certain restricted or unlisted
securities.
Certain emerging markets are closed in whole or in part to equity investments
by foreigners except through specifically authorized investment funds.
Securities of other investment companies may be acquired by the Portfolio to the
extent permitted under the 1940 Act--that is, the Portfolio may invest up to 10%
of its total assets in securities of other investment companies so long as not
more than 3% of the outstanding voting stock of any one investment company is
held by the Portfolio. In addition, not more than 5% of the Portfolio's total
assets may be invested in the securities of any one investment company. As a
shareholder in an investment fund, the Portfolio would bear its share of that
investment fund's expenses, including its advisory and administration fees. At
the same time the Portfolio and the Fund would continue to pay their own
operating expenses.
The Portfolio may also invest in money market instruments denominated in U.S.
dollars and other currencies, 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. For a
discussion of these investments and investment techniques, see Additional
Investment Information and Risk Factors.
THE PIERPONT DIVERSIFIED FUND
The Pierpont Diversified Fund's investment objective is to provide a high
total return from a diversified portfolio of equity and fixed income securities.
Total return will consist of income plus realized and unrealized capital gains
and losses. The Fund attempts to achieve its investment objective by investing
all of its investable assets in The Diversified Portfolio, a diversified
open-end management investment company having the same investment objective as
the Fund.
The Portfolio seeks to provide a total return that approaches that of the
universe of equity securities of large and medium sized U.S. companies and that
exceeds the return typical of a portfolio of fixed income securities. The
Portfolio attempts to achieve this return by investing in equity and fixed
income instruments, as described below.
The Pierpont Diversified Fund is designed primarily for investors who wish to
invest for long term objectives such as retirement. It is appropriate for
investors who seek to attain real appreciation in the market value of their
investments over the long term, but with somewhat less price fluctuation than a
portfolio consisting only of equity securities. The Fund may be an attractive
option for investors who want a professional investment adviser to decide how
their investments should be allocated between equity and fixed income
securities.
Under normal circumstances, the Portfolio will be invested approximately 65%
in equities and 35% in fixed income securities. The equity portion of the
Portfolio will be invested primarily in large and medium sized U.S. companies
with market capitalizations above $1.5 billion, with the balance in small U.S.
companies primarily included in the Russell 2000 Index and in foreign issuers
primarily in developed countries. Under normal circumstances, the Advisor
expects that approximately 52% of the Portfolio will be in equity securities of
large and medium sized companies, 3% in small companies and 10% in foreign
issuers. However, the Advisor may allocate the Portfolio's investments among
these asset classes in a manner consistent with the Portfolio's investment
objective and current market conditions. Using a variety of analytical tools,
the Advisor assesses the relative attractiveness of each asset class and
determines an optimal allocation among them. The Advisor then selects securities
within each asset class based on fundamental research and quantitative analysis.
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. Since the Portfolio has a long-term investment
perspective, it does not intend to respond to short-term market fluctuations or
to acquire securities for the purpose of short-term trading; however, it may
take advantage of short-term trading opportunities that are consistent with its
objective. To the extent the Portfolio engages in short-term trading, it may
incur increased transaction costs. The portfolio turnover rate for the Portfolio
for the fiscal year ended June 30, 1996 was 144%.
EQUITY INVESTMENTS. For the equity portion of the Portfolio, Morgan Guaranty
seeks to achieve a high total return through fundamental analysis, systematic
stock valuation and disciplined portfolio construction. For domestic equities,
based on internal fundamental research, the Advisor uses a dividend discount
model to value equity securities and rank a universe of large and medium
capitalization
compa-
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nies or small companies within economic sectors according to their relative
value. The Advisor then buys and sells securities within each economic sector
based on this valuation process to seek to enhance the Portfolio's return. For
foreign equities, the Portfolio's investment process involves country
allocation, stock selection and management of currency exposure. The Advisor
allocates this portion of the Portfolio by under- or overweighting selected
countries in the EAFE Index. Using a dividend discount model and based on
analysts' industry expertise, securities within each country are ranked within
economic sectors according to their relative value and those which appear the
most attractive are selected. Currency exposure is also actively managed to
protect and possibly enhance the market value of the Portfolio. In addition, the
Advisor uses this disciplined portfolio construction process to seek to reduce
the volatility of the large and medium capitalization equity portion of the
Portfolio relative to that of the S&P 500 Index, of the small company portion of
the Portfolio relative to that of the Russell 2000 and of the foreign equity
portion of the Portfolio relative to that of the EAFE Index.
The Portfolio's equity investments will include common stock of any class or
series or any similar equity interest, such as trust or limited partnership
interests. The Portfolio's equity investments may also include preferred stock,
warrants, rights and convertible securities. The Portfolio's equity securities
may or may not pay dividends and may or may not carry voting rights.
FIXED INCOME INVESTMENTS. For the fixed income portion of the Portfolio, the
Advisor seeks to provide a high total return by actively managing the duration
of the Portfolio's fixed income securities, the allocation of securities across
market sectors, and the selection of securities within sectors. Based on
fundamental, economic and capital markets research, the Advisor adjusts the
duration of the Portfolio's fixed income investments in light of market
conditions. The Advisor also actively allocates the Portfolio's fixed income
investments among the broad sectors of the fixed income market. Securities which
the Advisor believes are undervalued are selected for purchase from the sectors
using advanced quantitative tools, analysis of credit risk, the expertise of a
dedicated trading desk, and the judgment of fixed income portfolio managers and
analysts.
Duration is a measure of the weighted average maturity of the fixed income
securities held in the Portfolio and can be used as a measure of the sensitivity
of the Portfolio's market value to changes in interest rates. Under normal
market conditions the duration of the fixed income portion of the Portfolio will
range between one year shorter and one year longer than the duration of the U.S.
investment grade fixed income universe, as represented by the Salomon Brothers
Broad Investment Grade Bond Index. Currently, the Index's duration is
approximately 5 years. The maturities of the individual fixed income securities
in the Portfolio may vary widely, however.
The Portfolio may invest in a broad range of debt securities of domestic and
foreign corporate and government issuers. These include corporate bonds,
debentures, notes, mortgage-related securities, and asset-backed securities;
U.S. Government and agency securities; and private placements. See Corporate
Bonds, etc. and Government Obligations, etc. under The Pierpont Short Term Bond
Fund for more detailed information on fixed income securities.
QUALITY INFORMATION. It is a current policy of the Portfolio that under
normal circumstances at least 65% of that portion of the Portfolio invested in
fixed income securities will consist of securities that are rated at least A by
Moody's or Standard & Poor's or that are unrated and in Morgan Guaranty's
opinion are of comparable quality. In the case of 30% of the Portfolio's fixed
income investments, the Portfolio may purchase debt securities that are rated
Baa or better by Moody's or BBB or better by Standard & Poor's or are unrated
and in Morgan Guaranty's opinion are of comparable quality. The remaining 5% of
the Portfolio's fixed income investments may be debt securities that are rated
Ba or better by Moody's or BB or better by Standard & Poor's or are unrated and
in Morgan Guaranty's opinion are of comparable quality. Securities rated Baa by
Moody's or BBB by Standard & Poor's are considered investment grade, but have
some speculative characteristics. Securities rated Ba by Moody's or BB by
Standard & Poor's are below investment grade and considered to be speculative
with regard to payment of interest and principal. These standards must be
satisfied at the time an investment is made. If the quality of the investment
later declines, the Portfolio may continue to hold the investment. See Appendix
A in the Statement of Additional Information for more detailed information on
these ratings.
FOREIGN INVESTMENTS. The Portfolio may invest in common stocks and
convertible securities of foreign corporations as well as fixed income
securities of foreign government and corporate issuers. However, the Portfolio
does not expect to invest more than 30% of its assets at the time of purchase in
securities of foreign issuers. For further information
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on foreign investments and foreign currency exchange transactions, see
Additional Investment Information and Risk Factors.
In addition, the Portfolio may invest in securities on a when-issued or
delayed delivery basis, enter into repurchase and reverse repurchase agreements,
loan its portfolio securities, purchase certain privately
placed securities and money market instruments and enter into forward contracts
on foreign currencies. The Portfolio may use options on securities and indexes
of securities, futures contracts and options on futures contracts for hedging
and risk management purposes. For a discussion of these investments and
investment techniques, see Additional Investment Information and Risk Factors.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
CONVERTIBLE SECURITIES. The Portfolios for The Pierpont Short Term Bond Fund,
The Pierpont Bond Fund, The Pierpont Equity Fund, The Pierpont Capital
Appreciation Fund, The Pierpont International Equity Fund, The Pierpont Emerging
Markets Equity Fund and The Pierpont Diversified Fund may invest in convertible
securities of domestic and, subject to each Portfolio's restrictions, foreign
issuers. The convertible securities in which the Portfolios may invest include
any debt securities or preferred stock which may be converted into common stock
or which carry the right to purchase common stock. Convertible securities
entitle the holder to exchange the securities for a specified number of shares
of common stock, usually of the same company, at specified prices within a
certain period of time.
COMMON STOCK WARRANTS. The Portfolios for The Pierpont Equity Fund, The
Pierpont Capital Appreciation Fund, The Pierpont International Equity Fund, The
Pierpont Emerging Markets Equity Fund and The Pierpont Diversified Fund may
invest in 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.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each of the Portfolios may
purchase securities on a when-issued or delayed delivery basis. Delivery of and
payment for these securities may take as long as a month or more after the date
of the purchase commitment. The value of these securities is subject to market
fluctuation during this period and for fixed income investments no interest
accrues to the Portfolio until settlement. At the time of settlement a
when-issued security may be valued at less than its purchase price. Each
Portfolio maintains with the Custodian a separate account with a segregated
portfolio of securities in an amount at least equal to these commitments. When
entering into a when-issued or delayed delivery transaction, the Portfolio
relies on the other party to consummate the transaction; if the other party
fails to do so, the Portfolio may be disadvantaged. It is the current policy of
each Portfolio not to enter into when-issued commitments exceeding in the
aggregate 15% of the market value of the Portfolio's total assets less
liabilities other than the obligations created by these commitments.
REPURCHASE AGREEMENTS. Each of the Portfolios may engage in repurchase
agreement transactions with brokers, dealers or banks that meet the credit
guidelines established by the Portfolio's Trustees. In a repurchase agreement,
the Portfolio buys a security from a seller that has agreed to repurchase it at
a mutually agreed upon date and price, reflecting the interest rate effective
for the term of the agreement. The Portfolio for The Pierpont Treasury Money
Market Fund only enters into repurchase agreements involving Treasury Securities
and Permitted Agency Securities and under ordinary market conditions does not
expect to enter into repurchase agreements involving more than 5% of its net
assets. The term of these agreements is usually from overnight to one week. A
repurchase agreement may be viewed as a fully collateralized loan of money by
the Portfolio to the seller. The Portfolio always receives securities as
collateral with a market value at least equal to the purchase price plus accrued
interest and this value is maintained during the term of the agreement. If the
seller defaults and the collateral value declines, the Portfolio might incur a
loss. If bankruptcy proceedings are commenced with respect to the seller, the
Portfolio's realization upon the disposition of collateral may be delayed or
limited. Investments in certain repurchase agreements and certain other
investments which may be considered illiquid are limited. See Illiquid
Investments; Privately Placed and other Unregistered Securities below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
each of the Portfolios is permitted to lend its securities in an amount up
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to 33 1/3% of the value of the Portfolio's net assets. Each of the Portfolios
may lend its securities if such loans are secured continuously by cash or
equivalent collateral or by a letter of credit in favor of the Portfolio at
least equal at all times to 100% of the market value of the securities loaned,
plus accrued interest. While such securities are on loan, the borrower will pay
the Portfolio any income accruing thereon. Loans will be subject to termination
by the Portfolio in the normal settlement time, generally three business days
after notice, or by the borrower on one day's notice. Borrowed securities must
be returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to a
Portfolio and its respective investors. The Portfolios may pay reasonable
finders' and custodial fees in connection with a loan. In addition, the
Portfolios will consider all facts and circumstances, including the
creditworthiness of the borrowing financial institution, and the Portfolios will
not make any loans in excess of one year.
Loans of portfolio securities may be considered extensions of credit by the
Portfolios. The risks to the Portfolios with respect to borrowers of their
portfolio securities are similar to the risks to the Portfolios with respect to
sellers in repurchase agreement transactions. See Repurchase Agreements above.
The Portfolios will not lend their securities to any officer, Trustee, Director,
employee or other affiliate of the Portfolios, the Advisor, or the Distributor,
unless otherwise permitted by applicable law.
REVERSE REPURCHASE AGREEMENTS. Each of the Portfolios is permitted to enter
into reverse repurchase agreements. In a reverse repurchase agreement, the
Portfolio sells a security and agrees to repurchase it at a mutually agreed upon
date and price, reflecting the interest rate effective for the term of the
agreement. For purposes of the Investment Company Act of 1940, as amended (the
"1940 Act"), it is considered a form of borrowing by the Portfolio and,
therefore, is a form of leverage. Leverage may cause any gains or losses of the
Portfolio to be magnified. 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.
FOREIGN INVESTMENT INFORMATION. The Portfolios for The Pierpont Money Market
Fund, The Pierpont Short Term Bond Fund, The Pierpont Bond Fund, The Pierpont
Equity Fund, The Pierpont Capital Appreciation Fund and The Pierpont Diversified
Fund may invest in certain foreign securities. The Portfolios for The Pierpont
International Equity Fund and The Pierpont Emerging Markets Equity Fund invest
primarily in foreign securities. Investment in securities of foreign issuers and
in obligations of foreign branches of domestic banks involves somewhat different
investment risks from those affecting securities of U.S. domestic issuers. There
may be limited publicly available information with respect to foreign issuers,
and foreign issuers are not generally subject to uniform accounting, auditing
and financial standards and requirements comparable to those applicable to
domestic companies. Dividends and interest paid by foreign issuers may be
subject to withholding and other foreign taxes which may decrease the net return
on foreign investments as compared to dividends and interest paid to these
Portfolios by domestic companies.
Investors should realize that the value of each Portfolio's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Portfolio's operations. Furthermore, the economies of individual foreign
nations may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Portfolios must be made in
compliance with U.S. and foreign currency restrictions and tax laws restricting
the amounts and types of foreign investments.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, a Portfolio's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In buying and selling
securities on foreign exchanges, purchasers normally pay fixed commissions that
are generally higher than the negotiated commissions charged in the United
States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.
Although the Portfolio for The Pierpont International Equity Fund invests
primarily in securities of established issuers based in developed foreign
countries, it may also invest in securities of issuers in emerging markets
countries. The Portfolio for The
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Pierpont Emerging Markets Equity Fund invests primarily in equity securities of
companies in emerging markets countries. Investments in securities of issuers in
emerging markets countries may involve a high degree of risk and many may be
considered speculative. These investments carry all of the risks of investing in
securities of foreign issuers outlined in this section to a heightened degree.
These heightened risks include (i) greater risks of expropriation, confiscatory
taxation, nationalization, and less social, political and economic stability;
(ii) the small current size of the markets for securities of emerging markets
issuers and the currently low or non-existent volume of trading, resulting in
lack of liquidity and in price volatility; (iii) certain national policies which
may restrict the Portfolios' investment opportunities including restrictions on
investing in issuers or industries deemed sensitive to relevant national
interests; and (iv) the absence of developed legal structures governing private
or foreign investment and private property.
Each of the Portfolios may invest in securities of foreign issuers directly
or in the form of American Depository Receipts ("ADRs"), European Depository
Receipts ("EDRs") or other similar securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities they represent. ADRs are receipts typically issued by a U.S. bank or
trust company evidencing ownership of the underlying foreign securities. Certain
such institutions issuing ADRs may not be sponsored by the issuer of the
underlying foreign securities. A non-sponsored depository may not provide the
same shareholder information that a sponsored depository is required to provide
under its contractual arrangements with the issuer of the underlying foreign
securities. EDRs are receipts issued by a European financial institution
evidencing a similar arrangement. Generally, ADRs, in registered form, are
designed for use in the U.S. securities markets, and EDRs, in bearer form, are
designed for use in European securities markets.
In the case of the Portfolios for The Pierpont Equity Fund, The Pierpont
Capital Appreciation Fund, The Pierpont International Equity Fund, The Pierpont
Emerging Markets Equity Fund and The Pierpont Diversified Fund, since
investments in foreign securities involve foreign currencies, the value of their
assets as measured in U.S. dollars may be affected favorably or unfavorably by
changes in currency rates and in exchange control regulations, including
currency blockage. See Foreign Currency Exchange Transactions.
For a discussion of investment risks associated with the general economic and
political conditions in Japan, see Investment Objectives and Policies in the
Statement of Additional Information.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolios for The
Pierpont Equity Fund, The Pierpont Capital Appreciation Fund, The Pierpont
International Equity Fund, The Pierpont Emerging Markets Equity Fund and The
Pierpont Diversified Fund buy and sell securities and receive interest and
dividends in currencies other than the U.S. dollar, the Portfolios for the Funds
may enter from time to time into foreign currency exchange transactions. The
Portfolios either enter into these transactions on a spot (i.e., cash) basis at
the spot rate prevailing in the foreign currency exchange market or use forward
contracts to purchase or sell foreign currencies. The cost of a Portfolio's spot
currency exchange transactions is generally the difference between the bid and
offer spot rate of the currency being purchased or sold.
A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying the contract. These contracts are entered into in
the interbank market directly between currency traders (usually large commercial
banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement and is traded at a net price without
commission. The Portfolios will not enter into forward contracts for speculative
purposes. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of the Portfolio's securities or
in foreign exchange rates, or prevent loss if the prices of these securities
should decline.
Each of these Portfolios may enter into foreign currency exchange
transactions in an attempt to protect against changes in foreign currency
exchange rates between the trade and settlement dates of specific securities
transactions or anticipated securities transactions. The Portfolios may also
enter into forward contracts to hedge against a change in foreign currency
exchange rates that would cause a decline in the value of existing investments
denominated or principally traded in a foreign currency. To do this, a Portfolio
would enter into a forward contract to sell the foreign currency in which the
investment is denominated or principally traded in exchange for U.S. dollars or
in exchange for another foreign currency. A Portfolio will only enter into
forward contracts to sell a foreign currency in exchange for another foreign
currency if the Advisor expects the foreign currency purchased to appreciate
against the U.S. dollar.
Although these transactions are intended to minimize the risk of loss due to
a decline in the value of the hedged currency, at the same time they limit
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any potential gain that might be realized should the value of the hedged
currency increase. In addition, forward contracts that convert a foreign
currency into another foreign currency will cause the Portfolio to assume the
risk of fluctuations in the value of the currency purchased vis-a-vis the hedged
currency and the U.S. dollar. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
TAXABLE INVESTMENTS FOR THE PIERPONT TAX EXEMPT FUNDS. The Portfolios for The
Pierpont Tax Exempt Money Market Fund and The Pierpont Tax Exempt Bond Fund each
attempt to invest its assets in tax exempt municipal securities; however, these
Portfolios are each permitted to invest up to 20% of the value of their
respective total assets in securities, the interest income on which may be
subject to federal, state or local income taxes. These Portfolios may make
taxable investments pending investment of proceeds from sales of their interests
or portfolio securities, pending settlement of purchases of portfolio
securities, to maintain liquidity or when it is advisable in the Advisor's
opinion because of adverse market conditions. The Portfolios will invest in
taxable securities only if there are no tax exempt securities available for
purchase or if the after tax yield, in the case of the Portfolio for The
Pierpont Money Market Fund, or the expected return, in the case of the Portfolio
for The Pierpont Tax Exempt Bond Fund, from an investment in taxable securities
exceeds the yield or expected return, as the case may be, on available tax
exempt securities. In abnormal market conditions, if, in the judgment of the
Advisor, tax exempt securities satisfying The Pierpont Tax Exempt Bond Fund's
investment objective may not be purchased, its corresponding Portfolio may, for
defensive purposes only, temporarily invest more than 20% of its net assets in
debt securities the interest on which is subject to federal, state or local
income taxes. The taxable investments permitted for these Portfolios include
obligations of the U.S. Government and its agencies and instrumentalities, bank
obligations, commercial paper and repurchase agreements and, in the case of The
Pierpont Tax Exempt Bond Fund, other debt securities which meet the Fund's
quality requirements. See Taxes.
PUTS FOR THE PIERPONT TAX EXEMPT FUNDS. The Portfolios for The Pierpont Tax
Exempt Money Market Fund and The Pierpont Tax Exempt Bond Fund may purchase
without limit municipal bonds or notes together with the right to resell them at
an agreed price or yield within a specified period prior to maturity. This right
to resell is known as a put. The aggregate price paid for securities with puts
may be higher than the price which otherwise would be paid. Consistent with the
investment objectives of these Portfolios and subject to the supervision of the
Trustees, the purpose of this practice is to permit the Portfolios to be fully
invested in tax exempt securities while maintaining the necessary liquidity to
purchase securities on a when-issued basis, to meet unusually large withdrawals,
to purchase at a later date securities other than those subject to the put and,
in the case of The Pierpont Tax Exempt Bond Fund, to facilitate the Advisor's
ability to manage the portfolio actively. The principal risk of puts is that the
put writer may default on its obligation to repurchase. The Advisor will monitor
each writer's ability to meet its obligations under puts.
The amortized cost method is used by the Portfolio for The Pierpont Tax
Exempt Money Market Fund to value all municipal securities; no value is assigned
to any puts. This method is also used by the Portfolio for The Pierpont Tax
Exempt Bond Fund to value municipal securities with maturities of less than 60
days; when these securities are subject to puts separate from the underlying
securities, no value is assigned to the puts. The cost of any such put is
carried as an unrealized loss from the time of purchase until it is exercised or
expires. See the Statement of Additional Information for the valuation procedure
if the Portfolio for The Pierpont Tax Exempt Bond Fund were to invest in
municipal securities with maturities of 60 days or more that are subject to
separate puts.
SYNTHETIC VARIABLE RATE INSTRUMENTS FOR THE PIERPONT TAX EXEMPT FUNDS. The
Portfolios for The Pierpont Tax Exempt Funds may invest in certain synthetic
variable rate instruments. Such instruments generally involve the deposit of a
long-term tax exempt bond in a custody or trust arrangement and the creation of
a mechanism to adjust the long-term interest rate on the bond to a variable
short-term rate and a right (subject to certain conditions) on the part of the
purchaser to tender it periodically to a third party at par. The Advisor will
review the structure of synthetic variable rate instruments to identify credit
and liquidity risks (including the conditions under which the right to tender
the instrument would no longer be available) and will monitor those risks. In
the event that the right to tender the instrument is no longer available, the
risk to the Portfolios will be that of holding the long-term bond, which in the
case of the Portfolio for The Pierpont Tax Exempt Money Market Fund may require
the disposition of the bond which could be at a loss.
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ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES.
Subject to the limitations described below, each of the Portfolios for The
Pierpont Funds may acquire investments that are illiquid or have limited
liquidity, such as private placements or investments that are not registered
under the Securities Act of 1933, as amended (the "1933 Act"), and cannot be
offered for public sale in the United States without first being registered
under the 1933 Act. An illiquid investment is any investment that cannot be
disposed of within seven days in the normal course of business at approximately
the amount at which it is valued by the Portfolio. The price the Portfolio pays
for illiquid securities or receives upon resale may be lower than the price paid
or received for similar securities with a more liquid market. Accordingly the
valuation of these securities will reflect any limitations on their liquidity.
Acquisition of illiquid investments by the Portfolio for The Pierpont Money
Market Fund is subject to the 10% fundamental policy limitation described below
under Investment Restrictions. Acquisitions of illiquid investments by the
Portfolios for the other Pierpont Funds is subject to the following
non-fundamental policies. The Portfolio for each of The Pierpont Tax Exempt
Money Market Fund and The Pierpont Treasury Money Market Fund may not acquire
any illiquid securities if, as a result thereof, more than 10% of the market
value of the Portfolio's total assets would be in illiquid investments. The
Portfolio for each of The Pierpont Short Term Bond, Bond, Tax Exempt Bond,
Equity, Capital Appreciation, International Equity, Emerging Markets Equity and
Diversified Funds may not invest in additional illiquid securities if, as a
result, more than 15% of the market value of its total assets would be invested
in illiquid securities. In addition, the Portfolio for The Pierpont
International Equity Fund will not invest more than 5% of the market value of
its total assets in restricted securities that cannot be offered for public sale
in the United States without first being registered under the 1933 Act. Each of
the Portfolios may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's
implementation of these guidelines on a periodic basis.
FUTURES AND OPTIONS TRANSACTIONS. The Portfolio for each of The Pierpont
Short Term Bond Fund, The Pierpont Bond Fund, The Pierpont Tax Exempt Bond Fund,
The Pierpont Equity Fund, The Pierpont Capital Appreciation Fund and The
Pierpont International Equity Fund is permitted to enter into the futures and
options transactions described in the Appendix to this Prospectus for hedging
purposes. The Portfolio for each of The Pierpont Emerging Markets Equity Fund
and The Pierpont Diversified Fund is permitted to enter into the futures and
options transactions described in the Appendix to this Prospectus for both
hedging and risk management purposes. For more detailed information about these
transactions, see the Appendix to this Prospectus and Risk Management in the
Statement of Additional Information.
MONEY MARKET INSTRUMENTS. The Portfolios for The Pierpont Equity Fund, The
Pierpont Capital Appreciation Fund, The Pierpont International Equity Fund, The
Pierpont Emerging Markets Equity Fund and The Pierpont Diversified Fund are
permitted to invest in money market instruments, although each of these
Portfolios intends to stay invested in equity securities (or, in the case of The
Pierpont Diversified Fund, equity and longer-term fixed income securities) to
the extent practical in light of its objective and long-term investment
perspective. These Portfolios may make money market investments pending other
investment or settlement, for liquidity or in adverse market conditions as
described above under Taxable Investments for The Pierpont Tax Exempt Funds. The
money market investments permitted for these Portfolios include obligations of
the U.S. Government and its agencies and instrumentalities, other debt
securities, commercial paper, bank obligations and repurchase agreements. The
Portfolios for The Pierpont International Equity and Emerging Markets Equity
Funds may also invest in short-term obligations of sovereign foreign
governments, their agencies, instrumentalities and political subdivisions. For
more detailed information about these money market investments, see Investment
Objectives and Policies in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
As diversified investment companies, 75% of the assets of each of the
Portfolios are subject to the following fundamental limitations: (a) the
Portfolio may not invest more than 5% of its total assets in the securities of
any one issuer, except U.S. government securities, and (b) the Portfolio may not
own more than 10% of the outstanding voting securities of any one issuer. The
Money Market and Treasury Money Market Port-
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folios are subject to additional non-fundamental requirements governing non-tax
exempt money market funds. These non-fundamental requirements generally prohibit
the Money Market and Treasury Money Market Portfolios from investing more than
5% of their respective total assets in the securities of any single issuer,
except obligations of the U.S. Government and its agencies and
instrumentalities.
The investment objective of each Fund and its corresponding Portfolio,
together with the investment restrictions described below and in the Statement
of Additional Information, except as noted, are deemed fundamental policies,
i.e., they may be changed only with the approval of the holders of a majority of
the outstanding voting securities of a Fund and its corresponding Portfolio.
Each Fund has the same investment restrictions as its corresponding Portfolio,
except that each Fund may invest all of its investable assets in another
open-end investment company with the same investment objective and restrictions
(such as its corresponding Portfolio). References below to a Portfolio's
investment restrictions also include the corresponding Fund's investment
restrictions.
The Portfolio for The Pierpont Money Market Fund may not (i) acquire any
illiquid securities if as a result more than 10% of the market value of its
total assets would be in investments which are illiquid, (ii) enter into reverse
repurchase agreements exceeding one-third of the market value of its total
assets, less certain liabilities, (iii) borrow money, except from banks for
extraordinary or emergency purposes and then only in amounts up to 10% of the
value of the Portfolio's total assets, taken at cost at the time of borrowing,
or purchase securities while borrowings exceed 5% of its total assets; or
mortgage, pledge or hypothecate any assets except in connection with any such
borrowings in amounts up to 10% of the value of the Portfolio's net assets at
the time of borrowing (the "10% Emergency Borrowing Restriction"), or (iv)
invest more than 25% of its assets in any one industry, except there is no
percentage limitation with respect to investments in U.S. Government securities,
negotiable certificates of deposit, time deposits, and bankers' acceptances of
U.S. branches of U.S. banks.
The Portfolio for The Pierpont Treasury Money Market Fund may not (i) enter
into reverse repurchase agreements which together with any other borrowings
exceed one-third of the market value of its total assets, less certain
liabilities, or (ii) borrow money (not including reverse repurchase agreements),
except from banks for temporary or extraordinary or emergency purposes and then
only in amounts up to 10% of the value of its total assets, taken at cost at the
time of borrowing (and provided that such borrowings and reverse repurchase
agreements do not exceed in the aggregate one-third of the market value of the
Portfolio's total assets less liabilities other than the obligations represented
by the bank borrowings and reverse repurchase agreements), or purchase
securities while borrowings exceed 5% of its total assets; or mortgage, pledge
or hypothecate any assets except in connection with any such borrowings in
amounts up to 10% of the value of the Portfolio's net assets at the time of
borrowing, or (iii) make loans, except through purchasing or holding debt
obligations, repurchase agreements, or loans of portfolio securities in
accordance with the Portfolio's investment objective and policies.
The Portfolios for The Pierpont Tax Exempt Money Market and Tax Exempt Bond
Funds are subject to the 10% Emergency Borrowing Restriction, except that
borrowings may be for temporary as well as extraordinary or emergency purposes
in the case of the Portfolio for The Tax Exempt Money Market Fund, and may not
acquire industrial revenue bonds if as a result more than 5% of total Portfolio
assets would be invested in industrial revenue bonds where payment of principal
and interest is the responsibility of companies with fewer than three years of
operating history.
Each of the Portfolios for The Pierpont Short Term Bond and Diversified Funds
may not (i) purchase securities or other obligations of issuers conducting their
principal business activity in the same industry if the value of its investments
in such industry would exceed 25% of the value of the Portfolio's total assets,
except this limitation shall not apply to investments in U.S. Government
securities (the "Industry Concentration Restriction"); for purposes of this
limitation, the staff of the SEC considers (a) all supranational organizations
as a group to be a single industry and (b) each foreign government and its
political subdivisions to be a single industry; (ii) borrow money (not including
reverse repurchase agreements), except from banks for temporary or extraordinary
or emergency purposes and then only in amounts up to 30% of the value of its
total assets, taken at cost at the time of borrowing (and provided that such
borrowings and reverse repurchase agreements do not exceed in the aggregate
one-third of the market value of the Portfolio's total assets less liabilities
other than the obligations represented by the bank borrowings and reverse
repurchase agreements), or purchase securities while borrowings exceed 5% of its
total assets; or mortgage, pledge or hypothecate any assets except in connection
with any such borrowing in amounts not to exceed 30% of the value of the
Portfolio's net assets at the time of borrowing; or (iii) enter into reverse
repurchase agreements and other permitted borrowings which constitute senior
securities under the 1940 Act, exceeding in the aggregate one-third of the
market value of the Portfolio's total assets, less certain liabilities (the
"Senior Securities Restriction").
The Portfolio for The Pierpont Bond Fund is subject to the Industry
Concentration Restriction
28
<PAGE>
and the Senior Securities Restriction and may not borrow money, except from
banks for extraordinary or emergency purposes and then only in amounts up to 30%
of the value of the Portfolio's total assets taken at cost at the time of
borrowing and except in connection with reverse repurchase agreements or
purchase securities while borrowings, including reverse repurchase agreements,
exceed 5% of its total assets; or mortgage, pledge or hypothecate any assets
except in connection with any such borrowing in amounts up to 30% of the value
of the Portfolio's net assets at the time of borrowing.
The Portfolios for The Pierpont Equity and Capital Appreciation Funds are
subject to the 10% Emergency Borrowing Restriction, the Industry Concentration
Restriction and may not purchase securities of any issuer if, as a result of the
purchase, more than 5% of total Portfolio assets would be invested in securities
of companies with fewer than three years of operating history (including
predecessors).
The Portfolio for The Pierpont International Equity Fund is subject to the
Industry Concentration Restriction and the Senior Securities Restriction. In
addition, the Portfolio may not borrow money, except from banks for
extraordinary or emergency purposes and then only in amounts up to 30% of the
value of the Portfolio's net assets at the time of borrowing, and except in
connection with reverse repurchase agreements and then only in amounts up to
33 1/3% of the value of the Portfolio's net assets; or purchase securities while
borrowings, including reverse repurchase agreements, exceed 5% of its total
assets; or mortgage, pledge or hypothecate any assets except in connection with
any such borrowing and in amounts not to exceed 30% of the value of the
Portfolio's net assets at the time of such borrowing.
The Portfolio for The Pierpont Emerging Markets Equity Fund is subject to the
Industry Concentration Restriction and may not (i) borrow money except that the
Portfolio may (a) borrow money from banks for temporary or emergency purposes
(not for leveraging purposes) and (b) enter into reverse repurchase agreements
for any purpose, provided that (a) and (b) in total do not exceed one-third of
the Portfolio's total assets less liabilities (other than borrowings), or (ii)
issue senior securities except as permitted by the 1940 Act or any rule, order
or interpretation thereunder.
For a more detailed discussion of the above investment restrictions, as well
as a description of certain other investment restrictions, see Investment
Restrictions and Additional Information in the Statement of Additional
Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIOS
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for each
Portfolio, the Trustees decide upon matters of general policy and review the
actions of the Advisor and other service providers. The Trustees of the Trust
and of each Portfolio are identified below.
<TABLE>
<S> <C>
Frederick S. Addy Former Executive Vice
President and Chief
Financial Officer,
Amoco Corporation
William G. Burns Former Vice Chairman
of the Board and
Chief Financial
Officer, NYNEX
Corporation
Arthur C. Former Senior Vice
Eschenlauer President, Morgan
Guaranty Trust
Company of New York
Matthew Healey Chairman and Chief
Executive Officer;
Chairman, Pierpont
Group, Inc.
Michael P. Mallardi 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, each Portfolio and
The JPM Institutional Funds, up to and including creating a separate board of
trustees. See Trustees and Officers in the Statement of Additional Information
for more information about the Trustees and Officers of the Funds and the
Portfolios.
Each of the Portfolios and the Trust have entered into a Fund Services
Agreement with Pierpont Group, Inc. to assist the Trustees in exercising their
overall supervisory responsibilities for the Portfolios' and the Trust's
affairs. The fees to be paid under the agreements approximate the reasonable
cost of Pierpont Group, Inc. in providing these services. Pierpont Group, Inc.
was organized in 1989 at the request of the Trustees of The Pierpont Family of
Funds for the purpose of providing these services at
29
<PAGE>
cost to these funds. See Trustees and Officers in the Statement of Additional
Information. The principal offices of Pierpont Group, Inc. are located at 461
Fifth Avenue, New York, New York 10017.
ADVISOR. None of the Funds has retained the services of an investment adviser
because each Fund seeks to achieve its investment objective by investing all of
its investable assets in its corresponding Portfolio. Each Portfolio has
retained the services of Morgan Guaranty as Investment Advisor. Morgan Guaranty,
with principal offices at 60 Wall Street, New York, New York 10260, is a New
York trust company which conducts a general banking and trust business. It is a
wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"), a
bank holding company organized under the laws of Delaware. Through offices in
New York City and abroad, J.P. Morgan, through the Advisor and other
subsidiaries, offers a wide range of services to governmental, institutional,
corporate and individual customers and acts as investment adviser to individual
and institutional clients with combined assets under management of over $179
billion (of which the Advisor advises over $28 billion). Morgan Guaranty
provides investment advice and portfolio management services to each Portfolio.
Subject to the supervision of each Portfolio's Trustees, Morgan Guaranty makes
each Portfolio's day-to-day investment decisions, arranges for the execution of
portfolio transactions and generally manages each Portfolio's investments. See
Investment Advisor in the Statement of Additional Information. Morgan Guaranty
also provides certain accounting and operations services to the Funds and the
Portfolios, including services related to Portfolio and Fund tax returns,
Portfolio and Fund financial reports, computing Fund dividends and net asset
value per share and keeping the Funds' books of account. Morgan Guaranty also
provides shareholder services to shareholders of the Funds. See Shareholder
Servicing below.
Morgan Guaranty uses a sophisticated, disciplined, collaborative process for
managing all asset classes. For fixed income portfolios, this process focuses on
the systematic analysis of real interest rates, sector diversification,
quantitative and credit analysis, and, for foreign fixed income securities,
country selection. Morgan Guaranty has managed portfolios of domestic fixed
income securities on behalf of its clients for over 60 years. The portfolio
managers making investments in income securities work in conjunction with fixed
income, credit, capital market and economic research analysts, as well as
traders and administrative officers.
For equity portfolios, this process utilizes research, systematic stock
selection, disciplined portfolio construction and, in the case of foreign
equities, country exposure and currency management. Morgan Guaranty has managed
portfolios of U.S. equity securities on behalf of its clients for over 40 years,
equity securities of small U.S. companies since the 1960s, international equity
securities since 1974 and emerging markets equity securities since 1990. The
portfolio managers making investments in domestic, international or emerging
markets equity securities work in conjunction with Morgan Guaranty's equity
analysts, as well as capital market, credit and economic research analysts,
traders and administrative officers, in Morgan Guaranty's offices around the
globe. The U.S. equity analysts each cover a different industry, following both
the small and large companies in their respective industries and currently
monitor universes of 700 predominately large and medium-sized and 300 small U.S.
companies. The international equity analysts, located in London, Tokyo,
Singapore and Melbourne, each cover a different industry, monitoring a universe
of nearly 1,000 non-U.S. companies. The emerging markets research analysts,
located in New York, London and Singapore, each cover a different industry,
monitoring a universe of approximately 900 companies in emerging markets
countries.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan Guaranty's process for the respective Portfolios or
their predecessor entities (the inception date of each person's responsibility
for a Portfolio (or its predecessor) and his or her business experience for the
past five years is indicated parenthetically): The Pierpont Money Market Fund:
Robert R. Johnson, Vice President (since June, 1988, employed by Morgan Guaranty
since prior to 1991) and Daniel B. Mulvey, Vice President (since January, 1995,
employed by Morgan Guaranty since September, 1991, previously securities trader,
Equitable Life Insurance Co.); The Pierpont Tax Exempt Money Market Fund: Daniel
B. Mulvey, Vice President (since August, 1995, employed by Morgan Guaranty since
September, 1991) and Elizabeth A. Augustin, Vice President (since January, 1992,
employed by Morgan Guaranty since prior to 1991); The Pierpont Treasury Money
Market Fund: James A. Hayes, Vice President (since January, 1993, employed by
Morgan Guaranty since prior to 1991) and Robert R. Johnson, Vice President
(since January, 1993, employed by Morgan Guaranty since prior to 1991); The
Pierpont Short Term Bond Fund: Connie J. Plaehn, Managing Director (since July,
1993, employed by Morgan Guaranty since prior to 1991 as a portfolio manager of
U.S. equity investments) and William G. Tennille, Vice President (since January,
1994, employed by Morgan Guaranty since March, 1992, previously Managing
Director, Manufacturers Hanover Trust Company); The
30
<PAGE>
Pierpont Bond Fund: William G. Tennille, Vice President (since January, 1994,
employed by Morgan Guaranty since March, 1992, previously Managing Director,
Manufacturers Hanover Trust Company) and Connie J. Plaehn, Managing Director
(since January, 1994, employed by Morgan Guaranty since prior to 1991); The
Pierpont Tax Exempt Bond Fund: Elizabeth A. Augustin, Vice President (since
January, 1992, employed by Morgan Guaranty since prior to 1991) and Gregory J.
Harris, Vice President (since January, 1996, employed by Morgan since prior to
1991); The Pierpont Equity Fund: William B. Petersen, Managing Director (since
February, 1993, employed by Morgan Guaranty since prior to 1991 as a portfolio
manager of U.S. equity investments) and William M. Riegel, Jr., Managing
Director (since February, 1993, employed by Morgan Guaranty since prior to 1991
as a portfolio manager of U.S. equity investments); The Pierpont Capital
Appreciation Fund: James B. Otness, Managing Director (since February, 1993,
employed by Morgan Guaranty since prior to 1991 as a portfolio manager of equity
securities of small and medium sized U.S. companies) and Michael J. Kelly, Vice
President (since May, 1996, employed by Morgan Guaranty since prior to 1991 as a
portfolio manager of small and medium sized U.S. Companies and an equity
research analyst); The Pierpont International Equity Fund: Paul A. Quinsee, Vice
President (since April, 1993, employed by Morgan Guaranty since February, 1992,
previously Vice President, Citibank) and Thomas P. Madsen, Managing Director
(since April, 1993, employed by Morgan Guaranty since prior to 1991); The
Pierpont Emerging Markets Equity Fund: Douglas J. Dooley, Managing Director
(since November, 1993, employed by Morgan Guaranty since prior to 1991) and
Satyen Mehta, Vice President (since November, 1993, employed by Morgan Guaranty
since prior to 1991); and The Pierpont Diversified Fund: Gerald H. Osterberg,
Vice President (since July, 1993, employed by Morgan Guaranty since prior to
1991), and John M. Devlin, Vice President (since December, 1993, employed by
Morgan Guaranty since prior to 1991).
As compensation for the services rendered and related expenses borne by
Morgan Guaranty under the Investment Advisory Agreement with each Portfolio, the
Portfolios have agreed to pay Morgan Guaranty a fee, which is computed daily and
may be paid monthly, equal to the following annual rates of each Portfolio's
average daily net assets: the Portfolios for The Pierpont Money Market, The
Pierpont Tax Exempt Money Market, and The Pierpont Treasury Money Market Funds,
0.20% of net assets up to $1 billion, and 0.10% of net assets in excess of $1
billion; the Portfolio for The Pierpont Short Term Bond Fund, 0.25%; the
Portfolio for The Pierpont Bond and The Pierpont Tax Exempt Bond Funds, 0.30%;
the Portfolio for The Pierpont Equity Fund, 0.40%; the Portfolios for The
Pierpont Capital Appreciation and The Pierpont International Equity Funds,
0.60%; the Portfolio for The Pierpont Emerging Markets Equity Fund, 1.00%; and
the Portfolio for The Pierpont Diversified Fund, 0.55%. While the advisory fee
for the Portfolio for The Pierpont Emerging Markets Equity Fund is higher than
that of most investment companies, it is similar to the advisory fees of other
emerging markets funds.
Under separate agreements, Morgan Guaranty also provides administrative and
related services to the Trust and each Portfolio and shareholder services to
shareholders of the Funds. See Administrative Services Agent and Shareholder
Servicing below. INVESTMENTS IN THE PIERPONT FUNDS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF
NEW YORK OR ANY OTHER BANK.
CO-ADMINISTRATOR AND DISTRIBUTOR. Under Co-Administration Agreements with the
Trust and each Portfolio, FDI serves as the Co-Administrator for the Trust and
the Portfolios 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 Portfolios; (ii) provides officers for the Trust and the
Portfolios; (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 Funds and exclusive placement agent for the Portfolios. 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 each Portfolio, Morgan Guaranty is responsible for administrative
and related services provided to the Trust and each 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 Fund and Portfolio has agreeed to pay Morgan
Guaranty and FDI fees equal to its allocable share of an annual complex-wide
charge. This charge is calculated daily based on
31
<PAGE>
the aggregate net assets of the Portfolios and the other portfolios
(collectively the "Master Portfolios") in which series of the Trust, The JPM
Institutional Funds or The JPM Advisor Funds invest 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 Funds' and the Portfolios'
Custodian and Transfer Agent and the Funds' Dividend Disbursing Agent. State
Street also keeps the books of account for the Funds and the Portfolios.
EXPENSES. In addition to the fees payable to Morgan Guaranty, 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 Funds and the Portfolios are
responsible for usual and customary expenses associated with their respective
operations. Such expenses include organization expenses, legal fees, accounting
and audit expenses, insurance costs, the compensation and expenses of the
Trustees, registration fees under federal securities laws, and extraordinary
expenses applicable to a Fund or Portfolio. For each Fund, such expenses also
include transfer, registrar and dividend disbursement costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders,
and registration fees under state securities laws. For each Portfolio, such
expenses also include, to the extent applicable, registration fees under foreign
securities laws, custodian fees and brokerage expenses.
Morgan Guaranty has agreed that it will reimburse each of the following Funds
through at least the indicated date to the extent necessary to maintain such
Fund's total operating expenses (which includes expenses of the Fund and its
corresponding Portfolio) at the following percentage of such Fund's average
daily net assets:
<TABLE>
<CAPTION>
EXPENSE
FUND CAP DATE
- ----------------- ----------- -------------------
<S> <C> <C>
The Pierpont
Treasury Money
Market Fund..... 0.40% February 28, 1997
The Pierpont
Short Term Bond
Fund............ 0.50% February 28, 1997
The Pierpont
Capital
Appreciation
Fund............ 0.90% September 30, 1997
The Pierpont
Diversified
Fund............ 0.98% October 31, 1997
</TABLE>
These limits do not cover extraordinary expenses during the period. There is
no assurance that Morgan Guaranty will continue waivers beyond the specified
periods, except as required by the following sentence. Morgan Guaranty has
agreed to waive fees as necessary if in any fiscal year the sum of any Fund's
expenses exceeds the limits set by applicable regulations of state securities
commissions. Such annual limits are currently 2.5% of the first $30 million of
average net assets, 2% of the next $70 million of such net assets and 1.5% of
such net assets in excess of $100 million for any fiscal year.
32
<PAGE>
SHAREHOLDER SERVICING
Pursuant to a Shareholder Servicing Agreement with the Trust, Morgan Guaranty
acts as shareholder servicing agent for its customers and other Fund investors
who are customers of an eligible institution which is a customer of Morgan
Guaranty (an "Eligible Institution").
Each Fund pays Morgan Guaranty for these services at the following annual
rates (expressed as a percentage of the average daily net asset value of Fund
shares owned by or for shareholders for whom Morgan Guaranty is acting as
shareholder servicing agent):
<TABLE>
<CAPTION>
FUND FEE
- ------------------------ ------------------------
<S> <C>
Money Market, 0.15% of average daily
Treasury Money Market, net assets up to $2
and Tax Exempt Money billion; 0.10%
Market thereafter
Short Term Bond, 0.20% of average daily
Bond, and net assets
Tax Exempt Bond
<CAPTION>
FUND FEE
- ------------------------ ------------------------
<S> <C>
Equity, 0.25% of average daily
Capital Appreciation, net assets
International Equity,
Emerging Markets
Equity, and
Diversified
</TABLE>
Under the terms of the Shareholder Servicing Agreement with each Fund, Morgan
Guaranty may delegate one or more of its responsibilities to other entities at
Morgan Guaranty's expense.
Shareholders should address all inquiries to Pierpont Shareholder Services,
Morgan Guaranty Trust Company of New York, 522 5th Avenue, New York, New York
10036 or call (800) 521-5411.
The business days of each Fund and its corresponding Portfolio are the days
the New York Stock Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with a Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
Guaranty as shareholder servicing agent and the Funds are authorized to accept
any instructions relating to a Fund account from Morgan Guaranty as shareholder
servicing agent for the customer. All purchase orders must be accepted by the
Fund's Distributor. Investors must be customers of Morgan Guaranty or an
Eligible Institution. Investors may also be employer-sponsored retirement plans
that have designated the Funds as investment options for the plans. Prospective
investors who are not already customers of Morgan Guaranty may apply to become
customers of Morgan Guaranty for the sole purpose of Fund transactions. There
are no charges associated with becoming a Morgan Guaranty customer for this
purpose. Morgan Guaranty reserves the right to determine the customers that it
will accept, and the Trust reserves the right to determine the purchase orders
that it will accept.
Each of The Pierpont Funds requires the minimum initial investment shown
below and a minimum subsequent investment of $5,000:
<TABLE>
<CAPTION>
INITIAL
FUND INVESTMENT
- ----------------------------------- -----------
<S> <C>
The Pierpont Money Market Fund..... $ 25,000
The Pierpont Tax Exempt Money
Market Fund....................... $ 25,000
<CAPTION>
INITIAL
FUND INVESTMENT
- ----------------------------------- -----------
<S> <C>
The Pierpont Treasury Money Market
Fund.............................. $ 25,000
The Pierpont Short Term Bond
Fund.............................. $ 100,000
The Pierpont Bond Fund............. $ 100,000
The Pierpont Tax Exempt Bond
Fund.............................. $ 100,000
The Pierpont Equity Fund........... $ 100,000
The Pierpont Capital Appreciation
Fund.............................. $ 100,000
The Pierpont International Equity
Fund.............................. $ 100,000
The Pierpont Emerging Markets
Equity Fund....................... $ 100,000
The Pierpont Diversified Fund...... $ 100,000
</TABLE>
For investors who were shareholders of a Pierpont Fund as of September 29,
1995, the minimum initial investment in any other Pierpont Fund is $10,000.
These minimum investment requirements may be waived for investors for whom the
Advisor is a fiduciary or who are employees of the Advisor, or who maintain
related accounts with the Funds or the Advisor or maintain investments in the
Funds (other than the money market funds) when such accounts and/or investments
total $500,000 or more.
For investors such as investment advisors, trust companies and financial
advisors who make investments for a group of clients, the minimum
invest-
33
<PAGE>
ment in any Fund (other than the money market funds) is (i) $100,000 per
individual client or (ii) $250,000 for an aggregated purchase order for more
than one client. The Trust may permit an investor in each of the Funds (other
than the money market funds) to attain the Fund's $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 any Fund (other than the money market funds) will be required to
attain the minimum balance of $250,000 within thirteen months of opening the
account.
PURCHASE PRICE AND SETTLEMENT. Each Fund's shares are sold on a continuous
basis without a sales charge at the net asset value per share next determined
after receipt of an order. Prospective investors may purchase shares with the
assistance of an Eligible Institution that may establish its own terms,
conditions and charges.
THE PIERPONT MONEY MARKET, TAX EXEMPT MONEY MARKET, AND TREASURY MONEY MARKET
FUNDS. To purchase shares in The Pierpont Money Market Fund, The Pierpont Tax
Exempt Money Market Fund or The Pierpont Treasury Money Market Fund, investors
should request their Morgan Guaranty representative (or a representative of
their Eligible Institution) to assist them in placing a purchase order with the
Fund's Distributor and to transfer immediately available funds to the Fund's
Distributor on the same day. Any shareholder may also call J.P. Morgan Funds
Services at (800) 521-5411 for assistance with placing an order for Fund shares.
Immediately available funds must be received by the Fund or its agent by 3:00
P.M. New York time on a business day in the case of The Pierpont Money Market,
by 12:00 noon New York time on a business day in the case of The Pierpont
Treasury Money Market Fund, and by 11:00 A.M. New York time on a business day in
the case of The Pierpont Tax Exempt Money Market Fund, for the purchase to be
effective and dividends to be earned on the same day. None of The Pierpont Money
Market Fund, The Pierpont Treasury Money Market Fund, or The Pierpont Tax Exempt
Money Market Fund accepts orders after the indicated time. If funds are received
after that time for any reason, including that the day is a Federal Reserve
holiday, the purchase is not effective and dividends are not earned until the
next business day.
THE PIERPONT SHORT TERM BOND, BOND AND TAX EXEMPT BOND FUNDS. To purchase
shares in The Pierpont Short Term Bond Fund, The Pierpont Bond Fund and The
Pierpont Tax Exempt Bond Fund, investors should request their Morgan Guaranty
representative (or a representative of their Eligible Institution) to assist
them in placing a purchase order with the Fund's Distributor. Any shareholder
may also call J.P. Morgan Funds Services at (800) 521-5411 for assistance with
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. 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 net asset value determined on the next
business day. All purchase orders for Fund shares must be accompanied by
instructions to Morgan Guaranty (or an Eligible Institution) to transfer
immediately available funds to the Funds' Distributor on settlement date. The
settlement date is generally the business day after the purchase is effective.
The purchaser will begin to receive the daily dividends on the settlement date.
See Dividends and Distributions.
THE PIERPONT EQUITY, CAPITAL APPRECIATION, INTERNATIONAL EQUITY, EMERGING
MARKETS EQUITY AND DIVERSIFIED FUNDS. To purchase shares in The Pierpont Equity
Fund, The Pierpont Capital Appreciation Fund, The Pierpont International Equity
Fund, The Pierpont Emerging Markets Equity Fund and The Pierpont Diversified
Fund, investors should request their Morgan Guaranty representative (or a
representative of their Eligible Institution) to assist them in placing a
purchase order with the Fund's Distributor and to transfer immediately available
funds to the Funds' Distributor on the next business day. Any shareholder may
also call J.P. Morgan Funds Services at (800) 521-5411 for assistance with
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 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
sub-accounting, answering client inquiries regarding the Trust, assisting
clients in changing dividend options, account designations and addresses,
providing periodic statements showing the client's account balance and
integrating these statements with those of other transactions and
34
<PAGE>
balances in the client's other accounts serviced by the Eligible Institution,
transmitting proxy statements, periodic reports, updated prospectuses and other
communications to shareholders and, with respect to meetings of shareholders,
collecting, tabulating and forwarding executed proxies and obtaining such other
information and performing such other services as Morgan Guaranty or the
Eligible Institution's clients may reasonably request and agree upon with the
Eligible Institution. Eligible Institutions may separately establish their own
terms, conditions and charges for providing the aforementioned services and for
providing other services.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in any of The Pierpont Funds, an
investor may instruct Morgan Guaranty or his or her Eligible Institution, as
appropriate, to submit a redemption request to the appropriate Fund or may
telephone 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. Each Fund executes
effective redemption requests at the next determined net asset value per share.
See Net Asset Value. See Additional Information below for an explanation of the
telephone redemption policy of The Pierpont Funds.
THE PIERPONT MONEY MARKET, TAX EXEMPT MONEY MARKET, AND TREASURY MONEY MARKET
FUNDS. A redemption request received by the Fund or its agent on a business day
prior to 1:00 P.M. New York time in the case of The Pierpont Money Market Fund,
prior to 12:00 noon New York time in the case of The Pierpont Treasury Money
Market Fund, and prior to 11:00 A.M. New York time in the case of The Pierpont
Tax Exempt Money Market Fund, is effective on that day. A redemption request
received after that time becomes effective on the next day. Proceeds of an
effective redemption are generally deposited the same day in immediately
available funds to the shareholder's account at Morgan Guaranty or at his
Eligible Institution or, in the case of certain Morgan Guaranty customers, are
mailed by check in accordance with the customer's instructions. If a redemption
request becomes effective on a day when the New York Stock Exchange is open but
which is a Federal Reserve holiday, the proceeds are paid the next business day.
See Further Redemption Information.
THE PIERPONT SHORT TERM BOND, BOND AND TAX EXEMPT BOND FUNDS. A redemption
request received by The Pierpont Short Term Bond Fund, The Pierpont Bond Fund or
The Pierpont Tax Exempt Bond Fund or their agents prior to 4:00 P.M. New York
time is effective on that day. A redemption request received after that time
becomes effective on the next business day. Proceeds of an effective redemption
are deposited on settlement date in immediately available funds to the
shareholder's account at Morgan Guaranty or at his or her Eligible Institution
or, in the case of certain Morgan Guaranty customers, are mailed by check or
wire transferred in accordance with the customer's instructions. The redeemer
will continue to receive dividends on these shares through the day before the
settlement date. Settlement date is generally the next business day after a
redemption is effective and, subject to Further Redemption Information below, in
any event is within seven days. See Dividends and Distributions.
THE PIERPONT EQUITY, CAPITAL APPRECIATION, INTERNATIONAL EQUITY, EMERGING
MARKETS EQUITY AND DIVERSIFIED FUNDS. A redemption request received by The
Pierpont Equity Fund, The Pierpont Capital Appreciation Fund, The Pierpont
International Equity Fund, The Pierpont Emerging Markets Equity Fund or The
Pierpont Diversified Fund or their agents prior to 4:00 P.M. New York time is
effective on that day. A redemption request received after that time becomes
effective on the next business day. Proceeds of an effective redemption are
generally deposited the next business day in immediately available funds to the
shareholder's account at Morgan Guaranty or at his Eligible Institution or, in
the case of certain Morgan Guaranty customers, are mailed by check or wire
transferred in accordance with the customer's instructions, and, subject to
Further Redemption Information below, in any event are paid within seven days.
MANDATORY REDEMPTION BY A FUND. If the value of a shareholder's holdings in
any of The Pierpont Funds falls below the applicable minimum investment amount
for more than 30 days because of a redemption of shares, or a shareholder's
account balance does not achieve the required minimum investment within the
prescribed time period, a 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 Pierpont Funds may not be processed if a redemption request is not
submitted in proper form. To be in proper form, The Pierpont Funds must have
received the shareholder's taxpayer identification number and address. As
discussed under Taxes
be-
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low, The Pierpont Funds may be required to impose "back-up" withholding of
federal income tax on dividends, distributions and redemption proceeds when
non-corporate investors have not provided a certified taxpayer identification
number. In addition, if a shareholder sends a check for the purchase of Fund
shares and shares are purchased before the check has cleared, the transmittal of
redemption proceeds from the shares will occur upon clearance of the check which
may take up to 15 days.
Each of The Pierpont Funds reserves the right to suspend the right of
redemption and to postpone the date of payment upon redemption for up to seven
days and for such other periods as the 1940 Act or the Securities and Exchange
Commission may permit. See Redemption of Shares in the Statement of Additional
Information.
EXCHANGE OF SHARES
An investor may exchange shares from any of The Pierpont Funds into any other
Pierpont Fund or JPM Institutional Fund without charge. An exchange may be made
so long as after the exchange the investor has shares, in each fund in which he
or she remains an investor, with a value of at least that fund's minimum
investment amount. Shares are exchanged on the basis of relative net asset value
per share. Exchanges are in effect redemptions from one fund and purchases of
another fund and the usual purchase and redemption procedures and requirements
are applicable to exchanges. See Purchase of Shares and Redemption of Shares in
this Prospectus and in the prospectuses for The JPM Institutional Funds. See
also Additional Information below for an explanation of the telephone exchange
policy of The Pierpont Funds.
Shareholders subject to federal income tax who exchange shares in one fund
for shares in another fund may recognize capital gain or loss for federal income
tax purposes. Each fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state
securities laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
THE PIERPONT MONEY MARKET, TAX EXEMPT MONEY MARKET AND TREASURY MONEY MARKET
FUNDS. In the case of The Pierpont Money Market Fund, The Pierpont Tax Exempt
Money Market Fund and The Pierpont Treasury Money Market Fund, all of each
Fund's net investment income is declared as a dividend daily and paid monthly.
If an investor's shares are redeemed during a month, accrued but unpaid
dividends are paid with the redemption proceeds. The net investment income of
each Fund for dividend purposes consists of its pro rata share of the net income
of the corresponding Portfolio less the Fund's expenses. Dividends and
distributions are payable to shareholders of record at the time of declaration.
The net investment income of The Pierpont Money Market Fund, The Pierpont Tax
Exempt Money Market Fund and The Pierpont Treasury Money Market Fund for each
business day is determined immediately prior to the determination of net asset
value. Net investment income for other days is determined at the time net asset
value is determined on the prior business day. Shares of The Pierpont Money
Market Fund, The Pierpont Tax Exempt Money Market Fund and The Pierpont Treasury
Money Market Fund earn dividends on the business day their purchase is
effective, but not on the business day redemption proceeds are paid. See
Purchase of Shares and Redemption of Shares.
Substantially all the realized net capital gains, if any, of The Pierpont
Money Market Fund, The Pierpont Tax Exempt Money Market Fund, and The Pierpont
Treasury Money Market Fund are declared and paid on an annual basis, except that
an additional capital gains distribution may be made in a given year to the
extent necessary to avoid the imposition of federal excise tax on a Fund.
THE PIERPONT SHORT TERM BOND, BOND AND TAX EXEMPT BOND FUNDS. Each of The
Pierpont Short Term Bond Fund, The Pierpont Bond Fund and The Pierpont Tax
Exempt Bond Fund intends to distribute substantially all of its net investment
income. The net investment income of each Fund is declared as a dividend daily
immediately prior to the determination of the net asset value of the Fund on
that day and paid monthly. If an investor's shares are redeemed during a month,
accrued but unpaid dividends are paid with the redemption proceeds. The net
investment income of each Fund for dividend purposes consists of its pro rata
share of the net income of the corresponding Portfolio less the Fund's expenses.
Expenses of each Fund and Portfolio, including the fees payable to Morgan
Guaranty, are accrued daily. Shares will accrue dividends as long as they are
issued and outstanding. Shares are issued
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and outstanding as of the settlement date of a purchase order to the settlement
date of a redemption order.
Substantially all the realized net capital gains of The Pierpont Short Term
Bond Fund, The Pierpont Bond Fund and The Pierpont Tax Exempt Bond Fund are
declared and paid on an annual basis, except that an additional capital gains
distribution may be made in a given year to the extent necessary to avoid the
imposition of federal excise tax on a Fund.
THE PIERPONT EQUITY, CAPITAL APPRECIATION, INTERNATIONAL EQUITY, EMERGING
MARKETS EQUITY AND DIVERSIFIED FUNDS. Dividends consisting of substantially all
the Fund's net investment income, if any, are declared and paid twice a year for
The Pierpont Equity, The Pierpont Capital Appreciation and The Pierpont
Diversified Funds and annually for The Pierpont International Equity and The
Pierpont Emerging Markets Equity Funds. These Funds may also declare an
additional dividend of net investment income in a given year to the extent
necessary to avoid the imposition of federal excise tax on the Funds.
Substantially all the realized net capital gains for these Funds are declared
and paid on an annual basis, except that an additional capital gains
distribution may be made in a given year to the extent necessary to avoid the
imposition of federal excise tax on a Fund. Declared dividends and distributions
are payable to shareholders of record on the record date.
Dividends and capital gains distributions paid for each of The Pierpont Funds
are automatically reinvested in additional shares of the same Fund unless the
shareholder has elected to have them paid in cash. Dividends and distributions
to be paid in cash are credited to the shareholder's account at Morgan Guaranty
or at his Eligible Institution or, in the case of certain Morgan Guaranty
customers, are mailed by check in accordance with the customer's instructions.
The Pierpont Funds reserve the right to discontinue, alter or limit the
automatic reinvestment privilege at any time.
NET ASSET VALUE
Net asset value per share for each Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in its
corresponding Portfolio and other assets) the amount of its liabilities and
dividing the remainder by the number of its outstanding shares, rounded to the
nearest cent. Expenses, including the fees payable to Morgan Guaranty, are
accrued daily. Each of the Portfolios for The Pierpont Money Market, Tax Exempt
Money Market and Treasury Money Market Funds value all portfolio securities by
the amortized cost method. This method attempts to maintain for each of these
Funds a constant net asset value per share of $1.00. No assurances can be given
that this goal can be attained. See Net Asset Value in the Statement of
Additional Information for more information on valuation of portfolio securities
for these Portfolios.
Each of The Pierpont Funds computes its net asset value once daily on Monday
through Friday, except that the net asset value is not computed on the holidays
listed under Net Asset Value in the Statement of Additional Information. The
Pierpont Funds generally compute net asset value as follows, New York time: The
Pierpont Money Market Fund, The Pierpont Tax Exempt Money Market Fund, The
Pierpont Treasury Money Market Fund, The Pierpont International Equity Fund and
The Pierpont Emerging Markets Equity Fund, 4:00 P.M.; The Pierpont Tax Exempt
Bond Fund, The Pierpont Short Term Bond Fund, The Pierpont Bond, The Pierpont
Equity Fund, The Pierpont Capital Appreciation Fund and The Pierpont Diversified
Fund, 4:15 P.M.
ORGANIZATION
The Trust was organized on November 4, 1992 as an unincorporated business
trust under Massachusetts law and is an entity commonly known as a
"Massachusetts business trust." The Declaration of Trust permits the Trustees to
issue an unlimited number of full and fractional shares ($0.001 par value) of
one or more series. To date, shares of fifteen series have been authorized and
are available for sale to the public. Shares of The Pierpont New York Total
Return Bond, European Equity, Japan Equity and Asia Growth Funds are described
in, and offered pursuant to, separate prospectuses. No series of shares has any
preference over any other series of shares. See Massachusetts Trust in the
Statement of Additional Information.
The Declaration of Trust for the Trust provides that no Trustee, shareholder,
officer, employee, or agent of any Fund shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of any Fund, but
that the Trust property only shall be liable.
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Shareholders of each Fund are entitled to one vote for each share and to the
appropriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and non-assessable by each Fund. The Trust has adopted a policy of not issuing
share certificates. The Trust does not intend to hold meetings of shareholders
annually. As of August 30, 1996, each of the following technically met the
definition of a control person of the indicated Fund: the Short Term Bond Fund
- -- E. Chang as trustee of the E. C. Chang Revocable Trust. The Trustees may call
meetings of shareholders for action by shareholder vote as may be required by
either the 1940 Act or the Declaration of Trust. The Trustees will call a
meeting of shareholders to vote on removal of a Trustee upon the written request
of the record holders of ten percent of Trust shares and will assist
shareholders in communicating with each other as prescribed in Section 16(c) of
the 1940 Act. For further organization information, including certain
shareholder rights, see Description of Shares in the Statement of Additional
Information.
Each Portfolio is organized as a trust under the laws of the State of New
York. Each Portfolio's Declaration of Trust provides that the Fund and other
entities investing in the Portfolio (e.g., other investment companies, insurance
company separate accounts and common and commingled trust funds) will each be
liable for all obligations of the Portfolio. However, the risk of a Fund
incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and the Portfolio
itself was unable to meet its obligations. Accordingly, the Trustees of the
Trust believe that neither a Fund nor its shareholders will be adversely
affected by reason of a Fund's investing in a Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax
laws in effect on the date of this Prospectus. These laws and regulations are
subject to change by legislative or administrative action. Investors are urged
to consult their own tax advisors with respect to specific questions as to
federal taxes and with respect to the applicability of state or local taxes. See
Taxes in the Statement of Additional Information. Annual statements as to the
current federal tax status of distributions, if applicable, are mailed to
shareholders after the end of the taxable year for the Funds.
The Trust intends to qualify each of the Funds as a separate regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended. For a Fund to qualify as a regulated investment company, a 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, each 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. Each
Portfolio intends to qualify as an association treated as a partnership for
federal income tax purposes. As such, each Portfolio should not be subject to
tax. Each Fund's status as a regulated investment company is dependent on, among
other things, the corresponding Portfolio's continued qualification as a
partnership for federal income tax purposes.
If a correct and certified taxpayer identification number is not on file, a
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to non-corporate shareholders.
THE PIERPONT MONEY MARKET FUND; THE PIERPONT TREASURY MONEY MARKET FUND; THE
PIERPONT SHORT TERM BOND FUND; THE PIERPONT BOND FUND; THE PIERPONT EQUITY FUND;
THE PIERPONT CAPITAL APPRECIATION FUND; THE PIERPONT INTERNATIONAL EQUITY FUND;
THE PIERPONT EMERGING MARKETS EQUITY FUND AND THE PIERPONT DIVERSIFIED FUND.
Distributions of net investment income and realized net short-term capital gains
in excess of net long-term capital losses are taxable as ordinary income to
shareholders of The Pierpont Money Market Fund, The Pierpont Treasury Money
Market Fund, The Pierpont Short Term Bond Fund, The Pierpont Bond Fund, The
Pierpont Equity Fund, The Pierpont Capital Appreciation Fund, The Pierpont
International Equity Fund, The Pierpont Emerging Markets Equity Fund and The
Pierpont Diversified Fund, whether such distributions are taken in cash or
reinvested in additional shares. Distributions of this type to corporate
shareholders of The Pierpont Money Market Fund, The Pierpont Treasury Money
Market Fund, The Pierpont Short Term Bond Fund and The Pierpont Bond Fund are
not eligible for the dividends-received
de-
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duction; however, The Pierpont Equity, The Pierpont Capital Appreciation and The
Pierpont Diversified Funds expect a portion of these distributions to corporate
shareholders to be eligible for the dividends-received deduction. Distributions
of this type to corporate shareholders of The Pierpont International Equity and
The Pierpont Emerging Markets Equity Funds will not qualify for the
dividends-received deduction because the income of these Funds will not consist
of dividends paid by United States corporations.
Distributions of net long-term capital gains in excess of net short-term
capital losses are taxable to shareholders of each of these Funds as long-term
capital gains regardless of how long a shareholder has held shares in the Fund
and regardless of whether taken in cash or reinvested in additional shares.
Long-term capital gains distributions to corporate shareholders are not eligible
for the dividends-received deduction. The Pierpont Money Market Fund and The
Pierpont Treasury Money Market Fund do not expect to realize long-term capital
gains and thus do not contemplate paying distributions taxable to shareholders
who are subject to tax as long-term capital gains.
In the case of The Pierpont Short Term Bond Fund and The Pierpont Bond Fund
any distribution of capital gains will have the effect of reducing the net asset
value of Fund shares held by a shareholder by the same amount as the
distribution. In the case of The Pierpont Equity Fund, The Pierpont Capital
Appreciation Fund, The Pierpont International Equity Fund, The Pierpont Emerging
Markets Equity Fund and The Pierpont Diversified Fund, any distribution of net
investment income or capital gains will have the same effect. If the net asset
value of the shares is reduced below a shareholder's cost as a result of such a
distribution, the distribution, although constituting a return of capital to the
shareholder, will be taxable as described above.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
such shares.
In the case of The Pierpont Treasury Money Market Fund, shareholders should
consult their tax advisors to assess the consequences of investing in the Fund
under state and local laws. Interest income derived from Treasury Securities is
generally not subject to state and local personal income taxation. Most states
allow a pass-through to the individual shareholders of the Fund of the
tax-exempt character of this income, subject to certain restrictions, for
purposes of those states' personal income taxes.
The Pierpont International Equity Fund and The Pierpont Emerging Markets
Equity Fund are subject to foreign withholding taxes with respect to income
received from sources within certain foreign countries. So long as more than 50%
of the value of the Fund's total assets at the close of any taxable year
consists of stock or securities of foreign corporations, the Fund may elect to
treat any such foreign income taxes paid by it as paid directly by its
shareholders. The Fund will make such an election only if it deems it to be in
the best interests of its shareholders and will notify shareholders in writing
each year if it makes the election and of the amount of foreign income taxes, if
any, to be treated as paid by the shareholders. If the Fund makes the election,
each shareholder will be required to include in income his proportionate share
of the amount of foreign income taxes paid by the Fund and will be entitled to
claim either a credit (which is subject to certain limitations), or, if the
shareholder itemizes deductions, a deduction for his share of the foreign income
taxes in computing his federal income tax liability. (No deduction will be
permitted to individuals in computing their alternative minimum tax liability.)
THE PIERPONT TAX EXEMPT MONEY MARKET AND TAX EXEMPT BOND FUNDS. The Pierpont
Tax Exempt Money Market Fund and The Pierpont Tax Exempt Bond Fund each intends
to qualify to pay exempt-interest dividends to its shareholders by having, at
the close of each quarter of its taxable year, at least 50% of the value of its
total assets consist of tax exempt securities. An exempt-interest dividend is
that part of dividend distributions made by these Funds which consists of
interest received by the Funds on tax exempt securities. Exempt-interest
dividends received from these Funds will be treated for federal income tax
purposes as tax exempt interest income. In view of the Funds' investment
policies, it is expected that a substantial portion of the Funds' dividends will
be exempt-interest dividends, although the Funds may from time to time realize
and distribute net short-term capital gains and may invest limited amounts in
taxable securities under certain circumstances. See Taxable Investments for The
Pierpont Tax Exempt Funds.
Interest on certain tax exempt municipal obligations issued after August 7,
1986 is a preference item for purposes of the alternative minimum tax applicable
to individuals and corporations. Under tax regulations to be issued, the portion
of an exempt-interest dividend of a regulated investment company that is
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allocable to these obligations will be treated as a preference item for purposes
of the alternative minimum tax. The Pierpont Tax Exempt Money Market Fund and
The Pierpont Tax Exempt Bond Fund have limited their investments to those
securities the interest on which will not be treated as preference items for
purposes of the alternative minimum tax in the opinion of bond counsel for the
issuer. The Pierpont Tax Exempt Money Market Fund and The Pierpont Tax Exempt
Bond Fund currently have no intention of investing in obligations subject to the
alternative minimum tax under normal market conditions.
Corporations should, however, be aware that interest on all municipal
securities will be included in calculating (i) adjusted current earnings for
purposes of the alternative minimum tax applicable to them, (ii) the additional
tax imposed on certain corporations by the Superfund Revenue Act of 1986, and
(iii) the foreign branch profits tax imposed on effectively connected earnings
and profits of United States branches of foreign corporations. Furthermore,
special tax provisions may apply to certain financial institutions and property
and casualty insurance companies, and they should consult their tax advisors
before purchasing shares of these Funds.
Interest on indebtedness incurred or continued by a shareholder (whether a
corporation or an individual) to purchase or carry shares of these Funds is not
deductible. The Treasury has been given authority to issue regulations which
would disallow the interest deduction if incurred to purchase or carry shares of
these Funds owned by the taxpayer's spouse, minor child or entity controlled by
the taxpayer. Entities or persons who are "substantial users" (or related
persons) of facilities financed by tax exempt bonds should consult their tax
advisors before purchasing shares of these Funds.
Distributions of taxable net investment income, realized net short-term
capital gains in excess of net long-term capital losses, and net long-term
capital gains in excess of net short-term capital losses by these Funds, as well
as gains or losses realized on the redemption or exchange of shares of these
Funds, are generally treated as described above under the heading Taxes: The
Pierpont Money Market Fund, The Pierpont Treasury Money Market Fund, The
Pierpont Bond Fund, The Pierpont Short Term Bond Fund, The Pierpont Equity Fund,
The Pierpont Capital Appreciation Fund, The Pierpont International Equity Fund,
The Pierpont Emerging Markets Equity Fund and The Pierpont Diversified Fund. Any
loss realized by a shareholder, however, upon the redemption or exchange of
shares in these Funds held six months or less will be disallowed to the extent
of any exempt-interest dividends received by the shareholder with respect to
these shares. See Taxes in the Statement of Additional Information. In addition,
in the case of The Pierpont Tax Exempt Bond Fund, any distribution of capital
gains will have the effect of reducing the net asset value of Fund shares as
described under the same heading.
ADDITIONAL INFORMATION
Each of The Pierpont Funds sends to its shareholders annual and semi-annual
reports. The financial statements appearing in annual reports are audited by
independent accountants. Shareholders also will be sent confirmations of each
purchase and redemption and monthly statements, reflecting all account activity,
including dividends and any distributions reinvested in additional shares or
credited as cash.
All shareholders are given the privilege to initiate transactions
automatically by telephone upon opening an account. However, an investor should
be aware that a transaction authorized by telephone and reasonably believed to
be genuine by the Fund, Morgan Guaranty, his Eligible Institution or the
Distributor may subject the investor to risk of loss if such instruction is
subsequently found not to be genuine. Each Fund will employ reasonable
procedures, including requiring investors to give their Personal Identification
Number and tape recording of telephone instructions, to confirm that
instructions communicated from investors by telephone are genuine; if it does
not, the Fund, the Shareholder Servicing Agent or a shareholder's Eligible
Institution may be liable for any losses due to unauthorized or fraudulent
instructions.
The Pierpont Funds may make historical performance information available and
may compare their performance to other investments, relevant indexes or
appropriate industry averages, including data from Lipper Analytical Services,
Inc., Morningstar Inc., Micropal Inc., Ibbotson Associates, the Dow Jones
Industrial Average and other industry publications. See Investment Advisor in
the Statement of Additional Information. The Pierpont Money Market Fund, The
Pierpont Tax Exempt Money Market Fund, The Pierpont Treasury Money Market Fund,
The Pierpont Short Term Bond Fund, The Pierpont Bond Fund and The Pierpont Tax
Exempt Bond Fund may advertise "yield"; The Pierpont Money Market Fund, The
Pierpont Tax Exempt Money Market Fund and The Pierpont Treasury Money Market
Fund may
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also advertise "effective yield"; and The Pierpont Tax Exempt Money Market Fund
and The Pierpont Tax Exempt Bond Fund may also advertise "tax equivalent yield."
In the case of The Pierpont Money Market Fund, The Pierpont Tax Exempt Money
Market Fund and The Pierpont Treasury Money Market Fund, the yield refers to the
net income generated by an investment in each of these Funds over a stated
seven-day period. This income is then annualized--i.e., the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. In
the case of The Pierpont Short Term Bond Fund, The Pierpont Bond Fund, The
Pierpont Tax Exempt Bond Fund and The Pierpont Equity Fund, the yield refers to
the net income generated by an investment in each of these Funds over a stated
30-day period. This income is then annualized--i.e., the amount of income
generated by the investment during the 30-day period is assumed to be generated
each 30-day period for twelve periods and is shown as a percentage of the
investment. The income earned on the investment is also assumed to be reinvested
at the end of the sixth 30-day period. In the case of The Pierpont Money Market
Fund, The Pierpont Tax Exempt Money Market Fund and The Pierpont Treasury Money
Market Fund, the effective yield is calculated similarly to the yield for each
of these Funds, but, when annualized, the income earned by an investment in each
of the Funds is assumed to be reinvested; the effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment. In the case of The Pierpont Tax Exempt Money Market Fund and The
Pierpont Tax Exempt Bond Fund, the tax equivalent yield is calculated similarly
to the yield for each of these Funds, except that the yield is increased using a
stated income tax rate to demonstrate the taxable yield necessary to produce an
after-tax equivalent to each of these Funds.
Each of the Funds may advertise "total return" and non-standardized total
return data. The total return shows what an investment in each of these Funds
would have earned over a specified period of time (one, five or ten years or
since commencement of operations, if less) assuming that all distributions and
dividends by the Fund were reinvested on the reinvestment dates during the
period and less all recurring fees. These methods of calculating yield and total
return are required by regulations of the Securities and Exchange Commission.
Yield and total return data similarly calculated, unless otherwise indicated,
over other specified periods of time may also be used. See Performance Data in
the Statement of Additional Information. All performance figures are based on
historical earnings and are not intended to indicate future performance.
Shareholders may obtain performance information by calling Morgan Guaranty at
(800) 521-5411.
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APPENDIX
The Portfolios for each of The Pierpont Tax Exempt Bond, Bond, Short Term
Bond and Diversified Funds may (a) purchase exchange traded and over-the-counter
(OTC) put and call options on fixed income securities and indexes of fixed
income securities, (b) purchase and sell futures contracts on fixed income
securities and indexes of fixed income securities and (c) purchase put and call
options on futures contracts on fixed income securities and indexes of fixed
income securities. In addition, the Portfolio for the Diversified Fund may sell
(write) exchange traded and OTC put and call options on fixed income securities
and indexes of fixed income securities and on futures contracts on fixed income
securities and indexes of fixed income securities. Each of these instruments is
a derivative instrument as its value derives from the underlying asset or index.
The Portfolios for each of The Pierpont Equity, Capital Appreciation,
International Equity, Emerging Markets Equity and Diversified Funds may (a)
purchase exchange traded and OTC put and call options on equity securities or
indexes of equity securities, (b) purchase and sell futures contracts on indexes
of equity securities, and (c) purchase put and call options on futures contracts
on indexes of equity securities. In addition, the Portfolios for the Emerging
Markets Equity and Diversified Funds may sell (write) exchange traded and OTC
put and call options on equity securities and indexes of equity securities and
on futures contracts on indexes of equity securities. Each of these instruments
is a derivative instrument as its value derives from the underlying asset or
index.
Each of these Portfolios may use futures contracts and options for hedging
purposes. The Portfolios for each of The Pierpont Emerging Markets Equity and
Diversified Funds may also use futures contracts and options for risk management
purposes. See Risk Management in the Statement of Additional Information. None
of the Portfolios may use futures contracts and options for speculation.
Each of these Portfolios may utilize options and futures contracts to manage
their exposure to changing interest rates and/or security prices. Some options
and futures strategies, including selling futures contracts and buying puts,
tend to hedge a Portfolio's investments against price fluctuations. Other
strategies, including buying futures contracts, writing puts and calls, and
buying calls, tend to increase market exposure. Options and futures contracts
may be combined with each other or with forward contracts in order to adjust the
risk and return characteristics of a Portfolio's overall strategy in a manner
deemed appropriate to the Advisor and consistent with a Portfolio's objective
and policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase a Portfolio's return. While the use of these instruments
by a Portfolio may reduce certain risks associated with owning its portfolio
securities, these techniques themselves entail certain other risks. If the
Advisor applies a strategy at an inappropriate time or judges market conditions
or trends incorrectly, options and futures strategies may lower a Portfolio's
return. Certain strategies limit a Portfolio's possibilities to realize gains as
well as limiting its exposure to losses. The Portfolio could also experience
losses if the prices of its options and futures positions were poorly correlated
with its other investments, or if it could not close out its positions because
of an illiquid secondary market. In addition, a Portfolio will incur transaction
costs, including trading commissions and option premiums, in connection with its
futures and options transactions and these transactions could significantly
increase the Portfolio's turnover rate.
Each of the Portfolios may purchase put and call options on securities,
indexes of securities and futures contracts, or purchase and sell futures
contracts, only if such options are written by other persons and if (i) the
aggregate premiums paid on all such options which are held at any time do not
exceed 20% of the Portfolio's net assets, and (ii) the aggregate margin deposits
required on all such futures or options thereon held at any time do not exceed
5% of the Portfolio's total assets. In addition, the Portfolios for The Pierpont
Emerging Markets Equity and Diversified Funds will not purchase or sell (write)
futures contracts, options on futures contracts or commodity options for risk
management purposes if, as a result, the aggregate initial margin and options
premiums required to establish these positions exceed 5% of the net asset value
of such Portfolio.
A-1
<PAGE>
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a Portfolio
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by
allowing it to expire or by exercising the option. The Portfolio may also close
out a put option position by entering into an offsetting transaction, if a
liquid market exists. If the option is allowed to expire, the Portfolio will
lose the entire premium it paid. If the Portfolio exercises a put option on a
security, it will sell the instrument underlying the option at the strike price.
If the Portfolio exercises an option on an index, settlement is in cash and does
not involve the actual sale of securities. If an option is American style, it
may be exercised on any day up to its expiration date. A European style option
may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the price
of the underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument underlying the option at the option's
strike price. A call buyer typically attempts to participate in potential price
increases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost of
the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When a Portfolio writes a put option,
it takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the instrument underlying the option if the other party to
the option chooses to exercise it. The Portfolio may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a put
option the Portfolio has written, however, the Portfolio must continue to be
prepared to pay the strike price while the option is outstanding, regardless of
price changes, and must continue to post margin as discussed below.
If the price of the underlying instrument rises, a put writer would generally
expect to profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it is likely
that the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would expect to
suffer a loss. This loss should be less than the loss from purchasing and
holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.
Writing a call option obligates a Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an index
of securities or a futures contract is required to deposit cash or securities or
a letter of credit as margin and to make mark to market payments of variation
margin as the position becomes unprofitable.
OPTIONS ON INDEXES. The Portfolios for The Pierpont Emerging Markets Equity
and Diversified Funds may sell (write) put and call options on any securities
index based on securities in which the Portfolios may invest. Options on
securities indexes are similar to options on securities, except that the
A-2
<PAGE>
exercise of securities index options is settled by cash payment and does not
involve the actual purchase or sale of securities. In addition, these options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price fluctuations in a single security. A
Portfolio, in purchasing or selling index options, is subject to the risk that
the value of its portfolio securities may not change as much as an index because
the Portfolio's investments generally will not match the composition of an
index. For a number of reasons, a liquid market may not exist and thus a
Portfolio may not be able to close out an option position that it has previously
entered into. When a Portfolio purchases an OTC option, it will be relying on
its counterparty to perform its obligations, and a Portfolio may incur
additional losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When a Portfolio purchases a futures contract, it agrees to purchase a
specified quantity of an underlying instrument at a specified future date or to
make a cash payment based on the value of a securities index. When a Portfolio
sells a futures contract, it agrees to sell a specified quantity of the
underlying instrument at a specified future date or to receive a cash payment
based on the value of a securities index. The price at which the purchase and
sale will take place is fixed when the Portfolio enters into the contract.
Futures can be held until their delivery dates or the position can be (and
normally is) closed out before then. There is no assurance, however, that a
liquid market will exist when the Portfolio wishes to close out a particular
position.
When a Portfolio purchases a futures contract, the value of the futures
contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase a Portfolio's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying instrument
directly. When a Portfolio sells a futures contract, by contrast, the value of
its futures position will tend to move in a direction contrary to the value of
the underlying instrument. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
The purchaser or seller of a futures contract is not required to deliver or
pay for the underlying instrument unless the contract is held until the delivery
date. However, when a Portfolio buys or sells a futures contract it will be
required to deposit "initial margin" with its Custodian in a segregated account
in the name of its futures broker, known as a futures commission merchant (FCM).
Initial margin deposits are typically equal to a small percentage of the
contract's value. If the value of either party's position declines, that party
will be required to make additional "variation margin" payments equal to the
change in value on a daily basis. The party that has a gain may be entitled to
receive all or a portion of this amount. A Portfolio may be obligated to make
payments of variation margin at a time when it is disadvantageous to do so.
Furthermore, it may not always be possible for a Portfolio to close out its
futures positions. Until it closes out a futures position, a Portfolio will be
obligated to continue to pay variation margin. Initial and variation margin
payments do not constitute purchasing on margin for purposes of the Portfolios'
investment restrictions. In the event of the bankruptcy of an FCM that holds
margin on behalf of a Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.
Each Portfolio will segregate liquid assets in connection with its use of
options and futures contracts to the extent required by the staff of the
Securities and Exchange Commission. Securities held in a segregated account
cannot be sold while the futures contract or option is outstanding, unless they
are replaced with other suitable assets. As a result, there is a possibility
that segregation of a large percentage of a Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
For further information about the Portfolios' use of futures and options and
a more detailed discussion of associated risks, see Investment Objectives and
Policies in the Statement of Additional Information.
A-3
<PAGE>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE TRUST OR THE DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER BY THE TRUST OR BY THE DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE TRUST OR THE
DISTRIBUTOR TO MAKE SUCH OFFER IN SUCH JURISDICTION.
PROSPPT-969
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
The Pierpont Diversified Fund
60 State Street
Boston, Massachusetts 02109
For information call (800) 521-5411
The Pierpont Diversified Fund (the "Fund") seeks to provide a high total return
from a diversified portfolio of equity and fixed income securities. It is
designed for investors who wish to invest for long-term objectives such as
retirement and who seek over time to attain real appreciation in their
investments, but with somewhat less price fluctuation than a portfolio
consisting solely of equity securities.
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 DIVERSIFIED 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 27, 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 27, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
Investors for Whom the Fund is Designed................. 1
Financial Highlights.................................... 3
Special Information Concerning Investment
Structure............................................. 3
Investment Objective and Policies....................... 5
Additional Investment Information and Risk
Factors............................................... 8
Investment Restrictions................................. 11
Management of the Trust and the Portfolio............... 12
Shareholder Servicing................................... 14
Page
Purchase of Shares...................................... 15
Redemption of Shares.................................... 16
Exchange of Shares...................................... 17
Dividends and Distributions............................. 17
Net Asset Value......................................... 17
Organization............................................ 18
Taxes................................................... 18
Additional Information.................................. 20
Appendix................................................ A-1
</TABLE>
<PAGE>
The Pierpont Diversified Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed for investors who are interested in a diversified portfolio
of equity and fixed income securities. The Fund seeks to achieve its investment
objective by investing all of its investable assets in The Diversified
Portfolio, a diversified open-end management investment company having the same
investment objective as the Fund. 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, forward contracts on foreign currencies and
certain privately placed securities. For further information about these
investments and investment techniques, 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 financial history, investment objective and
policies, management and operation of the Fund to enable investors to decide if
the Fund suits their needs. The Fund operates 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.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases......................................... None
Sales Load Imposed on Reinvested Dividends.............................. None
Deferred Sales Load..................................................... None
Redemption Fees......................................................... None
Exchange Fees........................................................... None
</TABLE>
1
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees........................................................... 0.55%
Rule 12b-1 Fees......................................................... None
Other Expenses (after expense reimbursement)............................ 0.43%
-----
Total Operating Expenses (after expense reimbursement).................. 0.98%
</TABLE>
* The expense information in the above table has been restated to reflect
current fees under contractual arrangements and other expenses described below.
Fees and expenses in the expense table are expressed as a percentage of the
Fund's estimated average daily net assets for its current fiscal year. If the
above expense table reflected these expenses without current reimbursements,
Other Expenses and Total Operating Expenses would be equal to 0.67% and 1.22%,
respectively, of such assets. Historical Total Operating Expenses expressed as a
ratio to historical average daily net assets would be 1.36%, assuming no expense
reimbursements. See Management of the Trust and the Portfolio.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year.................................................................. $ 10
3 Years................................................................. $ 31
5 Years................................................................. $ 54
10 Years................................................................ $120
</TABLE>
The above expense table is designed to assist investors in understanding the
various direct and indirect costs and expenses that investors in the Fund bear.
The fees and expenses included in Other Expenses are the fees paid to Morgan
under the Administrative Services Agreements and the Shareholder Servicing
Agreement, 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
<PAGE>
FINANCIAL HIGHLIGHTS
The following selected data for a share outstanding for the indicated periods
should be read in conjunction with the financial statements and related notes
which are contained in the Fund's annual report and are incorporated by
reference into the Statement of Additional Information. The following selected
data have been audited by independent accountants. The Fund's annual report
includes a discussion of those factors, strategies and techniques that
materially affected the Fund's performance during the period of the report, as
well as certain related information. A copy of the Fund's annual report will be
made available without charge upon request.
<TABLE>
<CAPTION>
For the Fiscal Year
Ended June 30, For the Period
------------------- December 15, 1993 to
1996 1995 June 30, 1994(1)
-------- -------- --------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 11.20 $ 9.81 $10.00
-------- -------- ------
Income From Investment Operations:
Net Investment Income................. 0.30 0.28 0.09
Net Realized and Unrealized Gain
(Loss) on Investments, Foreign
Currency and Futures................. 1.48 1.37 (0.27)
-------- -------- ------
Total From Investment Operations........ 1.78 1.65 (0.18)
-------- -------- ------
Less Distributions to Shareholders from:
Net Investment Income................. (0.32) (0.20) (0.01)
Net Realized Gain on Investments,
Foreign Currency and Futures......... (0.44) (0.06) --
-------- -------- ------
Total Distributions..................... (0.76) (0.26) (0.01)
-------- -------- ------
Net Asset Value, End of Period.......... $ 12.22 $ 11.20 $ 9.81
-------- -------- ------
-------- -------- ------
Total Return............................ 16.51% 17.08% (1.82)%(a)
Ratios and Supplemental Data:
Net Assets at End of Period (in
Thousands)........................... $ 53,198 $ 22,396 $7,023
Ratio to Average Net Assets:
Expenses............................ 0.98% 0.98% 0.98%(b)
Net Investment Income............... 3.04% 3.39% 2.80%(b)
Decrease reflected in expense ratio
due to fee waivers and expense
reimbursement...................... 0.38% 0.91% 1.52%(b)
<FN>
- ------------------------
(1) Commencement of Operations December 15, 1993.
(a) Not annualized.
(b) Annualized.
</TABLE>
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.
3
<PAGE>
In addition to selling a beneficial interest to the Fund, the Portfolio may sell
beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
bear a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Fund. Such different pricing structures may
result in differences in returns experienced by investors in other funds that
invest in the Portfolio. Such differences in returns are not uncommon and are
present in other mutual fund structures. Information 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.
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.
4
<PAGE>
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
diversified portfolio of equity and fixed income securities. Total return will
consist of income plus realized and unrealized capital gains and losses. The
Fund attempts to achieve its investment objective by investing all of its
investable assets in The Diversified Portfolio, a diversified open-end
management investment company having the same investment objective as the Fund.
The Portfolio seeks to provide a total return that approaches that of the
universe of equity securities of large and medium sized U.S. companies and that
exceeds the return typical of a portfolio of fixed income securities. The
Portfolio attempts to achieve this return by investing in equity and fixed
income instruments, as described below.
The Pierpont Diversified Fund is designed primarily for investors who wish to
invest for long term objectives such as retirement. It is appropriate for
investors who seek to attain real appreciation in the market value of their
investments over the long term, but with somewhat less price fluctuation than a
portfolio consisting only of equity securities. The Fund may be an attractive
option for investors who want a professional investment adviser to decide how
their investments should be allocated between equity and fixed income
securities.
Under normal circumstances, the Portfolio will be invested approximately 65% in
equities and 35% in fixed income securities. The equity portion of the Portfolio
will be invested primarily in large and medium sized U.S. companies with market
capitalizations above $1.5 billion, with the balance in small U.S. companies
primarily included in the Russell 2000 Index and in foreign issuers primarily in
developed countries. Under normal circumstances, Morgan expects that
approximately 52% of the Portfolio will be in equity securities of large and
medium sized companies, 3% in small companies and 10% in foreign issuers.
However, Morgan may allocate the Portfolio's investments among these asset
classes in a manner consistent with the Portfolio's investment objective and
current market conditions. Using a variety of analytical tools, Morgan assesses
the relative attractiveness of each asset class and determines an optimal
allocation among them. Morgan then selects securities within each asset class
based on fundamental research and quantitative analysis.
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. Since the Portfolio has a long-term investment
perspective, it does not intend to respond to short-term market fluctuations or
to acquire securities for the purpose of short-term trading; however, it may
take advantage of short-term trading opportunities that are consistent with its
objective. To the extent the Portfolio engages in short-term trading, it may
incur increased transaction costs. See Taxes below. The portfolio turnover rate
for the Portfolio for the fiscal year ended June 30, 1996 was 144%.
EQUITY INVESTMENTS. For the equity portion of the Portfolio, Morgan seeks to
achieve a high total return through fundamental analysis, systematic stock
valuation and disciplined portfolio construction. For domestic equities, based
on internal fundamental research, Morgan uses a dividend discount model to value
equity securities and rank a universe of large and medium capitalization
companies or small companies within economic sectors according to their relative
value. Morgan then buys and sells securities within each economic sector based
on this valuation process to seek to enhance the Portfolio's return. For foreign
equities, the Portfolio's investment process involves
5
<PAGE>
country allocation, stock selection and management of currency exposure. Morgan
allocates this portion of the Portfolio by under- or over-weighting selected
countries in the Morgan Stanley Europe, Australia and Far East Index (the "EAFE
Index"). Using a dividend discount model and based on analysts' industry
expertise, securities within each country are ranked within economic sectors
according to their relative value and those which appear the most attractive are
selected. Currency exposure is also actively managed to protect and possibly
enhance the market value of the Portfolio. In addition, Morgan uses this
disciplined portfolio construction process to seek to reduce the volatility of
the large and medium capitalization equity portion of the Portfolio relative to
that of the S&P 500 Index, of the small company portion of the Portfolio
relative to that of the Russell 2000 and of the foreign equity portion of the
Portfolio relative to that of the EAFE Index.
The Portfolio's equity investments will include common stock of any class or
series or any similar equity interest, such as trust or limited partnership
interests. The Portfolio's equity investments may also include preferred stock,
warrants, rights and convertible securities. The Portfolio's equity securities
may or may not pay dividends and may or may not carry voting rights.
FIXED INCOME INVESTMENTS. For the fixed income portion of the Portfolio, Morgan
seeks to provide a high total return by actively managing the duration of the
Portfolio's fixed income securities, the allocation of securities across market
sectors, and the selection of securities within sectors. Based on fundamental,
economic and capital markets research, Morgan adjusts the duration of the
Portfolio's fixed income investments in light of market conditions. Morgan also
actively allocates the Portfolio's fixed income investments among the broad
sectors of the fixed income market. Securities which Morgan believes are
undervalued are selected for purchase from the sectors using advanced
quantitative tools, analysis of credit risk, the expertise of a dedicated
trading desk, and the judgment of fixed income portfolio managers and analysts.
Duration is a measure of the weighted average maturity of the fixed income
securities held in the Portfolio and can be used as a measure of the sensitivity
of the Portfolio's market value to changes in interest rates. Under normal
market conditions the duration of the fixed income portion of the Portfolio will
range between one year shorter and one year longer than the duration of the U.S.
investment grade fixed income universe, as represented by The Salomon Brothers
Broad Investment Grade Bond Index. Currently the Index's duration is
approximately 4.5 years. The maturities of the individual fixed income
securities in the Portfolio may vary widely, however.
The Portfolio may invest in a broad range of debt securities of domestic and
foreign corporate and government issuers. The corporate securities in which the
Portfolio may invest include debt securities of various types and maturities,
e.g., debentures, notes, mortgage securities, equipment trust certificates and
other collateralized securities and zero coupon securities. Collateralized
securities are backed by a pool of assets such as loans or receivables which
generate cash flow to cover the payments due on the securities. Collateralized
securities are subject to certain risks, including a decline in the value of the
collateral backing the security, failure of the collateral to generate the
anticipated cash flow or in certain cases more rapid prepayment because of
events affecting the collateral, such as accelerated prepayment of mortgages or
other loans backing these securities or destruction of equipment subject to
equipment trust certificates. In the event of any such prepayment the Portfolio
will be required to reinvest the proceeds of prepayments at interest rates
prevailing at the time of reinvestment, which may be lower. In addition, the
value of zero coupon securities which do not pay interest is more volatile than
that of interest bearing debt securities with the same maturity.
The Portfolio may also invest in obligations issued or guaranteed by the U.S.
Government and backed by the full faith and credit of the United States. These
securities include Treasury securities, obligations of the Government
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<PAGE>
National Mortgage Association ("GNMA Certificates"), the Farmers Home
Administration and the Export Import Bank. GNMA Certificates are mortgage-backed
securities which evidence an undivided interest in mortgage pools. These
securities are subject to more rapid prepayment than their stated maturity would
indicate because prepayments of principal on mortgages in the pool are passed
through to the holder of the securities. During periods of declining interest
rates, prepayments of mortgages in the pool can be expected to increase. The
pass-through of these prepayments would have the effect of reducing the
Portfolio's positions in these securities and requiring the Portfolio to
reinvest the prepayments at interest rates prevailing at the time of
reinvestment. The Portfolio may also invest in obligations issued or guaranteed
by U.S. Government agencies or instrumentalities where the Portfolio must look
principally to the issuing or guaranteeing agency for ultimate repayment; some
examples of agencies or instrumentalities issuing these obligations are the
Federal Farm Credit System, the Federal Home Loan Banks and the Federal National
Mortgage Association. Although these governmental issuers are responsible for
payments on their obligations, they do not guarantee their market value. The
Portfolio may also invest in municipal obligations which may be general
obligations of the issuer or payable only from specific revenue sources.
However, the Portfolio will invest only in municipal obligations that have been
issued on a taxable basis or have an attractive yield excluding tax
considerations. In addition, the Portfolio may invest in debt securities of
foreign governments and governmental entities. See Additional Investment
Information and Risk Factors for further information on foreign investments.
QUALITY INFORMATION. It is a current policy of the Portfolio that under normal
circumstances at least 65% of that portion of the Portfolio invested in fixed
income securities will consist of securities that are rated at least A by
Moody's or Standard & Poor's or that are unrated and in Morgan's opinion are of
comparable quality. In the case of 30% of the Portfolio's fixed income
investments, the Portfolio may purchase debt securities that are rated Baa or
better by Moody's or BBB or better by Standard & Poor's or are unrated and in
Morgan's opinion are of comparable quality. The remaining 5% of the Portfolio's
fixed income investments may be debt securities that are rated Ba or better by
Moody's or BB or better by Standard & Poor's or are unrated and in Morgan's
opinion are of comparable quality. Securities rated Baa by Moody's or BBB by
Standard & Poor's are considered investment grade, but have some speculative
characteristics. Securities rated Ba by Moody's or BB by Standard & Poor's are
below investment grade and considered to be speculative with regard to payment
of interest and principal. These standards must be satisfied at the time an
investment is made. If the quality of the investment later declines, the
Portfolio may continue to hold the investment. See Appendix A in the Statement
of Additional Information for more detailed information on these ratings.
FOREIGN INVESTMENTS. The Portfolio may invest in common stocks and convertible
securities of foreign corporations as well as fixed income securities of foreign
government and corporate issuers. However, the Portfolio does not expect to
invest more than 30% of its assets at the time of purchase in securities of
foreign issuers. For further information on foreign investments and foreign
currency exchange transactions, see Additional Investment Information and Risk
Factors.
The Portfolio may also invest in securities on a when-issued or delayed delivery
basis, enter into repurchase and reverse repurchase agreements, loan its
portfolio securities, purchase certain privately placed securities and money
market instruments and enter into forward contracts on foreign currencies. 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. For a discussion of these investments and investment
techniques, see Additional Investment Information and Risk Factors.
7
<PAGE>
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
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 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.
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.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions with brokers, dealers or banks that meet the credit guidelines
established by the Portfolio's Trustees. In a repurchase agreement, the
Portfolio buys a security from a seller that has agreed to repurchase it at a
mutually agreed upon date and price, reflecting the interest rate effective for
the term of the agreement. The term of these agreements is usually from
overnight to one week. A repurchase agreement may be viewed as a fully
collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities as collateral with a market value at least equal to
the purchase price plus accrued interest and this value is maintained during the
term of the agreement. If the seller defaults and the collateral value declines,
the Portfolio might incur a loss. If bankruptcy proceedings are commenced with
respect to the seller, the Portfolio's realization upon the disposition of
collateral may be delayed or limited. Investments in certain repurchase
agreements and certain other investments which may be considered illiquid are
limited. See Illiquid Investments; Privately Placed and other Unregistered
Securities below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in an amount up to 33 1/3% of
the value of the Portfolio's net assets. The Portfolio may lend its securities
if such loans are secured continuously by cash or equivalent collateral or by a
letter of credit in favor of the Portfolio at least equal at all times to 100%
of the market value of the securities loaned, plus accrued interest. While such
securities are on loan, the borrower will pay the Portfolio any income accruing
thereon. Loans will be subject to termination by the Portfolio in the normal
settlement time, generally three business days after notice, or by the
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<PAGE>
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
purposes of the Investment Company Act of 1940, as amended (the "1940 Act"), it
is considered a form of borrowing of money 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 Objective and Policies in the Statement of Additional Information.
FOREIGN INVESTMENT INFORMATION. The Portfolio may invest in certain foreign
securities. Investment in securities of foreign issuers and in obligations of
foreign branches of domestic banks involves somewhat different investment risks
from those affecting securities of U.S. domestic issuers. There may be limited
publicly available information with respect to foreign issuers, and foreign
issuers are not generally subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to domestic companies.
Dividends and interest paid by foreign issuers may be subject to withholding and
other foreign taxes which may decrease the net return on foreign investments as
compared to dividends and interest paid to 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,
9
<PAGE>
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.
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 may buy and sell
securities and receive 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.
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.
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Although these transactions are intended to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time they limit any
potential gain that might be realized should the value of the hedged currency
increase. In addition, forward contracts that convert a foreign currency into
another foreign currency will cause the Portfolio to assume the risk of
fluctuations in the value of the currency purchased vis a vis the hedged
currency and the U.S. dollar. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
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.
The Portfolio may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's
implementation of these guidelines on a periodic basis.
FUTURES AND OPTIONS TRANSACTIONS. The Portfolio is permitted to enter into the
futures and options transactions described in the Appendix to this Prospectus
for both hedging and risk management purposes, although not for speculation. For
more detailed information about these transactions, see the Appendix to this
Prospectus and Risk Management in the Statement of Additional Information.
MONEY MARKET INSTRUMENTS. The Portfolio is permitted to invest in money market
instruments although it intends to stay invested in equity and longer-term fixed
income securities to the extent practical in light of its objectives and
long-term investment perspective. The Portfolio may make money market
investments pending other investment or settlement, for liquidity or in adverse
market conditions. The money market investments permitted for the Portfolio
include obligations of the U.S. Government and its agencies and
instrumentalities, other debt securities, commercial paper, bank obligations and
repurchase agreements. For more detailed information about these money market
investments, see Investment Objectives and Policies in the Statement of
Additional Information.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Fund are subject
to the following fundamental limitations: (a) the Fund 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 Fund may not own more than 10% of the
outstanding voting securities of any one issuer.
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The investment objective of the Fund and the Portfolio, together with the
investment restrictions described below and in the Statement of Additional
Information, except as noted, are deemed fundamental policies, i.e., they may be
changed only with the approval of the holders of a majority of the outstanding
voting securities of the Fund and the Portfolio. The Fund has the same
investment restrictions as the Portfolio, except that the Fund may invest all of
its investable assets in another open-end investment company with the same
investment objective and restrictions (such as the Portfolio). References below
to the Portfolio's investment restrictions also include the Fund's investment
restrictions.
The Portfolio may not (i) 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; for purposes of this limitation, the staff of the SEC
considers (a) all supranational organizations as a group to be a single industry
and (b) each foreign government and its political subdivisions to be a single
industry; (ii) borrow money (not including reverse repurchase agreements),
except from banks for temporary or extraordinary or emergency purposes and then
only in amounts up to 30% of the value of the Portfolio's total assets, taken at
cost at the time of borrowing (and provided that such borrowings and reverse
repurchase agreements do not exceed in the aggregate one-third of the market
value of the Portfolio's total assets less liabilities other than the
obligations represented by the bank borrowings and reverse repurchase
agreements), or purchase securities while borrowings exceed 5% of its total
assets; or mortgage, pledge or hypothecate any assets except in connection with
any such borrowings in amounts not to exceed 30% of the value of the Portfolio's
net assets at the time of borrowing; or (iii) enter into reverse repurchase
agreements and other permitted borrowings which constitute senior securities
under the 1940 Act, exceeding in the aggregate one-third of the market value of
the Portfolio's total assets, less certain liabilities.
For a more detailed discussion of the above investment restrictions, as well as
a description of certain other investment restrictions, see Investment
Restrictions in the Statement of Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the
Portfolio, the Trustees decide upon matters of general policy and review the
actions of the Advisor and other service providers. The Trustees of the Trust
and of the Portfolio are identified below.
<TABLE>
<S> <C>
Frederick S. Addy............................... Former Executive Vice President and Chief
Financial Officer, Amoco Corporation
William G. Burns................................ Former Vice Chairman of the Board and Chief
Financial Officer, NYNEX Corporation
Arthur C. Eschenlauer........................... Former Senior Vice President, Morgan Guaranty
Trust Company of New York
Matthew Healey.................................. Chairman and Chief Executive Officer; Chairman,
Pierpont Group, Inc.
Michael P. Mallardi............................. Former Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast Group
</TABLE>
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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 and of the
Portfolio, up to and including creating a separate board of trustees. See
Trustees and Officers in the Statement of Additional Information for more
information about the Trustees and Officers of the Fund and the Portfolio.
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pierpont
Group, Inc. in providing these services. Pierpont Group, Inc. was organized in
1989 at the request of the Trustees of The Pierpont Family of Funds for the
purpose of providing these services at cost to these funds. See Trustees and
Officers in the Statement of Additional Information. The principal offices of
Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017.
ADVISOR. The Fund has not retained the services of an investment adviser because
the Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. The Portfolio has retained the services of
Morgan as Investment Advisor. Morgan, with principal offices at 60 Wall Street,
New York, New York 10260, is a New York trust company which conducts a general
banking and trust business. Morgan is a wholly owned subsidiary of J.P. Morgan &
Co. Incorporated ("J.P. Morgan"), a bank holding company organized under the
laws of Delaware. Through offices in New York City and abroad, J.P. Morgan,
through the Advisor and other subsidiaries, offers a wide range of services to
governmental, institutional, corporate and individual customers and acts as
investment adviser to individual and institutional clients with combined assets
under management of over $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.
Morgan uses a sophisticated, disciplined, collaborative process for managing all
asset classes. 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):
Gerald H. Osterberg, Vice President (since July, 1993, employed by Morgan since
prior to 1991) and John M. Devlin, Vice President (since December, 1993,
employed by Morgan Guaranty since prior to 1991).
As compensation for the services rendered and related expenses borne by Morgan
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 0.55% 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
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<PAGE>
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 Trustee 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.
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 and audit
expenses, insurance costs, the compensation and expenses of the Trustees,
registration fees under federal securities laws, and extraordinary expenses
applicable to the Fund or the Portfolio. For the Fund, such expenses also
include transfer, registrar and dividend disbursement costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders,
and 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 October 31,
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
0.98% 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
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<PAGE>
(an "Eligible Institution"). The Fund pays Morgan for these services at an
annual rate (expressed as a percentage of the average daily net asset value of
Fund shares owned by or for shareholders for whom Morgan is acting as
shareholder servicing agent) of 0.25% 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 5th Avenue, New York, New York 10036 or
call (800) 521-5411.
The business days of the Fund and the Portfolio are the days the New York Stock
Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
as shareholder servicing agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Fund's
Distributor. Investors must be customers of Morgan or an Eligible Institution.
Investors may also be employer-sponsored retirement plans that have designated
the Fund as an investment option for the plans. Prospective investors who are
not already customers of Morgan may apply to become customers of Morgan for the
sole purpose of Fund transactions. There are no charges associated with becoming
a Morgan customer for this purpose. Morgan reserves the right to determine the
customers that it will accept, and the Fund reserves the right to determine the
purchase orders that it will accept.
The Fund requires a minimum initial investment of $100,000, except that for
investors who were shareholders of another Pierpont Fund as of September 29,
1995, the minimum initial investment in the Fund is $10,000. The minimum
subsequent investment for all investors is $5,000. These minimum investment
requirements may be waived for investors for whom the Advisor is a fiduciary or
who are employees of the Advisor, or who maintain related accounts with The
Pierpont Funds or the Advisor or maintain investments in The Pierpont Funds
(other than the money market funds) when such accounts and/or investments total
$500,000 or more.
For investors such as investment advisors, trust companies and financial
advisors who make investments for a group of clients, the minimum investment in
the Fund is (i) $100,000 per individual client or (ii) $250,000 for an
aggregated purchase order for more than one client. 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 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
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<PAGE>
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 Eligible Institution's clients may
reasonably request and agree upon with the Eligible Institution. Eligible
Institutions may separately establish their own terms, conditions and charges
for providing the aforementioned services and for providing other services.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
Morgan or his or her Eligible Institution, as appropriate, to submit a
redemption request to the Fund or may telephone J.P. Morgan Funds Services
directly at (800) 521-5411 and give the Shareholder Service Representative a
preassigned shareholder Personal Identification Number and the amount of the
redemption. The Fund executes effective redemption requests at the next
determined net asset value per share. See Net Asset Value. See Additional
Information below for an explanation of the telephone redemption policy of The
Pierpont Funds.
A redemption request received by the Fund 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
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<PAGE>
addition, if a shareholder sends a check for the purchase of Fund shares and
shares are purchased before the check has cleared, the transmittal of redemption
proceeds from the shares will occur upon clearance of the check which may take
up to 15 days.
The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other
periods as the 1940 Act or the Securities and Exchange Commission may permit.
See Redemption of Shares in the Statement of Additional Information.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other Pierpont Fund or
JPM Institutional Fund without charge. An exchange may be made so long as after
the exchange the investor has shares, in each fund in which he or she remains an
investor, with a value of at least 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.
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 the Fund's net investment income, if
any, are declared and paid twice a year. 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
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<PAGE>
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
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.
The Declaration of Trust for the Trust provides that no Trustee, shareholder,
officer, employee, or agent of the Fund shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the Fund, but
that the Trust property only shall be liable.
Shareholders of the Fund are entitled to one vote for each share and to the
appropriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and nonassessable by the Fund. The Trust has adopted a policy of not issuing
share certificates. The Trust does not intend to hold meetings of shareholders
annually. The Trustees may call meetings of shareholders for action by
shareholder vote as may be required by either the 1940 Act or the Declaration of
Trust. The Trustees will call a meeting of shareholders to vote on removal of a
Trustee upon the written request of the record holders of ten percent of Trust
shares and will assist shareholders in communicating with each other as
prescribed in Section 16(c) of the 1940 Act. For further organization
information, including certain shareholder rights, see Description of Shares in
the Statement of Additional Information.
The Portfolio is organized as a trust under the laws of the State of New York.
The Portfolio's Declaration of Trust provides that the Fund and other entities
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable for
all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations. Accordingly, the Trustees of the Trust believe that neither the
Fund nor its shareholders will be adversely affected by reason of the Fund's
investing in the Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are subject
to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to federal
taxes and with respect to the
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<PAGE>
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 Internal Revenue Code of 1986, as amended. 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. Goverment 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 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. The Fund expects a portion of the distributions
of this type to corporate shareholders of the Fund to be eligible for the
dividends-received deduction.
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.
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ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The financial
statements appearing in annual reports are audited by independent accountants.
Shareholders also will be sent confirmations of each purchase and redemption and
monthly statements, reflecting all other account activity, including dividends
and any distributions reinvested in additional shares or credited as cash.
All shareholders are given the privilege to initiate transactions automatically
by telephone upon opening an account. However, an investor should be aware that
a transaction authorized by telephone and reasonably believed to be genuine by
the Fund, Morgan, his Eligible Institution or the Distributor may subject the
investor to risk of loss if such instruction is subsequently found not to be
genuine. The Fund will employ reasonable procedures, including requiring
investors to give their Personal Identification Number and tape recording of
telephone instructions, to confirm that instructions communicated from investors
by telephone are genuine; if it does not, the Fund, the Shareholder Servicing
Agent or a shareholder's Eligible Institution may be liable for any losses due
to unauthorized or fraudulent instructions.
The Fund may make historical performance information available and may compare
its performance to other investments or relevant indexes, including data from
Lipper Analytical Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson
Associates, Standard & Poor's 500 Composite Stock Price Index, the Dow Jones
Industrial Average, the Frank Russell Index and other industry publications. The
Fund may advertise "yield". Yield refers to the net income generated by an
investment in the Fund over a stated 30-day period. This income is then
annualized - i.e., the amount of income generated by the investment during the
30-day period is assumed to be generated each 30-day period for twelve periods
and is shown as a percentage of the investment. The income earned on the
investment is also assumed to be reinvested at the end of the sixth 30-day
period.
The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of
operations, if less) assuming that all distributions and dividends by the Fund
were reinvested on the reinvestment dates during the period and less all
recurring fees. These methods of calculating yield and total return are required
by regulations of the Securities and Exchange Commission. Yield and total return
data similarly calculated, unless otherwise indicated, over other specified
periods of time may also be used. See Performance Data in the Statement of
Additional Information. All performance figures are based on historical earnings
and are not intended to indicate future performance. Shareholders may obtain
performance information by calling Morgan at (800) 521-5411.
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APPENDIX
The Portfolio may purchase and sell (a) exchange traded and over-the-counter
(OTC) put and call options on fixed income or equity securities and indexes of
fixed income or equity securities, (b) futures contracts on fixed income
securities and indexes of fixed income or equity securities and (c) put and call
options on futures contracts on fixed income securities and indexes of fixed
income or 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. See Risk Management in the Statement of Additional
Information. 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.
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by
allowing it to expire or by
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exercising the option. The Portfolio may also close out a put option position by
entering into an offsetting transaction, if a liquid market exists. If the
option is allowed to expire, the Portfolio will lose the entire premium it paid.
If the Portfolio exercises a put option on a security, it will sell the
instrument underlying the option at the strike price. If the Portfolio exercises
an option on an index, settlement is in cash and does not involve the actual
sale of securities. If an option is American style, it may be exercised on any
day up to its expiration date. A European style option may be exercised only on
its expiration date.
The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the instrument underlying the option at the option's strike price. A
call buyer typically attempts to participate in potential price increases of the
instrument underlying the option with risk limited to the cost of the option if
security prices fall. At the same time, the buyer can expect to suffer a loss if
security prices do not rise sufficiently to offset the cost of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put option,
it takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the instrument underlying the option if the other party to
the option chooses to exercise it. The Portfolio may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a put
option the Portfolio has written, however, the Portfolio must continue to be
prepared to pay the strike price while the option is outstanding, regardless of
price changes, and must continue to post margin as discussed below.
If the price of the underlying instrument rises, a put writer would generally
expect to profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it is likely
that the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would expect to
suffer a loss. This loss should be less than the loss from purchasing and
holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.
Writing a call option obligates the Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an index of
securities or a futures contract is required to deposit cash or securities or a
letter of credit as margin and to make mark to market payments of variation
margin as the position becomes unprofitable.
OPTIONS ON INDEXES. 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.
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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 in
strument directly. When the Portfolio sells a futures contract, by contrast, the
value of its futures position will tend to move in a direction contrary to the
value of the underlying instrument. Selling futures contracts, therefore, will
tend to offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
The purchaser or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, when the Portfolio buys or sells a futures contract it will be
required to deposit "initial margin" with its Custodian in a segregated account
in the name of its futures broker, known as a futures commission merchant (FCM).
Initial margin deposits are typically equal to a small percentage of the
contract's value. If the value of either party's position declines, that party
will be required to make additional "variation margin" payments equal to the
change in value on a daily basis. The party that has a gain may be entitled to
receive all or a portion of this amount. The Portfolio may be obligated to make
payments of variation margin at a time when it is disadvantageous to do so.
Furthermore, it may not always be possible for the Portfolio to close out its
futures positions. Until it closes out a futures position, the Portfolio will be
obligated to continue to pay variation margin. Initial and variation margin
payments do not constitute purchasing on margin for purposes of the Portfolio's
investment restrictions. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.
The Portfolio will segregate liquid 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.
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------------------------------------
The
Pierpont
Diversified
Fund
<TABLE>
<S> <C>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE TRUST OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER BY THE TRUST OR BY THE DISTRIBUTOR TO SELL OR A SOLICITATION OF
ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE TRUST OR THE
DISTRIBUTOR TO MAKE SUCH OFFER IN SUCH JURISDICTION.
PROS285-969 PROSPECTUS
MST609109PRO SEPTEMBER 27, 1996
</TABLE>
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PROSPECTUS
The Pierpont Equity Fund
60 State Street
Boston, Massachusetts 02109
For information call (800) 521-5411
The Pierpont Equity Fund (the "Fund") seeks to provide a high total return from
a portfolio of selected equity securities. It is designed for investors who want
an actively managed portfolio of selected equity securities that seeks to
outperform the S&P 500 Index.
The 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 SELECTED U.S. 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 "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 27, 1996 (as supplemented from time to time). This information
is incorporated herein by reference and is available without charge upon 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 27, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
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............................................... 5
Investment Restrictions................................ 9
Management of the Trust and the Portfolio.............. 10
Shareholder Servicing.................................. 12
Page
Purchase of Shares..................................... 13
Redemption of Shares................................... 14
Exchange of Shares..................................... 15
Dividends and Distributions............................ 15
Net Asset Value........................................ 15
Organization........................................... 16
Taxes.................................................. 16
Additional Information................................. 17
Appendix............................................... A-1
</TABLE>
<PAGE>
The Pierpont Equity Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed for investors who wish to participate primarily in the U.S.
equity markets. The Fund seeks to achieve its investment objective by investing
all of its investable assets in The Selected U.S. Equity Portfolio, a
diversified open-end management investment company having the same investment
objective as the Fund. 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, forward contracts on foreign currencies and
certain privately placed securities. For further information about these
investments and investment techniques, 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 financial history, investment objective and
policies, management and operation of the Fund to enable investors to decide if
the Fund suits their needs. The Fund operates 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
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees.......................................................... 0.40%
Rule 12b-1 Fees........................................................ None
Other Expenses......................................................... 0.44%
-----
Total Operating Expenses............................................... 0.84%
</TABLE>
* The expense information in the above table has been restated to reflect
current fees under contractual arrangements and other expenses described below.
Fees and expenses in the expense table are expressed as a percentage of the
Fund's estimated average daily net assets for its current fiscal year.
Historical Total Operating Expenses expressed as a ratio to historical average
daily net assets would be 0.81%. See Management of the Trust and the Portfolio.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year.................................................................. $8
3 Years................................................................. $25
5 Years................................................................. $43
10 Years................................................................ $97
</TABLE>
The above expense table is designed to assist investors in understanding the
various direct and indirect costs and expenses that investors in the Fund bear.
The fees and expenses included in Other Expenses are the fees paid to Morgan
under the Administrative Services Agreements and the Shareholder Servicing
Agreement, 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, see
Management of the Trust and the Portfolio and Shareholder Servicing. In
connection with the above example, please note that $1,000 is less than the
Fund's minimum investment requirement and that there are no redemption or
exchange fees of any kind. See Purchase of Shares and Redemption of Shares. THE
EXAMPLE IS HYPOTHETICAL; IT IS INCLUDED SOLELY FOR ILLUSTRATIVE PURPOSES. IT
SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE PERFORMANCE; ACTUAL EXPENSES
MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following selected data for a share outstanding for the indicated periods
should be read in conjunction with the financial statements and related notes
which are contained in the Fund's annual report and are incorporated by
reference into the Statement of Additional Information. The following selected
data have been audited by independent accountants. The Fund's annual report
includes a discussion of those factors, strategies and techniques that
materially affected the Fund's performance during the period of the report, as
well as certain related information. A copy of the Fund's annual report will be
made available without charge upon request.
<TABLE>
<CAPTION>
For the Fiscal Year Ended May 31
--------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $ 19.42 $ 19.38 $ 19.30 $ 19.02 $ 18.21
Income from Investment Operations:
Net Investment Income..................................... 0.38 0.32 0.27 0.38 0.37
Net Realized and Unrealized Gain (Loss) on Investments.... 4.23 2.17 1.32 1.35 2.13
---------- ---------- ---------- ---------- ----------
Total from Investment Operations............................ 4.61 2.49 1.59 1.73 2.50
Less Distributions to Shareholders from:
Net Investment Income..................................... (0.29) (0.28) (0.29) (0.36) (0.40)
Net Capital Gains......................................... (1.59) (2.17) (1.22) (1.09) (1.29)
---------- ---------- ---------- ---------- ----------
Total Distributions......................................... (1.88) (2.45) (1.51) (1.45) (1.69)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period.............................. $ 22.15 $ 19.42 $ 19.38 $ 19.30 $ 19.02
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total Return................................................ 25.18% 15.11% 8.54% 10.02% 14.60%
Ratios and Supplemental Data:
Net Assets, End of Period (in Thousands).................. $330,014 $259,338 $231,306 $202,474 $109,246
Ratio to Average Net Assets:
Expenses................................................ 0.81% 0.90% 0.90% 0.90% 0.90%
Net Investment Income................................... 1.87% 1.74% 1.43% 2.20% 2.16%
Decrease reflected in expense ratio due to expense
reimbursement.......................................... -- 0.01% 0.03% 0.08% 0.19%
Portfolio Turnover.......................................... -- -- 10.00%(a) 59.61% 99.20%
- ----------------------------------
(a) Portfolio Turnover reflects the period June 1, 1993 to July 18, 1993 and has not been annualized. In July, 1993 the
Fund's predecessor contributed all of its investable assets to The Selected U.S. Equity Portfolio.
<CAPTION>
1991 1990 1989 1988 1987
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $ 16.51 $ 14.54 $ 12.04 $ 14.23 $ 12.86
Income from Investment Operations:
Net Investment Income..................................... 0.44 0.44 0.46 0.42 0.43
Net Realized and Unrealized Gain (Loss) on Investments.... 1.90 2.20 2.49 (1.53) 1.55
--------- --------- --------- --------- ---------
Total from Investment Operations............................ 2.34 2.64 2.95 (1.11) 1.98
Less Distributions to Shareholders from:
Net Investment Income..................................... (0.45) (0.44) (0.45) (0.41) (0.39)
Net Capital Gains......................................... (0.19) (0.23) -0- (0.67) (0.22)
--------- --------- --------- --------- ---------
Total Distributions......................................... (0.64) (0.67) (0.45) (1.08) (0.61)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period.............................. $ 18.21 $ 16.51 $ 14.54 $ 12.04 $ 14.23
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total Return................................................ 14.81% 18.75% 25.12% (8.08)% 16.03%
Ratios and Supplemental Data:
Net Assets, End of Period (in Thousands).................. $55,144 $40,032 $27,677 $24,970 $30,268
Ratio to Average Net Assets:
Expenses................................................ 0.91% 0.93% 1.00% 1.00% 0.99%
Net Investment Income................................... 2.81% 2.97% 3.52% 3.26% 3.26%
Decrease reflected in expense ratio due to expense
reimbursement.......................................... 0.38% 0.41% 0.45% 0.34% 0.57%
Portfolio Turnover.......................................... 43.26% 23.20% 17.76% 29.46% 32.31%
- ----------------------------------
(a) Portfolio Turnover reflects the period June 1, 1993 t
Fund's predecessor contributed all of its inve
</TABLE>
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 effort 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 selected equity securities. Total return will consist of realized
and unrealized capital gains and losses plus income. The Fund attempts to
achieve its investment objective by investing all of its investable assets in
The Selected U.S. Equity Portfolio, a diversified open-end management investment
company having the same investment objective as the Fund. The Portfolio invests
primarily in the common stock of large and medium sized U.S. corporations.
4
<PAGE>
The Fund is designed for investors who want an actively managed portfolio of
selected equity securities that seeks to outperform the S&P 500 Index.
Morgan seeks to enhance the Portfolio's total return relative to that of the
universe of large and medium sized U.S. companies, typically represented by the
S&P 500 Index, through fundamental analysis, systematic stock valuation and
disciplined portfolio construction. Based on internal fundamental research,
Morgan uses a dividend discount model to rank companies within economic sectors
according to their relative value. From the universe of securities this model
shows as undervalued, Morgan selects stocks for the Portfolio based on a variety
of criteria including the company's managerial strength, prospects for growth
and competitive position. Morgan may modestly under or over-weight selected
economic sectors against the S&P 500 Index's sector weightings to seek to
enhance the Portfolio's total return or reduce the fluctuation in its market
value relative to the Index.
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. The Portfolio does not intend to respond to short-term
market fluctuations or to acquire securities for the purpose of short-term
trading; however, it may take advantage of short-term trading opportunities that
are consistent with its objective. To the extent the Portfolio engages in
short-term trading, it may incur increased transaction costs. See Taxes below.
The portfolio turnover rate for the Portfolio for the fiscal year ended May 31,
1996 was 84.55%.
EQUITY INVESTMENTS. During ordinary market conditions, the Advisor intends to
keep the Portfolio essentially fully invested with at least 65% of the
Portfolio's net assets invested in equity securities consisting of common stocks
and other securities with equity characteristics such as preferred stocks,
warrants, rights and convertible securities. The Portfolio's primary equity
investments are the common stocks of large and medium-sized U.S. corporations
and, to a limited extent, similar securities of foreign corporations. The common
stock in which the Portfolio may invest includes the common stock of any class
or series or any similar equity interest, such as trust or limited partnership
interests. These equity investments may or may not pay dividends and may or may
not carry voting rights. The Portfolio invests in securities listed on a
securities exchange or traded in an over-the-counter (OTC) market, and may
invest in certain restricted or unlisted securities.
FOREIGN INVESTMENTS. The Portfolio may invest in equity securities of foreign
corporations included in the S&P 500 Index or listed on a national securities
exchange. However, the Portfolio does not expect to invest more than 5% of its
assets at the time of purchase in securities of foreign issuers. For further
information on foreign investments and foreign currency exchange transactions,
see Additional Investment Information and Risk Factors.
The Portfolio may also invest in securities on a when-issued or delayed delivery
basis, enter into repurchase and reverse repurchase agreements, loan its
portfolio securities, purchase certain privately placed securities and money
market instruments, and enter into certain hedging transactions that may involve
options on securities and securities indexes, futures contracts and options on
futures contracts. For a discussion of these investments and investment
techniques, see Additional Investment Information and Risk Factors.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
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.
5
<PAGE>
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.
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.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions with brokers, dealers or banks that meet the credit guidelines
established by the Portfolio's Trustees. In a repurchase agreement, the
Portfolio buys a security from a seller that has agreed to repurchase it at a
mutually agreed upon date and price, reflecting the interest rate effective for
the term of the agreement. The term of these agreements is usually from
overnight to one week. A repurchase agreement may be viewed as a fully
collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities as collateral with a market value at least equal to
the purchase price plus accrued interest and this value is maintained during the
term of the agreement. If the seller defaults and the collateral value declines,
the Portfolio might incur a loss. If bankruptcy proceedings are commenced with
respect to the seller, the Portfolio's realization upon the disposition of
collateral may be delayed or limited. Investments in certain repurchase
agreements and certain other investments which may be considered illiquid are
limited. See Illiquid Investments; Privately Placed and other Unregistered
Securities below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in an amount up to 33 1/3% of
the value of the Portfolio's net assets. The Portfolio may lend its securities
if such loans are secured continuously by cash or equivalent collateral or by a
letter of credit in favor of the Portfolio at least equal at all times to 100%
of the market value of the securities loaned, plus accrued interest. While such
securities are on loan, the borrower will pay the Portfolio any income accruing
thereon. Loans will be subject to termination by the Portfolio in the normal
settlement time, generally three business days after notice, or by the borrower
on one day's notice. Borrowed securities must be returned when the loan is
terminated. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the Portfolio and its
respective investors. The Portfolio may pay reasonable finders' and custodial
fees in connection with a loan. In addition, the Portfolio will consider all
facts and circumstances, including the creditworthiness of the borrowing
financial institution, and the Portfolio will not make any loans in excess of
one year.
6
<PAGE>
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
purposes of the Investment Company Act of 1940, as amended (the "1940 Act"), it
is considered a form of borrowing of money by the Portfolio and, therefore, is a
form of leverage. Leverage may cause any gains or losses of the Portfolio to be
magnified. For more information, see Investment Objective and Policies in the
Statement of Additional Information.
FOREIGN INVESTMENT INFORMATION. The Portfolio may invest in certain foreign
securities. Investment in securities of foreign issuers and in obligations of
foreign branches of domestic banks involves somewhat different investment risks
from those affecting securities of U.S. domestic issuers. There may be limited
publicly available information with respect to foreign issuers, and foreign
issuers are not generally subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to domestic companies.
Dividends and interest paid by foreign issuers may be subject to withholding and
other foreign taxes which may decrease the net return on foreign investments as
compared to dividends and interest paid to 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.
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
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.
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 may buy and sell
securities and receive 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.
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.
Although these transactions are intended to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time they limit any
potential gain that might be realized should the value of the hedged currency
increase. In addition, forward contracts that convert a foreign currency into
another foreign currency will cause the Portfolio to assume the risk of
fluctuations in the value of the currency purchased vis a vis the hedged
currency and the U.S. dollar. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change
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.
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.
The Portfolio may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's
implementation of these guidelines on a periodic basis.
FUTURES AND OPTIONS TRANSACTIONS. The Portfolio is permitted to enter into the
futures and options transactions described in the Appendix to this Prospectus
for hedging purposes.
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 and long-term investment perspective.
The Portfolio may make money market investments pending other investment or
settlement, for liquidity or in adverse market conditions. The money market
investments permitted for the Portfolio include obligations of the U.S.
Government and its agencies and instrumentalities, other debt securities,
commercial paper, bank obligations and repurchase agreements. For more detailed
information about these money market investments, see Investment Objectives and
Policies in the Statement of Additional Information.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Fund are subject
to the following fundamental limitations: (a) the Fund 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 Fund 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.
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The Portfolio may not (i) borrow money, except from banks for extraordinary or
emergency purposes and then only in amounts up to 10% of the value of the
Portfolio's total assets, taken at cost at the time of borrowing, or purchase
securities while borrowings exceed 5% of its total assets; or mortgage, pledge
or hypothecate any assets except in connection with any such borrowings in
amounts up to 10% of the value of the Portfolio's net assets at the time of
borrowing; (ii) 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; or (iii) purchase securities of any issuer if, as a result of the
purchase, more than 5% of total Portfolio assets would be invested in securities
of companies with fewer than three years of operating history (including
predecessors).
For a more detailed discussion of the above investment restrictions, as well as
a description of certain other investment restrictions, see Investment
Restrictions in the Statement of Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the
Portfolio, the Trustees decide upon matters of general policy and review the
actions of the Advisor and other service providers. The Trustees of the Trust
and of the Portfolio are identified below.
<TABLE>
<S> <C>
Frederick S. Addy............. Former Executive Vice President and Chief
Financial Officer, Amoco Corporation
William G. Burns.............. Former Vice Chairman of the Board and Chief
Financial Officer, NYNEX Corporation
Arthur C. Eschenlauer......... Former Senior Vice President, Morgan Guaranty
Trust Company of New York
Matthew Healey................ Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi........... 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 and of the
Portfolio, up to and including creating a separate board of trustees. See
Trustees and Officers in the Statement of Additional Information for more
information about the Trustees and Officers of the Fund and the Portfolio.
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pierpont
Group, Inc. in providing these services. Pierpont Group, Inc. was organized in
1989 at the request of the Trustees of The Pierpont Family of Funds for the
purpose of providing these services at cost to these funds. See Trustees and
Officers in the Statement of Additional Information. The principal offices of
Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017.
ADVISOR. The Fund has not retained the services of an investment adviser because
the Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. The Portfolio has retained the services
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<PAGE>
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, 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.
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 managed portfolios of U.S. equity securities on behalf of its clients
for over forty years. The portfolio managers making investments in U.S. equity
securities work in conjunction with Morgan's domestic equity analysts, as well
as capital market, credit and economic research analysts, traders and
administrative officers. The U.S. equity analysts each cover a different
industry, monitoring a universe of 700 predominantly large and medium-sized U.S.
companies.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio (the inception date of
each person's responsibility for the Portfolio and his business experience for
the past five years is indicated parenthetically): William B. Petersen, Managing
Director (since February, 1993, employed by Morgan since prior to 1991 as a
portfolio manager of U.S. equity investments) and William M. Riegel, Jr.,
Managing Director (since February, 1993, employed by Morgan since prior to 1991
as a portfolio manager of U.S. 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 0.40% 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.
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<PAGE>
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.
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 and audit
expenses, insurance costs, the compensation and expenses of the Trustees,
registration fees under federal securities laws, and extraordinary expenses
applicable to the Fund or the Portfolio. For the Fund, such expenses also
include transfer, registrar and dividend disbursement costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders,
and 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 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 5th 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.
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<PAGE>
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
as shareholder servicing agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Fund's
Distributor. Investors must be customers of Morgan or an Eligible Institution.
Investors may also be employer-sponsored retirement plans that have designated
the Fund as an investment option for the plans. Prospective investors who are
not already customers of Morgan may apply to become customers of Morgan for the
sole purpose of Fund transactions. There are no charges associated with becoming
a Morgan customer for this purpose. Morgan reserves the right to determine the
customers that it will accept, and the Fund reserves the right to determine the
purchase orders that it will accept.
The Fund requires a minimum initial investment of $25,000, except that 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 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 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
13
<PAGE>
the Eligible Institution, transmitting proxy statements, periodic reports,
updated prospectuses and other communications to shareholders and, with respect
to meetings of shareholders, collecting, tabulating and forwarding executed
proxies and obtaining such other information and performing such other services
as Morgan or the Eligible Institution's clients may reasonably request and agree
upon with the Eligible Institution. Eligible Institutions may separately
establish their own terms, conditions and charges for providing the
aforementioned services and for providing other services.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
Morgan or his or her Eligible Institution, as appropriate, to submit a
redemption request to the Fund or may telephone J.P. Morgan Funds Services
directly at (800) 521-5411 and give the Shareholder Service Representative a
preassigned shareholder Personal Identification Number and the amount of the
redemption. The Fund executes effective redemption requests at the next
determined net asset value per share. See Net Asset Value. See Additional
Information below for an explanation of the telephone redemption policy of The
Pierpont Funds.
A redemption request received by the Fund 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.
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<PAGE>
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other Pierpont Fund or
JPM Institutional Fund without charge. An exchange may be made so long as after
the exchange the investor has shares, in each fund in which he or she remains an
investor, with a value of at least 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.
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 the Fund's net investment income, if
any, are declared and paid twice a year. 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 for 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 for 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.
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<PAGE>
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.
The Declaration of Trust for the Trust provides that no Trustee, shareholder,
officer, employee, or agent of the Fund shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the Fund, but
that the Trust property only shall be liable.
Shareholders of the Fund are entitled to one vote for each share and to the
appropriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and nonassessable by the Fund. The Trust has adopted a policy of not issuing
share certificates. The Trust does not intend to hold meetings of shareholders
annually. The Trustees may call meetings of shareholders for action by
shareholder vote as may be required by either the 1940 Act or the Declaration of
Trust. The Trustees will call a meeting of shareholders to vote on removal of a
Trustee upon the written request of the record holders of ten percent of Trust
shares and will assist shareholders in communicating with each other as
prescribed in Section 16(c) of the 1940 Act. For further organization
information, including certain shareholder rights, see Description of Shares in
the Statement of Additional Information.
The Portfolio is organized as a trust under the laws of the State of New York.
The Portfolio's Declaration of Trust provides that the Fund and other entities
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable for
all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations. Accordingly, the Trustees of the Trust believe that neither the
Fund nor its shareholders will be adversely affected by reason of the Fund's
investing in the Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are subject
to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to federal
taxes and with respect to the applicability of state or local taxes. See Taxes
in the Statement of Additional Information. Annual statements as to the current
federal tax status of distributions, if applicable, are mailed to shareholders
after the end of the taxable year for the Fund.
The Trust intends to qualify the Fund as a separate regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. For the
Fund to qualify as a regulated investment company, the Portfolio, in 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,
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<PAGE>
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 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. The Fund expects a portion of these
distributions to corporate shareholders to be eligible for the
dividends-received deduction.
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.
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The financial
statements appearing in annual reports are audited by independent accountants.
Shareholders also will be sent confirmations of each purchase and redemption and
monthly statements, reflecting all other account activity, including dividends
and any distributions reinvested in additional shares or credited as cash.
All shareholders are given the privilege to initiate transactions automatically
by telephone upon opening an account. However, an investor should be aware that
a transaction authorized by telephone and reasonably believed to be genuine by
the Fund, Morgan, his Eligible Institution or the Distributor may subject the
investor to risk of loss if such instruction is subsequently found not to be
genuine. The Fund will employ reasonable procedures, including requiring
investors to give their Personal Identification Number and tape recording of
telephone instructions, to confirm that instructions communicated from investors
by telephone are genuine; if it does not, the Fund, the Shareholder Servicing
Agent or a shareholder's Eligible Institution may be liable for any losses due
to unauthorized or fraudulent instructions.
17
<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, Standard & Poor's 500 Composite Stock Price Index, the Dow Jones
Industrial Average, the Frank Russell Indexes and other industry publications.
The Fund may advertise "yield". The yield refers to the net income generated by
an investment in the Fund over a stated 30-day period. This income is then
annualized--I.E., the amount of income generated by the investment during the
30-day period is assumed to be generated each 30-day period for twelve periods
and is shown as a percentage of the investment. The income earned on the
investment is also assumed to be reinvested at the end of the sixth 30-day
period.
The Fund may also advertise "total return" and non-standardized total return
data. The total return shows what an investment in the Fund would have earned
over a specified period of time (one, five or ten years or since commencement of
operations, if less) assuming that all distributions and dividends by the Fund
were reinvested on the reinvestment dates during the period and less all
recurring fees. These methods of calculating yield and total return are required
by regulations of the Securities and Exchange Commission. Yield and total return
data similarly calculated, unless otherwise indicated, over other specified
periods of time may also be used. See Performance Data in the Statement of
Additional Information. All performance figures are based on historical earnings
and are not intended to indicate future performance. Shareholders may obtain
performance information by calling Morgan at (800) 521-5411.
18
<PAGE>
APPENDIX
The Portfolio may (a) purchase and sell exchange traded and over-the-counter
(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 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 purposes. The
Portfolio may not use futures contracts and options for speculation.
The Portfolio may utilize options and futures contracts to manage its exposure
to changing interest rates and/or security prices. Some options and futures
strategies, including selling futures contracts and buying puts, tend to hedge
the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Advisor and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which involves
investment strategies and risks different from those associated with ordinary
portfolio securities transactions, and there can be no guarantee that their use
will increase the Portfolio's return. While the use of these instruments by the
Portfolio may reduce certain risks associated with owning its portfolio
securities, these techniques themselves entail certain other risks. If the
Advisor applies a strategy at an inappropriate time or judges market conditions
or trends incorrectly, options and futures strategies may lower the Portfolio's
return. Certain strategies limit the Portfolio's possibilities to realize gains
as well as limiting its exposure to losses. The Portfolio could also experience
losses if the prices of its options and futures positions were poorly correlated
with its other investments, or if it could not close out its positions because
of an illiquid secondary market. In addition, the Portfolio will incur
transaction costs, including trading commissions and option premiums, in
connection with its futures and options transactions and these transactions
could significantly increase the Portfolio's turnover rate.
The Portfolio may purchase put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts, only
if such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Portfolio's net assets, and (ii) the aggregate margin deposits required on all
such futures or options thereon held at any time do not exceed 5% of the
Portfolio's total assets.
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by
allowing it to expire or by 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
A-1
<PAGE>
strike price. If the Portfolio exercises an option on an index, settlement is in
cash and does not involve the actual sale of securities. If an option is
American style, it may be exercised on any day up to its expiration date. A
European style option may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the instrument underlying the option at the option's strike price. A
call buyer typically attempts to participate in potential price increases of the
instrument underlying the option with risk limited to the cost of the option if
security prices fall. At the same time, the buyer can expect to suffer a loss if
security prices do not rise sufficiently to offset the cost of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put option,
it takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the instrument underlying the option if the other party to
the option chooses to exercise it. The Portfolio may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a put
option the Portfolio has written, however, the Portfolio must continue to be
prepared to pay the strike price while the option is outstanding, regardless of
price changes, and must continue to post margin as discussed below.
If the price of the underlying instrument rises, a put writer would generally
expect to profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it is likely
that the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would expect to
suffer a loss. This loss should be less than the loss from purchasing and
holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.
Writing a call option obligates the Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an index of
securities or a futures contract is required to deposit cash or securities or a
letter of credit as margin and to make mark to market payments of variation
margin as the position becomes unprofitable.
OPTIONS ON INDEXES. 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.
A-2
<PAGE>
For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Portfolio may incur additional
losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When the Portfolio purchases a futures contract, it agrees to purchase a
specified quantity of an underlying instrument at a specified future date or to
make a cash payment based on the value of a securities index. When the Portfolio
sells a futures contract, it agrees to sell a specified quantity of the
underlying instrument at a specified future date or to receive a cash payment
based on the value of a securities index. The price at which the purchase and
sale will take place is fixed when the Portfolio enters into the contract.
Futures can be held until their delivery dates or the position can be (and
normally is) closed out before then. There is no assurance, however, that a
liquid market will exist when the Portfolio wishes to close out a particular
position.
When the Portfolio purchases a futures contract, the value of the futures
contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase the Portfolio's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying instrument
directly. When the Portfolio sells a futures contract, by contrast, the value of
its futures position will tend to move in a direction contrary to the value of
the underlying instrument. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
The purchaser or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, when the Portfolio buys or sells a futures contract it will be
required to deposit "initial margin" with its Custodian in a segregated account
in the name of its futures broker, known as a futures commission merchant (FCM).
Initial margin deposits are typically equal to a small percentage of the
contract's value. If the value of either party's position declines, that party
will be required to make additional "variation margin" payments equal to the
change in value on a daily basis. The party that has a gain may be entitled to
receive all or a portion of this amount. The Portfolio may be obligated to make
payments of variation margin at a time when it is disadvantageous to do so.
Furthermore, it may not always be possible for the Portfolio to close out its
futures positions. Until it closes out a futures position, the Portfolio will be
obligated to continue to pay variation margin. Initial and variation margin
payments do not constitute purchasing on margin for purposes of the Portfolio's
investment restrictions. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.
The Portfolio will segregate liquid 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
Equity Fund
<TABLE>
<S> <C>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE TRUST OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER BY THE TRUST OR BY THE DISTRIBUTOR TO SELL OR A SOLICITATION OF
ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE TRUST OR THE
DISTRIBUTOR TO MAKE SUCH OFFER IN SUCH JURISDICTION.
PROS295-969 PROSPECTUS
MST609110PRO SEPTEMBER 27, 1996
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
The Pierpont Capital Appreciation Fund
60 State Street
Boston, Massachusetts 02109
For information call (800) 521-5411
The Pierpont Capital Appreciation Fund (the "Fund") seeks to provide a high
total return from a portfolio of equity securities of small companies. It is
designed for investors who are willing to assume the somewhat higher risk of
investing in small companies in order to seek a higher total return over time
than might be expected from a portfolio of stocks of large companies.
The 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 U.S. SMALL COMPANY 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 27, 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 27, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
Investors for Whom the Fund is Designed................ 1
Financial Highlights................................... 3
Special Information Concerning Investment Structure.... 3
Investment Objective and Policies...................... 4
Additional Investment Information and Risk Factors..... 6
Investment Restrictions................................ 10
Management of the Trust and the Portfolio.............. 10
Shareholder Servicing.................................. 13
Page
Purchase of Shares..................................... 13
Redemption of Shares................................... 14
Exchange of Shares..................................... 15
Dividends and Distributions............................ 15
Net Asset Value........................................ 16
Organization........................................... 16
Taxes.................................................. 17
Additional Information................................. 18
Appendix............................................... A-1
</TABLE>
<PAGE>
The Pierpont Capital Appreciation Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed for investors who wish to invest in a portfolio of equity
securities of small companies. The Fund seeks to achieve its investment
objective by investing all of its investable assets in The U.S. Small Company
Portfolio, a diversified open-end management investment company having the same
investment objective as the Fund. 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, forward contracts on foreign currencies and
certain privately placed securities. In view of the capitalization of the
companies in which the Portfolio invests, the risks of investment in the Fund
and the volatility of the value of its shares may be greater than the general
equity markets. For further information about these investments and investment
techniques, 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 financial history, investment objective and
policies, management and operation of the Fund to enable investors to decide if
the Fund suits their needs. The Fund operates 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
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees.......................................................... 0.60%
Rule 12b-1 Fees........................................................ None
Other Expenses (after expense reimbursement)........................... 0.30%
-----
Total Operating Expenses (after expense reimbursement)................. 0.90%
</TABLE>
*The expense information in the above table has been restated to reflect current
fees under contractual arrangements and other expenses described below. Fees and
expenses in the expense table are expressed as a percentage of the Fund's
estimated average daily net assets for its current fiscal year. If the above
expense table reflected these expenses without current reimbursements, Other
Expenses and Total Operating Expenses would be equal to 0.45% and 1.05%,
respectively, of such assets. Historical Total Operating Expenses expressed as a
ratio to historical average daily net assets would be 1.03%, assuming no expense
reimbursements.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year.................................................................. $ 9
3 Years................................................................. $ 29
5 Years................................................................. $ 50
10 Years................................................................ $111
</TABLE>
The above expense table is designed to assist investors in understanding the
various direct and indirect costs and expenses that investors in the Fund bear.
The fees and expenses included in Other Expenses are the fees paid to Morgan
under the Administrative Services Agreements and the Shareholder Servicing
Agreement, 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
<PAGE>
FINANCIAL HIGHLIGHTS
The following selected data for a share outstanding for the indicated periods
should be read in conjunction with the financial statements and related notes
which are contained in the Fund's annual report and are incorporated by
reference into the Statement of Additional Information. The following selected
data have been audited by independent accountants. The Fund's annual report
includes a discussion of those factors, strategies and techniques that
materially affected the Fund's performance during the period of the report, as
well as certain related information. A copy of the Fund's annual report will be
made available without charge upon request.
<TABLE>
<CAPTION>
For the Fiscal Year Ended May 31
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of
Period........... $22.02 $21.40 $25.12 $20.03 $17.98 $18.68 $16.83 $12.91 $15.71 $14.34
Income From
Investment
Operations:
Net Investment
Income (Loss)
(a)............ 0.26 0.22 0.20 (0.01) (0.04) (0.02) (0.03) (0.03) (0.02) -0-
Net Realized and
Unrealized Gain
(Loss) on
Investments.... 6.96 2.13 0.19 5.10 2.09 (0.33) 1.88 3.95 (2.13) 1.56
--------- --------- --------- --------- -------- -------- -------- -------- -------- --------
Total From
Investment
Operations....... 7.22 2.35 0.39 5.09 2.05 (0.35) 1.85 3.92 (2.15) 1.56
--------- --------- --------- --------- -------- -------- -------- -------- -------- --------
Less Distributions
to Shareholders
from:
Net Investment
Income......... (0.26) (0.21) (0.09) -0- -0- -0- -0- -0- -0- (0.02)
Net Realized
Gains.......... (2.78) (1.52) (4.02) -0- -0- (0.35) -0- -0- (0.65) (0.17)
--------- --------- --------- --------- -------- -------- -------- -------- -------- --------
Total
Distributions to
Shareholders..... (3.04) (1.73) (4.11) -0- -0- (0.35) -0- -0- (0.65) (0.19)
--------- --------- --------- --------- -------- -------- -------- -------- -------- --------
--------- --------- --------- --------- -------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period.... $26.20 $22.02 $21.40 $25.12 $20.03 $17.98 $18.68 $16.83 $12.91 $15.71
Total Return...... 35.48% 12.28% 1.14% 25.41% 11.40% (1.90)% 10.99% 30.36% (14.25)% 10.83%
Ratios and
Supplemental
Data:
Net Assets, End
of Period (In
Thousands)..... $ 220,917 $ 179,130 $ 204,445 $ 186,887 $ 97,548 $ 58,859 $ 47,921 $ 42,403 $ 30,866 $ 42,780
Ratio to Average
Net Assets:
Expenses...... 0.90% 0.90% 0.90% 0.90% 0.90% 0.91% 0.93% 1.00% 1.00% 1.00%
Net Investment
Income
(Loss)....... 1.10% 1.02% 0.75% (0.06)% (0.25)% (0.15)% (0.18)% (0.23)% (0.15)% (0.01)%
Decrease
reflected in
expense ratio
due to
expense
reimbursement... 0.13% 0.22% 0.20% 0.05% 0.13% 0.31% 0.32% 0.36% 0.31% 0.38%
Portfolio
Turnover......... -- -- 13.58%(b) 49.50% 58.33% 55.65% 65.77% 38.30% 77.99% 78.70%
<FN>
- ------------------------------
(a) Based on shares outstanding at the beginning and end of each fiscal period
except for the fiscal year ended May 31, 1991, where average shares
outstanding were used.
(b) Portfolio Turnover reflects the period June 1, 1993 to July 18, 1993 and
has not been annualized. In July, 1993 the Fund's predecessor contributed
all of its investable assets to The U.S. Small Company Portfolio.
</TABLE>
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
3
<PAGE>
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.
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.
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<PAGE>
The Fund's investment objective is to provide a high total return from a
portfolio of equity securities of small companies. Total return will consist of
realized and unrealized capital gains and losses plus income. The Fund attempts
to achieve its investment objective by investing all of its investable assets in
The U.S. Small Company Portfolio, a diversified open-end management investment
company having the same investment objective as the Fund. The Portfolio invests
primarily in the common stock of small U.S. companies. The small company
holdings of the Portfolio are primarily companies included in the Russell 2500
Index.
The Pierpont Capital Appreciation Fund is designed for investors who are willing
to assume the somewhat higher risk of investing in small companies in order to
seek a higher return over time than might be expected from a portfolio of stocks
of large companies. The Fund may also serve as an efficient vehicle to diversify
an existing portfolio by adding the equities of smaller U.S. companies.
Morgan seeks to enhance the Portfolio's total return relative to that of the
U.S. small company universe. To do so, Morgan uses fundamental research,
systematic stock valuation and a disciplined portfolio construction process.
Morgan continually screens the universe of small capitalization companies to
identify for further analysis those companies which exhibit favorable
characteristics such as significant and predictable cash flow and high quality
management. Based on fundamental research and using a dividend discount model,
Morgan ranks these companies within economic sectors according to their relative
value. Morgan then selects for purchase the most attractive companies within
each economic sector.
Morgan uses a disciplined portfolio construction process to seek to enhance
returns and reduce volatility in the market value of the Portfolio relative to
that of the U.S. small company universe. Morgan believes that under normal
market conditions, the Portfolio will have sector weightings comparable to that
of the U.S. small company universe, although it may moderately under- or
over-weight selected economic sectors. In addition, as a company moves out of
the market capitalization range of the small company universe, it generally
becomes a candidate for sale by the Portfolio.
The Portfolio intends to manage its investments actively in pursuit of its
investment objective. Since the Portfolio has a long-term investment
perspective, it does not intend to respond to short-term market fluctuations or
to acquire securities for the purpose of short-term trading; however, it may
take advantage of short-term trading opportunities that are consistent with its
objective. To the extent the Portfolio engages in short-term trading, it may
incur increased transaction costs. See Taxes below. The portfolio turnover for
the Portfolio for the fiscal year ended May 31, 1996 was 92.58%.
EQUITY INVESTMENTS. During ordinary market conditions, the Advisor intends to
keep the Portfolio essentially fully invested with at least 65% of the
Portfolio's net assets invested in equity securities consisting of common stocks
and other securities with equity characteristics such as preferred stocks,
warrants, rights and convertible securities. The Portfolio's primary equity
investments are the common stocks of small U.S. companies and, to a limited
extent, similar securities of foreign corporations. The common stock in which
the Portfolio may invest includes the common stock of any class or series or any
similar equity interest, such as trust or limited partnership interests. The
small company holdings of the Portfolio are primarily companies included in the
Russell 2500 Index. These equity investments may or may not pay dividends and
may or may not carry voting rights. The Portfolio invests in securities listed
on a securities exchange or traded in an over-the-counter (OTC) market, and may
invest in certain restricted or unlisted securities.
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<PAGE>
FOREIGN INVESTMENTS. The Portfolio may invest in equity securities of foreign
issuers that are listed on a national securities exchange or denominated or
principally traded in U.S. dollars. However, the Portfolio does not expect to
invest more than 5% of its assets at the time of purchase in foreign equity
securities. For further information on foreign investments and foreign currency
exchange transactions, see Additional Investment Information and Risk Factors.
The Portfolio may also invest in securities on a when-issued or delayed delivery
basis, enter into repurchase and reverse repurchase agreements, loan its
portfolio securities, purchase certain privately placed securities and money
market instruments, and enter into certain hedging transactions that may involve
options on securities and securities indexes, futures contracts and options on
futures contracts. For a discussion of these investments and investment
techniques, see Additional Investment Information and Risk Factors.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
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 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.
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.
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
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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
purposes of the Investment Company Act of 1940, as amended (the "1940 Act"), it
is considered a form of borrowing of money by the Portfolio and, therefore, is a
form of leverage. Leverage may cause any gains or losses of the Portfolio to be
magnified. For more information, see Investment Objective and Policies in the
Statement of Additional Information.
FOREIGN INVESTMENT INFORMATION. The Portfolio may invest in certain foreign
securities. Investment in securities of foreign issuers and in obligations of
foreign branches of domestic banks involves somewhat different investment risks
from those affecting securities of U.S. domestic issuers. There may be limited
publicly available information with respect to foreign issuers, and foreign
issuers are not generally subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to domestic companies.
Dividends and interest paid by foreign issuers may be subject to withholding and
other foreign taxes which may decrease the net return on foreign investments as
compared to dividends and interest paid to 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
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<PAGE>
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.
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 may buy and sell
securities and receive 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 Portfolios will not enter into forward contracts for speculative
purposes. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of the Portfolio's securities or
in foreign exchange rates, or prevent loss if the prices of these securities
should decline.
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<PAGE>
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.
Although these transactions are intended to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time they limit any
potential gain that might be realized should the value of the hedged currency
increase. In addition, forward contracts that convert a foreign currency into
another foreign currency will cause the Portfolio to assume the risk of
fluctuations in the value of the currency purchased vis a vis the hedged
currency and the U.S. dollar. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
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.
The Portfolio may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's
implementation of these guidelines on a periodic basis.
FUTURES AND OPTIONS TRANSACTIONS. The Portfolio is permitted to enter into the
futures and options transactions described in the Appendix to this Prospectus
for hedging purposes.
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 objectives and long-term investment
perspective. The Portfolio may make money market investments pending other
investment or settlement, for liquidity or in adverse market conditions. The
money market investments permitted for the Portfolio include obligations of the
U.S. Government and its agencies and instrumentalities, other debt securities,
commercial paper, bank obligations and repurchase agreements. For more detailed
information about these money market investments, see Investment Objectives and
Policies in the Statement of Additional Information.
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INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Fund are subject
to the following fundamental limitations: (a) the Fund 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 Fund may not own more than 10% of the
outstanding voting securities of any one issuer.
The investment objective of the Fund and the Portfolio, together with the
investment restrictions described below and in the Statement of Additional
Information, except as noted, are deemed fundamental policies, i.e., they may be
changed only with the approval of the holders of a majority of the outstanding
voting securities of the Fund and the Portfolio. The Fund has the same
investment restrictions as the Portfolio, except that the Fund may invest all of
its investable assets in another open-end investment company with the same
investment objective and restrictions (such as the Portfolio). References below
to the Portfolio's investment restrictions also include the Fund's investment
restrictions.
The Portfolio may not (i) borrow money, except from banks for extraordinary or
emergency purposes and then only in amounts up to 10% of the value of the
Portfolio's total assets, taken at cost at the time of borrowing, or purchase
securities while borrowings exceed 5% of its total assets; or mortgage, pledge
or hypothecate any assets except in connection with any such borrowings in
amounts up to 10% of the value of the Portfolio's net assets at the time of
borrowing; (ii) 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; or (iii) purchase securities of any issuer if, as a result of the
purchase, more than 5% of total Portfolio assets would be invested in securities
of companies with fewer than three years of operating history (including
predecessors).
For a more detailed discussion of the above investment restrictions, as well as
a description of certain other investment restrictions, see Investment
Restrictions in the Statement of Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the
Portfolio, the Trustees decide upon matters of general policy and review the
actions of the Advisor and other service providers. The Trustees of the Trust
and of the Portfolio are identified below.
<TABLE>
<S> <C>
Frederick S. Addy............. Former Executive Vice President and Chief
Financial Officer, Amoco Corporation
William G. Burns.............. Former Vice Chairman of the Board and Chief
Financial Officer, NYNEX Corporation
Arthur C. Eschenlauer......... Former Senior Vice President, Morgan Guaranty
Trust Company of New York
Matthew Healey................ Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi........... Former Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast
Group
</TABLE>
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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 and of the
Portfolio, up to and including creating a separate board of trustees. See
Trustees and Officers in the Statement of Additional Information for more
information about the Trustees and Officers of the Fund and the Portfolio.
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pierpont
Group, Inc. in providing these services. Pierpont Group, Inc. was organized in
1989 at the request of the Trustees of The Pierpont Family of Funds for the
purpose of providing these services at cost to these funds. See Trustees and
Officers in the Statement of Additional Information. The principal offices of
Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017.
ADVISOR. The Fund has not retained the services of an investment adviser because
the Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. The Portfolio has retained the services of
Morgan as Investment Advisor. Morgan, with principal offices at 60 Wall Street,
New York, New York 10260, is a New York trust company which conducts a general
banking and trust business. Morgan is a wholly owned subsidiary of J.P. Morgan &
Co. Incorporated ("J.P. Morgan"), a bank holding company organized under the
laws of Delaware. Through offices in New York City and abroad, J.P. Morgan,
through the Advisor and other subsidiaries, offers a wide range of services to
governmental, institutional, corporate and individual customers and acts as
investment adviser to individual and institutional clients with combined assets
under management of over $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.
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 small U.S. companies on behalf of
its clients since the 1960s. The portfolio managers making investments in small
U.S. companies work in conjunction with Morgan's domestic equity analysts, as
well as capital market, credit and economic research analysts, traders and
administrative officers. The U.S. equity analysts each cover a different
industry, following both the small and large companies in their respective
industries. They currently monitor a universe of over 300 small companies.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio (the inception date of
each person's responsibility for the Portfolio and his business experience for
the past five years is indicated parenthetically): James B. Otness, Managing
Director (since February, 1993, employed by Morgan since prior to 1991 as a
portfolio manager of equity securities of small and medium sized U.S. companies)
and Michael J. Kelly, Vice President (since May, 1996, employed by Morgan since
prior to 1991 as a portfolio manager of small and medium sized U.S. companies
and an equity research analyst).
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 0.60% of the Portfolio's average daily net assets.
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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 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 and audit
expenses, insurance costs, the compensation and expenses of the Trustees,
registration fees under federal securities laws, and extraordinary expenses
applicable to the Fund or the Portfolio. For the Fund, such expenses also
include transfer, registrar and dividend disbursement costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders,
and 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 September 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
0.90% 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
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<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
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 5th Avenue, New York, New York 10036 or
call (800) 521-5411.
The business days of the Fund and the Portfolio are the days the New York Stock
Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
as shareholder servicing agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Fund's
Distributor. Investors must be customers of Morgan or an Eligible Institution.
Investors may also be employer-sponsored retirement plans that have designated
the Fund as an investment option for the plans. Prospective investors who are
not already customers of Morgan may apply to become customers of Morgan for the
sole purpose of Fund transactions. There are no charges associated with becoming
a Morgan customer for this purpose. Morgan reserves the right to determine the
customers that it will accept, and the Fund reserves the right to determine the
purchase orders that it will accept.
The Fund requires a minimum initial investment of $100,000, except that for
investors who were shareholders of another Pierpont Fund as of September 29,
1995, the minimum initial investment in the Fund is $10,000. The minimum
subsequent investment for all investors is $5,000. These minimum investment
requirements may be waived for investors for whom the Advisor is a fiduciary or
who are employees of the Advisor, or who maintain related accounts with The
Pierpont Funds or the Advisor or maintain investments in The Pierpont Funds
(other than the money market funds) when such accounts and/or investments total
$500,000 or more.
For investors such as investment advisors, trust companies and financial
advisors who make investments for a group of clients, the minimum investment in
the Fund is (i) $100,000 per individual client or (ii) $250,000 for an
aggregated purchase order for more than one client. 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.
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<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.
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 with 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 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 Eligible Institution's clients may
reasonably request and agree upon with the Eligible Institution. Eligible
Institutions may separately establish their own terms, conditions and charges
for providing the aforementioned services and for providing other services.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
Morgan or his or her Eligible Institution, as appropriate, to submit a
redemption request to the Fund or may telephone J.P. Morgan Funds Services
directly at (800) 521-5411 and give the Shareholder Service Representative a
preassigned shareholder Personal Identification Number and the amount of the
redemption. The Fund executes effective redemption requests at the next
determined net asset value per share. See Net Asset Value. See Additional
Information below for an explanation of the telephone redemption policy of The
Pierpont Funds.
A redemption request received by the Fund 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
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<PAGE>
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
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.
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 twice a year. 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
15
<PAGE>
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
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.
The Declaration of Trust for the Trust provides that no Trustee, shareholder,
officer, employee, or agent of the Fund shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the Fund, but
that the Trust property only shall be liable.
Shareholders of the Fund are entitled to one vote for each share and to the
appropriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and nonassessable by the Fund. The Trust has adopted a policy of not issuing
share certificates. The Trust does not intend to hold meetings of shareholders
annually. The Trustees may call meetings of shareholders for action by
shareholder vote as may be required by either the 1940 Act or the Declaration of
Trust. The Trustees will call a meeting of shareholders to vote on removal of a
Trustee upon the written request of the record holders of ten percent of Trust
shares and will assist shareholders in communicating with each other as
prescribed in Section 16(c) of the 1940 Act. For further organization
information, including certain shareholder rights, see Description of Shares in
the Statement of Additional Information.
The Portfolio is organized as a trust under the laws of the State of New York.
The Portfolio's Declaration of Trust provides that the Fund and other entities
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable for
all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to
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<PAGE>
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 Internal Revenue Code of 1986, as amended. 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 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. The Fund expects a portion of the distributions
of this type to corporate shareholders of the Fund to be eligible for the
dividends-received deduction.
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 the Fund's 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
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<PAGE>
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.
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The financial
statements appearing in annual reports are audited by independent accountants.
Shareholders also will be sent confirmations of each purchase and redemption and
monthly statements, reflecting all other account activity, including dividends
and any distributions reinvested in additional shares or credited as cash.
All shareholders are given the privilege to initiate transactions automatically
by telephone upon opening an account. However, an investor should be aware that
a transaction authorized by telephone and reasonably believed to be genuine by
the Fund, Morgan, his Eligible Institution or the Distributor may subject the
investor to risk of loss if such instruction is subsequently found not to be
genuine. The Fund will employ reasonable procedures, including requiring
investors to give their Personal Identification Number and tape recording of
telephone instructions, to confirm that instructions communicated from investors
by telephone are genuine; if it does not, the Fund, the Shareholder Servicing
Agent or a shareholder's Eligible Institution may be liable for any losses due
to unauthorized or fraudulent instructions.
The Fund may make historical performance information available and may compare
its performance to other investments or relevant indexes, including data from
Lipper Analytical Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson
Associates, Standard & Poor's 500 Composite Stock Price Index, the Dow Jones
Industrial Average, the Frank Russell Indexes 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. Yield and total return
data similarly calculated, unless otherwise indicated, over other specified
periods of time may also be used. See Performance Data in the Statement of
Additional Information. All performance figures are based on historical earnings
and are not intended to indicate future performance. Shareholders may obtain
performance information by calling Morgan at (800) 521-5411.
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APPENDIX
The Portfolio may (a) purchase and sell exchange traded and over-the-counter
(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 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 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 a
Portfolio's investments against price fluctuations. Other strategies, including
buying futures contracts, writing puts and calls, and buying calls, tend to
increase market exposure. Options and futures contracts may be combined with
each other or with forward contracts in order to adjust the risk and return
characteristics of 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 a Portfolio's return. While the use of these instruments by the
Portfolio may reduce certain risks associated with owning its portfolio
securities, these techniques themselves entail certain other risks. If the
Advisor applies a strategy at an inappropriate time or judges market conditions
or trends incorrectly, options and futures strategies may lower the Portfolio's
return. Certain strategies limit the Portfolio's possibilities to realize gains
as well as limiting its exposure to losses. The Portfolio could also experience
losses if the prices of its options and futures positions were poorly correlated
with its other investments, or if it could not close out its positions because
of an illiquid secondary market. In addition, the Portfolio will incur
transaction costs, including trading commissions and option premiums, in
connection with its futures and options transactions and these transactions
could significantly increase the Portfolio's turnover rate.
The Portfolio may purchase put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts, only
if such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Portfolio's net assets, and (ii) the aggregate margin deposits required on all
such futures or options thereon held at any time do not exceed 5% of the
Portfolio's total assets.
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by
allowing it to expire or by 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
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strike price. If the Portfolio exercises an option on an index, settlement is in
cash and does not involve the actual sale of securities. If an option is
American style, it may be exercised on any day up to its expiration date. A
European style option may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the instrument underlying the option at the option's strike price. A
call buyer typically attempts to participate in potential price increases of the
instrument underlying the option with risk limited to the cost of the option if
security prices fall. At the same time, the buyer can expect to suffer a loss if
security prices do not rise sufficiently to offset the cost of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put option,
it takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the instrument underlying the option if the other party to
the option chooses to exercise it. The Portfolio may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a put
option the Portfolio has written, however, the Portfolio must continue to be
prepared to pay the strike price while the option is outstanding, regardless of
price changes, and must continue to post margin as discussed below.
If the price of the underlying instrument rises, a put writer would generally
expect to profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it is likely
that the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would expect to
suffer a loss. This loss should be less than the loss from purchasing and
holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.
Writing a call option obligates the Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an index of
securities or a futures contract is required to deposit cash or securities or a
letter of credit as margin and to make mark to market payments of variation
margin as the position becomes unprofitable.
OPTIONS ON INDEXES. The Portfolio may purchase and sell (write) put and call
options on any securities index based on securities in which the Portfolio may
invest. Options on securities indexes are similar to options on securities,
except that the exercise of securities index options is settled by cash payment
and does not involve the actual purchase or sale of securities. In addition,
these options are designed to reflect price fluctuations in a group
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of securities or segment of the securities market rather than price fluctuations
in a single security. The Portfolio, in purchasing or selling index options, is
subject to the risk that the value of its portfolio securities may not change as
much as an index because the Portfolio's investments generally will not match
the composition of an index.
For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Portfolio may incur additional
losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When the Portfolio purchases a futures contract, it agrees to purchase a
specified quantity of an underlying instrument at a specified future date or to
make a cash payment based on the value of a securities index. When the Portfolio
sells a futures contract, it agrees to sell a specified quantity of the
underlying instrument at a specified future date or to receive a cash payment
based on the value of a securities index. The price at which the purchase and
sale will take place is fixed when the Portfolio enters into the contract.
Futures can be held until their delivery dates or the position can be (and
normally is) closed out before then. There is no assurance, however, that a
liquid market will exist when the Portfolio wishes to close out a particular
position.
When the Portfolio purchases a futures contract, the value of the futures
contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase the Portfolio's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying instrument
directly. When the Portfolio sells a futures contract, by contrast, the value of
its futures position will tend to move in a direction contrary to the value of
the underlying instrument. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
The purchaser or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, when the Portfolio buys or sells a futures contract it will be
required to deposit "initial margin" with its Custodian in a segregated account
in the name of its futures broker, known as a futures commission merchant (FCM).
Initial margin deposits are typically equal to a small percentage of the
contract's value. If the value of either party's position declines, that party
will be required to make additional "variation margin" payments equal to the
change in value on a daily basis. The party that has a gain may be entitled to
receive all or a portion of this amount. The Portfolio may be obligated to make
payments of variation margin at a time when it is disadvantageous to do so.
Furthermore, it may not always be possible for the Portfolio to close out its
futures positions. Until it closes out a futures position, the Portfolio will be
obligated to continue to pay variation margin. Initial and variation margin
payments do not constitute purchasing on margin for purposes of the Portfolio's
investment restrictions. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.
The Portfolio will segregate liquid 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.
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------------------------------------
The
Pierpont
Capital
Appreciation
Fund
<TABLE>
<S> <C>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE TRUST OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER BY THE TRUST OR BY THE DISTRIBUTOR TO SELL OR A SOLICITATION OF
ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE TRUST OR THE
DISTRIBUTOR TO MAKE SUCH OFFER IN SUCH JURISDICTION.
PROS298-969 PROSPECTUS
MST609111PRO SEPTEMBER 27, 1996
</TABLE>
<PAGE>
JPM599B
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 27, 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
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General................................. 1
Investment Objectives and Policies...... 1
Investment Restrictions................. 28
Trustees and Officers................... 45
Investment Advisor...................... 50
Co-Administrator and Distributor........ 54
Services Agent.......................... 57
Custodian............................... 60
Shareholder Servicing................... 60
Independent Accountants................. 62
Expenses................................ 62
Purchase of Shares...................... 62
Redemption of Shares.................... 63
Exchange of Shares...................... 64
Dividends and Distributions............. 64
Net Asset Value......................... 64
Performance Data........................ 66
Portfolio Transactions.................. 69
Massachusetts Trust..................... 72
Description of Shares................... 73
Taxes................................... 75
Additional Information.................. 79
Financial Statements.................... 79
Appendix A - Description of Securities
Ratings................................ A-1
Appendix B - Additional Information
Concerning New York Municipal
Obligations............................ B-1
Appendix C - Investing in Japan
and Asian Growth Markets............... C-1
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GENERAL
The 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 relevant
Fund's current Prospectus (the "Prospectus"). Capitalized terms not otherwise
defined herein have the meanings accorded to them in the Prospectus. The Funds'
executive offices are located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
INVESTMENT OBJECTIVES AND POLICIES
THE 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.
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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. The Fund is appropriate for investors who do not
require the stable net asset value typical of a money market fund but who want
less price fluctuation than is typical of a longer-term bond fund. The Short
Term Bond Fund's investment objective is to provide a high total return while
attempting to limit the likelihood of negative quarterly returns. The Short
Term Bond Fund seeks to achieve this high total return to the extent consistent
with modest risk of capital and the maintenance of liquidity. The Short Term
Bond Fund attempts to achieve its investment objective by investing all of its
investable assets in The Short Term Bond Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Short Term Bond Fund.
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.
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The Portfolio attempts to achieve its investment objective by investing in
high grade corporate and government debt obligations and related securities of
domestic and foreign issuers described in the Prospectus and this Statement of
Additional Information.
INVESTMENT PROCESS FOR THE U.S. FIXED INCOME PORTFOLIO
Duration/yield curve management: Morgan's duration decision begins with an
analysis of real yields, which its research indicates are generally a reliable
indicator of longer term interest rate trends. Other factors Morgan studies in
regard to interest rates include economic growth and inflation, capital flows
and monetary policy. Based on this analysis, Morgan forms a view of the most
likely changes in the level and shape of the yield curve -- as well as the
timing of those changes -- and sets the Portfolio's duration and maturity
structure accordingly. Morgan typically limits the overall duration of the
Portfolio to a range between one year shorter and one year longer than that of
the Salomon Brothers Broad Investment Grade Bond Index, the benchmark index.
Sector allocations: Sector allocations are driven by Morgan's fundamental
and quantitative analysis of the relative valuation of a broad array of fixed
income sectors. Specifically, Morgan utilizes market and credit analysis to
assess whether the current risk-adjusted yield spreads of various sectors are
likely to widen or narrow. Morgan then overweights (underweights) those sectors
its analysis indicates offer the most (least) relative value, basing the speed
and magnitude of these shifts on valuation considerations.
Security selection: Securities are selected by the portfolio manager, with
substantial input from Morgan's fixed income analysts and traders. Using
quantitative analysis as well as traditional valuation methods, Morgan's applied
research analysts aim to optimize security selection within the bounds of the
Portfolio's investment objective. In addition, credit analysts -- supported by
Morgan's equity analysts -- assess the creditworthiness of issuers and
counterparties. A dedicated trading desk contributes to security selection by
tracking new issuance, monitoring dealer inventories, and identifying
attractively priced bonds. The traders also handle all transactions for the
Portfolio.
THE 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
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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 (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Diversified Fund.
INVESTMENT PROCESS FOR THE DIVERSIFIED PORTFOLIO
The mix of equities and fixed income is based on the risk premium model and
the anticipation of changing economic trends. The risk premium is the
difference between Morgan's forecast of the long-term return on stocks
(determined using Morgan's proprietary dividend discount model) and the current
nominal yield on 30-year U.S. Treasury bonds. When the risk premium is high,
more assets are allocated to stocks. When the risk premium is low, more assets
are allocated to bonds. Within U.S. equities, the allocation between large cap
and small cap stocks is based on the relative dividend discount rate spread
between large and small cap. Within fixed income, the allocation among sectors
is based on Morgan's analysis of their relative valuation. Morgan's asset
allocation decisions for the Portfolio are implemented using the investment
processes described herein for the Bond, Equity, Capital Appreciation and
International Equity Funds.
THE PIERPONT EQUITY FUND (the "Equity Fund") is designed for investors who
want an actively managed portfolio of selected equity securities that seeks to
outperform the S&P 500 Index. The Equity Fund's investment objective is to
provide a high total return from a portfolio of selected equity securities. The
Fund attempts to achieve its investment objective by investing all of its
investable assets in The Selected U.S. Equity Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Equity Fund.
In normal circumstances, at least 65% of the Portfolio's net assets will be
invested in equity securities consisting of common stocks and other securities
with equity characteristics comprised of preferred stock, warrants, rights,
convertible securities, trust certifications, limited partnership interests and
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equity participations (collectively, "Equity Securities"). The Portfolio's
primary equity investments are the common stock of large and medium sized U.S.
corporations and, to a limited extent, similar securities of foreign
corporations.
INVESTMENT PROCESS FOR THE SELECTED U.S. EQUITY PORTFOLIO
Fundamental research: Morgan's 20 domestic equity analysts, each an
industry specialist with an average of 13 years of experience, follow 700
predominantly large- and medium-sized U.S. companies -- 500 of which form the
universe for the Portfolio's investments. Their research goal is to forecast
normalized, longer term earnings and dividends for the most attractive companies
among those they cover. In doing this, they may work in concert with Morgan's
international equity analysts in order to gain a broader perspective for
evaluating industries and companies in today's global economy.
Systematic valuation: The analysts' forecasts are converted into comparable
expected returns by a dividend discount model, which calculates those expected
returns by comparing a company's current stock price with the "fair value" price
forecasted by its estimated long term-earnings power. Within each sector,
companies are ranked by their expected return and grouped into quintiles: those
with the highest expected returns (Quintile 1) are deemed the most undervalued
relative to their long-term earnings power, while those with the lowest expected
returns (Quintile 5) are deemed the most overvalued.
Disciplined portfolio construction: A diversified portfolio is constructed
using disciplined buy and sell rules. Purchases are concentrated among first-
quintile stocks; the specific names selected reflect the portfolio manager's
judgment concerning the soundness of the underlying forecasts, the likelihood
that the perceived misvaluation will be corrected within a reasonable time
frame, and the magnitude of the risks versus the rewards. Once a stock falls
into the third quintile -- because its price has risen or its fundamentals have
deteriorated -- it generally becomes a candidate for sale. The portfolio
manager seeks to hold sector weightings close to those of the S&P 500 Index,
reflecting Morgan's belief that its research has the potential to add value at
the individual stock level, but not at the sector level. Sector neutrality is
also seen as a way to help protect the portfolio from macroeconomic risks, and
- -- together with diversification -- represents an important element of Morgan's
risk control strategy. A dedicated trading desk handles all transactions for
the Portfolio.
THE 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 FOR THE U.S. SMALL COMPANY PORTFOLIO
Fundamental research: Morgan's 20 domestic equity analysts -- each an
industry specialist with an average of 13 years of experience -- continuously
monitor the small cap stocks in their respective sectors with the aim of
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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 candidate for sale. The portfolio
manager seeks to hold sector weightings close to those of the Russell 2500
Index, the Portfolio's benchmark, reflecting Morgan's belief that its research
has the potential to add value at the individual stock level, but not at the
sector level. Sector neutrality is also seen as a way to help to protect the
portfolio from macroeconomic risks, and -- together with diversification --
represents an important element of Morgan's investment strategy.
THE 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 FOR THE NON-U.S. EQUITY PORTFOLIO
Country allocation: Morgan's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of those
deviations. Countries with high (low) rankings are overweighted (underweighted)
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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 candidate for sale. Where available, warrants and
convertibles may be purchased instead of common stock if they are deemed a more
attractive means of investing in an undervalued company.
Currency management: Currency is actively managed, in conjunction with
country and stock allocation, with the goal of protecting and possibly enhancing
the Fund's return. Morgan's currency decisions are supported by a proprietary
tactical mode which forecasts currency movements based on an analysis of four
fundamental factors -- trade balance trends, purchasing power parity, real
short-term interest differentials and real bond yields -- plus a technical
factor designed to improve the timing of transactions. Combining the output of
this model with a subjective assessment of economic, political and market
factors, 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 FOR THE EMERGING MARKETS EQUITY PORTFOLIO
Country allocation: Morgan's country allocation decision begins with a
forecast of the expected return of each market in the Portfolio's universe.
These expected returns are calculated using a proprietary valuation method that
is forward looking in nature rather than based on historical data. Morgan then
evaluates these expected returns from two different perspectives: first, it
identifies those countries that have high real expected returns relative to
their own history and other nations in their universe. Second, it identifies
those countries that it expects will provide high returns relative to their
currency
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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 FOR THE EUROPEAN EQUITY PORTFOLIO
Country allocation: Morgan's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of those
deviations. Countries with high (low) rankings are overweighted (underweighted)
in comparison to the Morgan Stanley Capital International Europe Index to
reflect the above-average (below-average) attractiveness of their stock markets.
In determining weightings, Morgan analyzes a variety of qualitative factors as
well -- including the liquidity, earnings momentum and interest rate climate of
the market at hand. These qualitative assessments can change the magnitude but
not the direction of the country allocations called for by the risk-premium
forecast. 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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falls into the bottom third of the rankings -- because its price has risen or
its fundamentals have deteriorated -- it generally becomes a candidate for sale.
THE 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 FOR THE JAPAN EQUITY PORTFOLIO
Systematic valuation: Morgan's ten Japanese equity analysts in Tokyo --
each an industry specialist -- follow a total of over 300 Japanese companies.
The most attractive names in that universe are identified by a multifactor model
which screens for low price/earnings ratios, high earnings growth rates and high
sales/price ratios. Within each sector, this subset of the universe is ranked
by these three measures and broken into quintiles; the companies in the top
quintile are considered the most attractive ones from both a growth and
valuation viewpoint. To provide an additional check on the valuation of
selected companies, the analysts prepare normalized, long-term earnings and
dividend forecasts which are converted into comparable expected returns by a
dividend discount model.
Warrant/convertible strategy: Once a company has been identified as a buy
candidate, the portfolio manager analyzes the yields on the company's available
equity vehicles -- stocks, warrants and convertibles -- to determine which
appears the most attractive means of purchase. In an effort to enhance
potential returns, the Portfolio also trades among these vehicles -- a strategy
that seeks to capitalize on the inefficiencies that pervade the Japanese equity
market. If the Portfolio invests in a warrant, it will set aside cash in an
amount approximately equal to the difference in the price of the warrant and the
market value of the underlying common stock. The cash is invested in money
market instruments.
Disciplined portfolio construction: The Portfolio is constructed using
disciplined buy and sell rules. The portfolio manager's objective is to
concentrate purchases in the top 20% of the rankings; the specific companies
selected reflect the portfolio manager's judgment concerning the liquidity of an
issue, the soundness of the underlying forecasts, and the magnitude of the risks
versus the rewards. Once a stock falls into the third quintile -- because its
price has risen or its fundamentals have deteriorated -- it generally becomes a
candidate for sale. The portfolio manager strives to hold sector weightings
close to those of the benchmark in an effort to contain risk.
THE 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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high total return from a portfolio of Equity Securities of companies in Asian
growth markets. The Asia Growth Fund attempts to achieve its investment
objective by investing all its investable assets in The Asia Growth Portfolio
(the "Portfolio"), a diversified open-end management investment company having
the same investment objective as the Asia Growth Fund. For additional
information, see "Appendix C -Investing in Japan and Asian Growth Markets."
The Portfolio seeks to achieve its investment objective by investing
primarily in the Equity Securities of companies in Asian growth markets. Under
normal circumstances, the Portfolio expects to invest at least 65% of its total
assets in such securities. The Portfolio does not intend to invest in U.S.
securities (other than money market instruments), except temporarily, when
extraordinary circumstances prevailing at the same time in a significant number
of countries considered to be Asian growth markets render investments in such
countries inadvisable.
INVESTMENT PROCESS FOR THE ASIA GROWTH PORTFOLIO
Country allocation: Morgan's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of these
deviations. Countries with high (low) rankings are overweighted (underweighted)
to reflect the above-average (below average) attractiveness of their stock
markets. In determining weightings, Morgan analyzes a variety of qualitative
factors as well -- including the liquidity, earnings momentum and interest rate
climate of the market at hand. These qualitative assessments can change the
magnitude but not the direction of the country allocations called for by the
risk-premium forecast. In an effort to contain risk, Morgan places limits on
the total size of the Portfolio's country over- and under-weightings.
Stock selection: Morgan's six Asian equity analysts focused on Asian
markets -- each an industry and country specialist -- forecast normalized, long-
term earnings and dividend payouts for approximately 250 companies in this
region. These forecasts are converted into comparable expected returns by a
dividend discount model, and then companies are ranked from most to least
attractive by industry and country, and are grouped into quintiles. A
diversified portfolio is constructed using disciplined buy and sell rules. The
portfolio manager's objective is to concentrate purchases in the top 20% of the
rankings, and to keep sector weightings close to those of the benchmark. Once a
stock falls into the third quintile -- because its price has risen or its
fundamentals have deteriorated -- it generally becomes a candidate for sale.
Where available, warrants and convertibles are purchased when they appear to
have the potential to add value over common stock.
The following discussion supplements the information regarding the
investment objective of each of the Funds and the policies to be employed to
achieve this objective by their corresponding Portfolios as set forth above and
in the Prospectus. The investment objective of each Fund and its corresponding
Portfolio is identical. Accordingly, references below to a Fund also include
the Fund's corresponding Portfolio; similarly, references to a Portfolio also
include the corresponding Fund that invests in the Portfolio unless the context
requires otherwise.
MONEY MARKET INSTRUMENTS
As discussed in the Prospectus, each Fund may invest in money market
instruments to the extent consistent with its investment objective and policies.
A description of the various types of money market instruments that may be
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purchased by the Funds appears below. Also see "Quality and Diversification
Requirements."
U.S. TREASURY SECURITIES. Each of the Funds may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all
of which are backed as to principal and interest payments by the full faith and
credit of the United States.
ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. Each of the Funds may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities, except that the 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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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 Market Funds will be fully collateralized
within the meaning of paragraph (a)(4) of Rule 2a-7 under the Investment Company
Act of 1940, as amended (the "1940 Act"). If the seller defaults, a Fund might
incur a loss if the value of the collateral securing the repurchase agreement
declines and might incur disposition costs in connection with liquidating the
collateral. In addition, if bankruptcy proceedings are commenced with respect
to the seller 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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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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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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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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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 (OTC) market as well as certain restricted or unlisted
securities. A discussion of the various types of equity investments which may
be purchased by these Portfolios appears in the Prospectus and below. See
"Quality and Diversification Requirements."
EQUITY SECURITIES. The Equity Securities in which the Equity Portfolios
may invest may or may not pay dividends and may or may not carry voting rights.
Common stock occupies the most junior position in a company's capital structure.
The convertible securities in which the Equity Portfolios may invest
include any debt securities or preferred stock which may be converted into
common stock or which carry the right to purchase common stock. Convertible
securities entitle the holder to exchange the securities for a specified number
of shares of common stock, usually of the same company, at specified prices
within a certain period of time.
The terms of any convertible security determine its ranking in a company's
capital structure. In the case of subordinated convertible debentures, the
holders' claims on assets and earnings are subordinated to the claims of other
creditors, and are senior to the claims of preferred and common shareholders.
In the case of convertible preferred stock, the holders' claims on assets and
earnings are subordinated to the claims of all creditors and are senior to the
claims of common shareholders.
COMMON STOCK WARRANTS
The Portfolios for the 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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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 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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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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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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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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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.
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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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zany 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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higher by Moody's or Standard & Poor's, or if unrated, the investment must be of
comparable quality in the Advisor's opinion.
In determining suitability of investment in a particular unrated security,
the Advisor takes into consideration asset and debt service coverage, the
purpose of the financing, history of the issuer, existence of other rated
securities of the issuer, and other relevant conditions, such as comparability
to other issuers.
OPTIONS AND FUTURES TRANSACTIONS
EXCHANGE TRADED AND OTC OPTIONS. All options purchased or sold by the
Portfolios will be traded on a securities exchange or will be purchased or sold
by securities dealers (OTC options) that meet creditworthiness standards
approved by the Portfolio's Board of Trustees. While exchange-traded options
are obligations of the Options Clearing Corporation, in the case of OTC options,
a Portfolio relies on the dealer from which it purchased the option to perform
if the option is exercised. Thus, when a Portfolio purchases an OTC option, it
relies on the dealer from which it purchased the option to make or take delivery
of the underlying securities. Failure by the dealer to do so would result in
the loss of the premium paid by the Portfolio as well as loss of the expected
benefit of the transaction.
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
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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 OTC Options" above
for a discussion of the liquidity of options not traded on an exchange.)
POSITION LIMITS. Futures exchanges can limit the number of futures and options
on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, a Portfolio or the Advisor may be
required to
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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
26
<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 fiscal year ended
May 31, 1995: 71%. For the fiscal year ended May 31, 1996: 85%.
THE U.S. SMALL COMPANY PORTFOLIO (CAPITAL APPRECIATION FUND) -- For the fiscal
year ended May 31, 1995: 75%. For the fiscal year ended May 31, 1996: 93%.
THE NON-U.S. EQUITY PORTFOLIO (INTERNATIONAL EQUITY FUND) -- For the fiscal year
ended October 31, 1994: 56%. For the fiscal year ended October 31, 1995: 59%.
THE DIVERSIFIED PORTFOLIO (DIVERSIFIED FUND) -- For the fiscal year ended
June 30, 1995: 136%. For the fiscal year ended June 30, 1996: 144%.
THE EMERGING MARKETS EQUITY PORTFOLIO (EMERGING MARKETS EQUITY FUND) -- For the
fiscal year ended October 31, 1994: 27%. For the fiscal year ended October 31,
1995: 41%.
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% (unaudited).
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).
27
<PAGE>
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;
4. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund. This limitation shall not
apply to issues of the U.S. Government, its agencies or instrumentalities and to
permitted investments of up to 25% of the Fund's total assets;
5. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investment in such industry would exceed 25% of the
28
<PAGE>
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;(1)
3. Purchase industrial revenue bonds if, as a result of such purchase, more than
5% of total Fund assets would be invested in industrial revenue bonds where
payment of principal and interest are the responsibility of companies with fewer
than three years of operating history;
____________________
1. Pursuant to an interpretation of the staff of the SEC, the Fund may not
invest more than 25% of its assets in industrial development bonds in projects
of similar type or in the same state. The Fund shall comply with this
interpretation until such time as it may be modified by the staff of the
Securities and Exchange Commission.
29
<PAGE>
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.(2.) 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
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
____________________
2. For purposes of interpretation of Investment Restriction No. 4
"guaranteed by another entity" includes credit substitutions, such as letters of
credit or insurance, unless the Advisor determines that the security meets the
Fund's credit standards without regard to the credit substitution.
30
<PAGE>
may increase its interest in an open-end management investment company with the
same investment objective and restrictions as the Fund while such borrowings are
outstanding. This borrowing provision is included to facilitate the orderly
sale of portfolio securities, for example, in the event of abnormally heavy
redemption requests, and is not for investment purposes;
3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's or
the Portfolio's total assets would be invested in securities or other
obligations of any one such issuer; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with the same investment objective and restrictions as the
Fund. This limitation also shall not apply to issues of the U.S. Government
and repurchase agreements related thereto;
4. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investment in such industry would exceed 25% of the
value of the Fund's or the Portfolio's total assets; provided, however, that the
Fund may invest all or part of its assets in an open-end management investment
company with the same investment objective and restrictions as the Fund. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities and repurchase agreements
related thereto;
5. Make loans, except through purchasing or holding debt obligations, repurchase
agreements, or loans of portfolio securities in accordance with the Fund's or
the Portfolio's investment objective and policies (see "Investment Objectives
and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, or commodity contracts or interests in oil, gas, or
mineral exploration or development programs;
7. Purchase securities on margin, make short sales of securities, or maintain a
short position, provided that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued securities or of securities
for delivery at a future date;
8. Acquire securities of other investment companies, except as permitted by the
1940 Act or in connection with a merger, consolidation, reorganization,
acquisition of assets or an offer of exchange; provided, however, that nothing
in this investment restriction shall prevent the Trust from investing all or
part of the Fund's assets in an open-end management investment company with the
same investment objective and restrictions as the Fund; or
9. Act as an underwriter of securities.
The SHORT TERM BOND FUND and its corresponding PORTFOLIO may not:
1. Purchase securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase the value of its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;
2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an
31
<PAGE>
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
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,
32
<PAGE>
acquisition of assets or an offer of exchange; provided, however, that nothing
in this investment restriction shall prevent the Trust from investing all or
part of the Fund's assets in an open-end management investment company with the
same investment objective and restrictions as the Fund; or
10. Act as an underwriter of securities.
The BOND FUND and its corresponding PORTFOLIO may not:
1. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts up to 30% of the value of the Fund's total assets, taken at
cost at the time of such borrowing and except in connection with reverse
repurchase agreements permitted by Investment Restriction No. 8. Mortgage,
pledge, or hypothecate any assets except in connection with any such borrowing
in amounts up to 30% of the value of the Fund's net assets at the time of such
borrowing. The Fund will not purchase securities while borrowings (including
reverse repurchase agreements) exceed 5% of the Fund's total assets; provided,
however, that the Fund may increase its interest in an open-end management
investment company with the same investment objective and restrictions as the
Fund's while such borrowings are outstanding. This borrowing provision
facilitates the orderly sale of portfolio securities, for example, in the event
of abnormally heavy redemption requests. This provision is not for investment
purposes. Collateral arrangements for premium and margin payments in connection
with the Fund's hedging activities are not deemed to be a pledge of assets;
2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. This limitation shall not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of the Fund's total
assets;
3. Purchase the securities of an issuer if, immediately after such purchase, the
Fund owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that the Fund may invest all or part of its investable assets
in an open-end management investment company with the same investment objective
and restrictions as the Fund's. This limitation shall not apply to permitted
investments of up to 25% of the Fund's total assets;
4. Purchase securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase the value of its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;
5. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities) or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies;
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, commodity contracts, except for the Fund's interest in
hedging activities as described under "Investment Objectives and Policies"; or
interests in oil, gas, or mineral exploration or development programs. However,
the Fund may purchase debt obligations secured by interests in real estate or
issued by companies which invest in real estate or interests therein including
real estate investment trusts;
33
<PAGE>
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.(3) This limitation shall
not apply to securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or to permitted investments of up to 25% of the
Fund's total assets;
3. Invest more than 25% of its total assets in securities of governmental units
located in any one state, territory, or possession of the United States. The
Fund may invest more than 25% of its total assets in industrial developments and
____________________
3. For purposes of interpretation of Investment Restriction No. 2
"guaranteed by another entity" includes credit substitutions, such as letters of
credit or insurance, unless the Advisor determines that the security meets the
Fund's credit standards without regard to the credit substitution.
34
<PAGE>
pollution control obligations whether or not the users of facilities financed by
such obligations are in that same industry;(4)
4. Purchase industrial revenue bonds if, as a result of such purchase, more than
5% of total Fund assets would be invested in industrial revenue bonds where
payment of principal and interest are the responsibility of companies with fewer
than three years of operating history (including predecessors);
5. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities) or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies (see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof
except to the extent that securities subject to a demand obligation, stand-by
commitments and puts may be purchased (see "Investment Objectives and
Policies"); real estate; commodities; commodity contracts, except for the Fund's
interests in hedging activities as described under "Investment Objectives and
Policies"; or interests in oil, gas, or mineral exploration or development
programs. However, the Fund may purchase municipal bonds, notes or commercial
paper secured by interests in real estate;
7. Purchase securities on margin, make short sales of securities, or maintain a
short position, except in the course of the Fund's hedging activities, unless at
all times when a short position is open the Fund owns an equal amount of such
securities or owns securities which, without payment of any further
consideration, are convertible into or exchangeable for securities of the same
issue as, and equal in amount to, the securities sold short; provided that this
restriction shall not be deemed to be applicable to the purchase or sale of
when-issued or delayed delivery securities;
8. Issue any senior security, except as appropriate to evidence indebtedness
which the Fund is permitted to incur pursuant to Investment Restriction No. 1.
The Fund's arrangements in connection with its hedging activities as described
in "Investment Objectives and Policies" shall not be considered senior
securities for purposes hereof;
9. Acquire securities of other investment companies, except as permitted by the
1940 Act; or
10. Act as an underwriter of securities.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC staff
interpretations thereof, are amended or modified, the NEW YORK TOTAL RETURN BOND
FUND and its corresponding PORTFOLIO may not:
1. Purchase any security if, as a result, more than 25% of the value of the
Fund's total assets would be invested in securities of issuers having their
principal business activities in the same industry. This limitation shall not
apply to obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities;
2. Borrow money, except that the Fund may (i) borrow money from banks for
temporary or emergency purposes (not for leveraging purposes) and (ii) enter
into reverse repurchase agreements for any purpose; provided that (i) and (ii)
in
____________________
4. Pursuant to an interpretation of the staff of the SEC, the Fund may not
invest more than 25% of its assets in industrial development bonds in projects
of similar type or in the same state. The Fund shall comply with this
interpretation until such time as it may be modified by the staff of the SEC.
35
<PAGE>
total do not exceed 33 1/3% of the value of the Fund's total assets (including
the amount borrowed) less liabilities (other than borrowings). If at any time
any borrowings come to exceed 33 1/3% of the value of the Fund's total assets,
the Fund will reduce its borrowings within three business days to the extent
necessary to comply with the 33 1/3% limitation;
3. Make loans to other persons, except through the purchase of debt obligations,
loans of portfolio securities, and participation in repurchase agreements;
4. Purchase or sell physical commodities or contracts thereon, unless acquired
as a result of the ownership of securities or instruments, but the Fund may
purchase or sell futures contracts or options (including options on futures
contracts, but excluding options or futures contracts on physical commodities)
and may enter into foreign currency forward contracts;
5. Purchase or sell real estate, but the Fund may purchase or sell securities
that are secured by real estate or issued by companies (including real estate
investment trusts) that invest or deal in real estate;
6. Underwrite securities of other issuers, except to the extent the Fund, in
disposing of portfolio securities, may be deemed an underwriter within the
meaning of the 1933 Act;
7. Issue senior securities, except as permitted under the 1940 Act or any rule,
order or interpretation thereunder; or
8. Notwithstanding any other investment restriction of the Fund, the Fund may
invest all of its investable assets in an open-end management investment company
having the same investment objective and restrictions as the Fund.
The DIVERSIFIED FUND and its corresponding PORTFOLIO may not:
1. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase the value of its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;
2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in 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
36
<PAGE>
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;
9. Acquire securities of other investment companies, except as permitted by the
1940 Act or in connection with a merger, consolidation, reorganization,
acquisition of assets or an offer of exchange; provided, however, that nothing
in this investment restriction shall prevent the Trust from investing all or
part of the Fund's assets in an open-end management investment company with the
same investment objective and restrictions as the Fund; or
10. Act as an underwriter of securities.
Each of the EQUITY FUND and the CAPITAL APPRECIATION FUND and their
corresponding PORTFOLIOS may not:
1. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase the value of its investments in such industry would exceed 25% of the
37
<PAGE>
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;
2. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts not to exceed 10% of the value of the Fund's total assets,
taken at cost, at the time of such borrowing. Mortgage, pledge, or hypothecate
any assets except in connection with any such borrowing and in amounts not to
exceed 10% of the value of the Fund's net assets at the time of such borrowing.
The Fund will not purchase securities while borrowings exceed 5% of the Fund's
total assets; provided, however, that the Fund may increase its interest in an
open-end management investment company with the same investment objective and
restrictions as the Fund's while such borrowings are outstanding. This borrowing
provision is included to facilitate the orderly sale of portfolio securities,
for example, in the event of abnormally heavy redemption requests, and is not
for investment purposes. Collateral arrangements for premium and margin payments
in connection with the Fund's hedging activities are not deemed to be a pledge
of assets;
3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. This limitation shall not
apply to issues of the U.S. Government, its agencies or instrumentalities and to
permitted investments of up to 25% of the Fund's total assets;
4. Purchase the securities of an issuer if, immediately after such purchase, the
Fund owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that the Fund may invest all or part of its investable assets
in an open-end management investment company with the same investment objective
and restrictions as the Fund's;
5. Make loans, except through the purchase or holding of debt obligations
(including privately placed securities), or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies (see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, or commodity contracts, except for the Fund's
interests in hedging activities as described under "Investment Objectives and
Policies"; or interests in oil, gas, or mineral exploration or development
programs. However, the Fund may purchase securities or commercial paper issued
by companies which invest in real estate or interests therein, including real
estate investment trusts;
7. Purchase securities on margin, make short sales of securities, or maintain a
short position, except in the course of the Fund's hedging activities, provided
that this restriction shall not be deemed to be applicable to the purchase or
sale of when-issued securities or delayed delivery securities;
8. Acquire securities of other investment companies, except as permitted by the
1940 Act;
9. Act as an underwriter of securities;
10. Issue any senior security, except as appropriate to evidence indebtedness
which the Fund is permitted to incur pursuant to Investment Restriction No. 2.
The Fund's arrangements in connection with its hedging activities as described
38
<PAGE>
in "Investment Objectives and Policies" shall not be considered senior
securities for purposes hereof; or
11. Purchase any equity security if, as a result, the Fund would then have more
than 5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three years.
The INTERNATIONAL EQUITY FUND and its corresponding PORTFOLIO may not:
1. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts up to 30% of the value of the Fund's net assets at the time
of borrowing, and except in connection with reverse repurchase agreements and
then only in amounts up to 33 1/3% of the value of the Fund's net assets; or
purchase securities while borrowings, including reverse repurchase agreements,
exceed 5% of the Fund's total assets; provided, however, that the Fund may
increase its interest in an open-end management investment company with the same
investment objective and restrictions as the Fund's while such borrowings are
outstanding. The Fund will not mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts not to exceed 30% of
the value of the Fund's net assets at the time of such borrowing;
2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. This limitation shall not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of the Fund's total
assets;
3. Purchase the securities of an issuer if, immediately after such purchase, the
Fund owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that the Fund may invest all or part of its investable assets
in an open-end management investment company with the same investment objective
and restrictions as the Fund's. This limitation shall not apply to permitted
investments of up to 25% of the Fund's total assets;
4. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;
5. Make loans, except through the purchase or holding of debt obligations
(including restricted securities), or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies, see "Additional Investment Information" in
the Prospectus and "Investment Objectives and Policies" in this Statement of
Additional Information;
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real property, including limited partnership interests, commodities, or
commodity contracts, except for the Fund's interests in hedging and foreign
exchange activities as described under "Additional Investment Information" in
the Prospectus; or interests in oil, gas, mineral or other exploration or
development programs or leases. However, the Fund may purchase securities or
commercial paper issued by companies that invest in real estate or interests
therein including real estate investment trusts;
39
<PAGE>
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:
1. Purchase any security if, as a result, more than 25% of the value of the
Fund's total assets would be invested in securities of issuers having their
principal business activities in the same industry. This limitation shall not
apply to obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities;
2. Borrow money, except that the Fund may (i) borrow money from banks for
temporary or emergency purposes (not for leveraging purposes) and (ii) enter
into reverse repurchase agreements for any purpose; provided that (i) and (ii)
in total do not exceed 33 1/3% of the value of the Fund's total assets
(including the amount borrowed) less liabilities (other than borrowings). If at
any time any borrowings come to exceed 33 1/3% of the value of the Fund's total
assets, the Fund will reduce its borrowings within three business days to the
extent necessary to comply with the 33 1/3% limitation;
3. With respect to 75% of its total assets, purchase any security if, as a
result, (a) more than 5% of the value of the Fund's total assets would be
invested in securities or other obligations of any one issuer; or (b) the Fund
would hold more than 10% of the outstanding voting securities of that issuer.
This limitation shall not apply to Government securities (as defined in the 1940
Act);
4. Make loans to other persons, except through the purchase of debt obligations,
loans of portfolio securities, and participation in repurchase agreements;
5. Purchase or sell physical commodities or contracts thereon, unless acquired
as a result of the ownership of securities or instruments, but the Fund may
purchase or sell futures contracts or options (including options on futures
contracts, but excluding options or futures contracts on physical commodities)
and may enter into foreign currency forward contracts;
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;
40
<PAGE>
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;
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; 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.
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:
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<PAGE>
(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.
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:
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<PAGE>
(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 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 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 Portfolios and may be changed by their respective Trustees. These
non-fundamental investment policies require that each such Fund may not:
(i) Acquire securities of other investment companies, except as permitted by the
1940 Act or any rule, order or interpretation thereunder, or in connection with
a merger, consolidation, reorganization, acquisition of assets or an offer of
exchange;
43
<PAGE>
(ii) Acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 15% of the market value of the
Fund's total assets would be in investments that are illiquid;
(iii) Purchase any security if, as a result, the Fund would then have more than
5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three years;
(iv) Invest in warrants (other than warrants acquired by the Fund as part of a
unit or attached to securities at the time of purchase) if, as a result, the
investments (valued at the lower of cost or market) would exceed 5% of the value
of the Fund's net assets or if, as a result, more than 2% of the Fund's net
assets would be invested in warrants not listed on a recognized U.S. or foreign
stock exchange, to the extent permitted by applicable state securities laws;
(v) Sell any security short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold or unless it
covers such short sales as required by the current rules or positions of the SEC
or its staff. Transactions in futures contracts and options shall not
constitute selling securities short;
(vi) Purchase securities on margin, but the Fund may obtain such short term
credits as may be necessary for the clearance of transactions;
(vii) Purchase or retain securities of any issuer if, to the knowledge of the
Fund, any of the Fund's officers or Trustees or any officer of the Portfolio's
investment adviser individually owns more than 1/2 of 1% of the issuer's
outstanding securities and such persons owning more than 1/2 of 1% of such
securities together beneficially own more than 5% of such securities, all taken
at market; or
(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:
(i) Acquire securities of other investment companies, except as permitted by the
1940 Act or any rule, order or interpretation thereunder, or in connection with
a merger, consolidation, reorganization, acquisition of assets or an offer of
exchange;
(ii) Acquire any illiquid securities if as a result thereof, more than 15% of
the market value of the Fund's total assets would be in investments that are
illiquid;
(iii) Purchase any security if, as a result, the Fund would then have more than
5% of its total assets invested in securities of companies (including
predecessors) that have been in continuous operation for fewer than three years;
(iv) Sell any security short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold or unless it
covers such short sales as required by the current rules or positions of the
Securities and Exchange Commission or its staff. Transactions in futures
contracts and options shall not constitute selling securities short;
(v) Purchase or retain securities of any issuer if, to the knowledge of the
Fund, any of the Fund's officers or Trustees or any officer of the Portfolio's
investment adviser individually owns more than 1/2 of 1% of the issuer's
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<PAGE>
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, principal occupations during the past
five years and dates of birth 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, and his date of birth is
January 1, 1932.
WILLIAM G. BURNS--Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, FL
32779, and his date of birth is November 2, 1932.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Senior Vice President, Morgan
Guaranty Trust Company of New York until 1987. His address is 14 Alta Vista
Drive, RD #2, Princeton, NJ 08540, and his date of birth is May 23, 1934.
MATTHEW HEALEY (*)--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since 1989. His address is Pine Tree Club
Estates, 10286 Saint Andrews Road, Boynton Beach, FL 33436, and his date of
birth is August 23, 1937.
MICHAEL P. MALLARDI--Trustee; Retired; Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast Group prior to April 1996. His
address is 10 Charnwood Drive, Suffern, NY 10910, and his date of birth is
March 17, 1934.
- ------------------------
(*) Mr. Healey is an "interested person" of the Trust and each Portfolio as
that term is defined in the 1940 Act.
The Trustees of the Trust are the same as the Trustees of each of the
Portfolios. In accordance with applicable state requirements, a majority of
the disinterested Trustees have adopted written procedures reasonably
appropriate to deal with potential conflicts of interest arising from the
fact that the same individuals are Trustees of the Trust, each of the
Portfolios and The JPM Institutional Funds, up to and including creating a
separate board of trustees.
Each Trustee is paid an annual fee as follows for serving as Trustee of
the Trust, each of the Master Portfolios (as defined below) and The JPM
Institutional Funds and is reimbursed for expenses incurred in connection
with service as a Trustee. The compensation paid to the Trustees for the
calendar year ended
45
<PAGE>
December 31, 1995 is set forth below. The Trustees may hold various other
directorships unrelated to these funds.
<TABLE>
<CAPTION>
TOTAL COMPENSATION FROM THE
AGGREGATE PENSION OR TRUST, THE JPM INSTITUTIONAL
COMPENSATION RETIREMENT BENEFITS ESTIMATED ANNUAL FUNDS AND CORRESPONDING
FROM THE TRUST ACCRUED AS PART BENEFITS PORTFOLIOS(**) PAID
NAME OF TRUSTEE DURING 1995 OF FUND EXPENSES UPON RETIREMENT TO TRUSTEES DURING 1995
- --------------- ----------- ---------------- --------------- -----------------------
<S> <C> <C> <C> <C>
Frederick S. Addy, $18,791 None None $62,500
Trustee
William G. Burns, $18,791 None None $62,500
Trustee
Arthur C. Eschenlauer, $18,791 None None $62,500
Trustee
Matthew Healey, $18,791 None None $62,500
Trustee(*), Chairman
and Chief Executive
Officer
Michael P. Mallardi, $18,791 None None $62,500
Trustee
</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 Master 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 14 investment companies comprising 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 (including
any Fund's predecessor) and its corresponding Portfolio during the indicated
fiscal years are set forth below:
MONEY MARKET FUND -- For the fiscal year ended November 30, 1993: $730,354.
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, 1993:
$274,187. 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.
46
<PAGE>
TREASURY MONEY MARKET FUND -- For the period January 4, 1993 (commencement of
operations) through October 31, 1993: $10,954. For the fiscal year ended
October 31, 1994: $16,086. For the fiscal year ended October 31, 1995:
$14,332.
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 period July 8, 1993 (commencement of
operations) through October 31, 1993: $176. 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, 1993: $115,394.
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 fiscal year ended 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, 1993: $24,552. 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 fiscal year ended May 31, 1994: $48,660. For the
fiscal year ended May 31, 1995: $25,316. For the fiscal year ended May 31,
1996: $20,190.
THE SELECTED U.S. EQUITY PORTFOLIO -- For the period July 19, 1993
(commencement of operations) through May 31, 1994: $20,385. For the fiscal
year ended May 31, 1995: $52,948. For the fiscal year ended May 31, 1996:
$46,626.
CAPITAL APPRECIATION FUND -- For the fiscal year ended through May 31, 1994:
$47,244. For the fiscal year ended May 31, 1995: $19,612. For the fiscal
year ended May 31, 1996: $13,451.
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. For the fiscal year ended May 31, 1996:
$48,688.
INTERNATIONAL EQUITY FUND -- For the fiscal year ended October 31, 1993:
$23,909. 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. For the fiscal year ended June 30, 1996: $2,212.
THE DIVERSIFIED PORTFOLIO -- For the period July 8, 1993 (commencement of
operations) through June 30, 1994: $3,434. For the fiscal year ended June
30, 1995: $11,702. For the fiscal year ended June 30, 1996: $13,109.
EMERGING MARKETS EQUITY FUND -- For the period November 15 (commencement of
operations) through October 31, 1994: $4,331. For the fiscal year ended
October 31, 1995: $4,544.
47
<PAGE>
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).
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, their principal occupations
during the past five years and dates of birth are set forth below. Unless
otherwise specified, each officer holds the same position with the Trust and
each Portfolio. The business address of each of the officers unless
otherwise noted is Funds Distributor, Inc., 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group, 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. Her date of birth is September
14, 1969.
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"). Her
date of birth is August 1, 1957.
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.
48
<PAGE>
Prior to March 1993, Mr. Conroy was employed as a fund accountant at The
Boston Company. His date of birth is March 31, 1969.
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 from September 1988 to September 1993. Address: P.O. Box
2508 GT, Elizabethan Square, 2nd Floor, Shedden Road, George Town, Grand
Cayman, Cayman Islands. Her date of birth is March 24, 1942.
RICHARD W. INGRAM; President and Treasurer. 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. His date of birth is September 15, 1955.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Assistant
Vice President of FDI and an officer of RCM Capital Funds, Inc. and RCM
Equity Funds, Inc. 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. Her date of birth is
December 29, 1966.
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. His date of birth
is December 24, 1964.
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.
Her date of birth is May 31, 1961.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President
and Manager of Treasury Services and Administration of FDI, 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. Her date
of birth is April 22, 1964.
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. His date of birth is June 24, 1964.
49
<PAGE>
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. His
date of birth is June 13, 1962.
INVESTMENT ADVISOR
The investment advisor to the Portfolios is Morgan Guaranty Trust Company
of New York, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), a bank holding company organized under the laws of the State
of Delaware. The Advisor, whose principal offices are at 60 Wall Street, New
York, New York 10260, is a New York trust company which conducts a general
banking and trust business. The Advisor is subject to regulation by the New
York State Banking Department and is a member bank of the Federal Reserve
System. Through offices in New York City and abroad, the Advisor offers a
wide range of services, primarily to governmental, institutional, corporate
and high net worth individual customers in the United States and throughout
the world.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee
benefit plans, mutual funds and other institutional investors with combined
assets under management of $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 the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, Melbourne and Singapore to cover companies, industries and
countries on site. In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers and traders.
The conclusions of the equity analysts' fundamental research is quantified
into a set of projected returns for individual companies through the use of a
dividend discount model. These returns are projected for 2 to 5 years to
enable analysts to take a longer term view. These returns, or normalized
earnings, are used to establish relative values among stocks in each
industrial sector. These values may not be the same as the markets' current
valuations of these companies. This provides the basis for ranking the
attractiveness of the companies in an industry according to five distinct
quintiles or rankings. This ranking is one of the factors considered in
determining the stocks purchased and sold in each sector. The Advisor's
fixed income investment process is based on analysis of real rates, sector
diversification and quantitative and credit analysis.
The investment advisory services the Advisor provides to the Portfolios
are not exclusive under the terms of the Advisory Agreements. The Advisor is
free to and does render similar investment advisory services to others. The
Advisor serves as investment advisor to personal investors and other
investment companies and acts as fiduciary for trusts, estates and employee
benefit plans. Certain of the assets of trusts and estates under management
are invested in common trust funds for which the Advisor serves as trustee.
The accounts which are managed or advised by the Advisor have varying
investment objectives and the Advisor invests assets of such accounts in
investments substantially similar to, or the same as, those which are
expected to constitute the principal investments of the Portfolios. Such
accounts are supervised by officers and employees of the
50
<PAGE>
Advisor who may also be acting in similar capacities for the Portfolios. See
"Portfolio Transactions."
Sector weightings are generally similar to a benchmark with the emphasis
on security selection as the method to achieve investment performance
superior to the benchmark. The benchmarks for the Portfolios in which the
Funds invest are currently: The 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; 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%
51
<PAGE>
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%
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 the Advisor 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.
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 the Advisor 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.
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<PAGE>
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.
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. For the fiscal year ended May
31, 1996: $2,744,054.
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. For the fiscal year
ended May 31, 1996: $4,286,311.
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. For the fiscal year ended June 30, 1996:
$1,122,941.
THE EMERGING MARKETS EQUITY PORTFOLIO (Emerging Markets Equity Fund) -- For
the period November 15, 1993 (commencement of operations) through October 31,
1994: $4,122,465. For the fiscal year ended October 31, 1995: $5,713,506.
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 the Advisor from engaging in the business of underwriting or
53
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distributing securities, and the Board of Governors of the Federal Reserve
System has issued an interpretation to the effect that under these laws a
bank holding company registered under the federal Bank Holding Company Act or
certain subsidiaries thereof may not sponsor, organize, or control a
registered open-end investment company continuously engaged in the issuance
of its shares, such as the Trust. The interpretation does not prohibit a
holding company or a subsidiary thereof from acting as investment advisor and
custodian to such an investment company. The Advisor believes that it may
perform the services for the Portfolios contemplated by the Advisory
Agreements without violation of the Glass-Steagall Act or other applicable
banking laws or regulations. State laws on this issue may differ from the
interpretation of relevant federal law, and banks and financial institutions
may be required to register as dealers pursuant to state securities laws.
However, it is possible that future changes in either federal or state
statutes and regulations concerning the permissible activities of banks or
trust companies, as well as further judicial or administrative decisions and
interpretations of present and future statutes and regulations, might prevent
the Advisor from continuing to perform such services for the Portfolios.
If the Advisor were prohibited from acting as investment advisor to any
Portfolio, it is expected that the Trustees of the Portfolio would recommend
to investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Under separate agreements, Morgan also provides certain financial, fund
accounting and administrative services to the Trust and the Portfolios and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.
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,
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<PAGE>
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.
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.
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<PAGE>
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. For the fiscal year ended May 31, 1996:
$62,404.
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. For the fiscal year ended May 31, 1996: $59,656.
THE U.S. SMALL COMPANY PORTFOLIO -- For the period July 19, 1993
(commencement of operations) through May 31, 1994: $30,420. For the fiscal
year ended May 31, 1995: $38,215. For the fiscal year ended May 31, 1996:
$65,079.
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. For the fiscal year ended May 31, 1996: $39,053.
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. For the fiscal year ended June 30, 1996: $19,517.
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. For the fiscal year ended June 30, 1996: $6,432.
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).
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<PAGE>
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 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).
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<PAGE>
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)*.
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. For the fiscal year ended May 31, 1996:
$138,134.
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. For the fiscal year ended May 31, 1996: $76,406.
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<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO -- For the period July 19, 1993
(commencement of operations) through May 31, 1994: $203,764. For the fiscal
year ended May 31, 1995: $241,373. For the fiscal year ended May 31, 1996:
$144,277.
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. For the fiscal year ended May 31, 1996: $46,662.
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.
THE DIVERSIFIED PORTFOLIO -- For the period July 8, 1993 (commencement of
operations) through June 30, 1994: $(17,807)*. For the fiscal year ended
June 30, 1995: $63,153. For the fiscal year ended June 30, 1996: $45,687.
DIVERSIFIED FUND -- For the period December 15, 1993 (commencement of
operations) through June 30, 1994: $(43,203)*. For the fiscal year ended
June 30, 1995: $(66,127)*. For the fiscal year ended June 30, 1996:
$(2,852)*.
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
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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.
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.
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<PAGE>
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.
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. For the fiscal year ended May 31, 1996: $742,283.
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. For the fiscal year ended May 31, 1996: $488,236.
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. For the fiscal year ended June 30, 1996: $90,759.
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
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<PAGE>
Services Agreements and in acting as Advisor to the Portfolios under the
Investment Advisory Agreements, may raise issues under these laws. However,
Morgan believes that it may properly perform these services and the other
activities described in the Prospectus without violation of the
Glass-Steagall Act or other applicable banking laws or regulations.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing Agreement and the Services Agreements, the Trustees
would seek an alternative provider of such services. In such event, changes
in the operation of the Funds or the Portfolios might occur and a shareholder
might no longer be able to avail himself or herself of any services then
being provided to shareholders by Morgan.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolios are Price
Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036. Price
Waterhouse LLP conducts an annual audit of the financial statements of each
of the Funds and the Portfolios, assists in the preparation and/or review of
each of the Fund's and the Portfolio's federal and state income tax returns
and consults with the Funds and the Portfolios as to matters of accounting
and federal and state income taxation. 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 Funds and the Portfolios are responsible
for usual and customary expenses associated with their respective operations.
Such expenses include organization expenses, legal fees, accounting expenses,
insurance costs, the compensation and expenses of the Trustees, registration
fees under federal securities laws, and extraordinary expenses applicable to
the Funds or the Portfolios. For the Funds, such expenses also include
transfer, registrar and dividend disbursing costs, the expenses of printing
and mailing reports, notices and proxy statements to Fund shareholders, and
registration fees under state securities laws. For the Portfolios, such
expenses also include applicable registration fees under foreign securities
laws, custodian fees and brokerage expenses. Under fee arrangements prior to
September 1, 1995, Morgan as Services Agent was responsible for
reimbursements to the Trust and the Portfolios 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
Prospectus under "Purchase of Shares." References in the Prospectus and this
Statement of Additional Information to customers of Morgan or an Eligible
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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, OTC market or by readily available market
quotations from a dealer in such securities. Each Fund reserves the right to
accept or reject at its own option any and all securities offered in payment
for its shares.
Prospective investors may purchase shares with the assistance of an
Eligible Institution, and the Eligible Institution may charge the investor a
fee for this service and other services it provides to its customers.
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus under
"Redemption of Shares." Shareholders redeeming shares of the Money Market,
Tax Exempt Money Market or 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)
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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.
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
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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 OTC market, if such exchange or market constitutes the broadest and most
representative market for the security and (ii) in other cases, take into
account various factors affecting market value, including yields and prices
of comparable securities, indication as to value from dealers and general
market conditions. If such prices are not supplied by the Portfolio's
independent pricing service, such securities are priced in accordance with
procedures adopted by the Trustees. All portfolio securities with a remaining
maturity of less than 60 days are valued by the amortized cost method.
Securities listed on a foreign exchange are valued at the last quoted sale
price available before the time when net assets are valued. Because of the
large number of municipal bond issues outstanding and the varying maturity
dates, coupons and risk factors applicable to each issuer's 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 OTC market. The value of each
security for which readily available market quotations exist is based on a
decision as to the broadest and most representative market for such security.
For purposes of calculating net asset value all assets and liabilities
initially expressed in foreign currencies will be converted into U.S. dollars
at the prevailing market rates available at the time of valuation.
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Options on stock indexes traded on national securities exchanges are
valued at the close of options trading on such exchanges which is currently
4:10 P.M., New York time. Stock index futures and related options, which are
traded on commodities exchanges, are valued at their last sales price as of
the close of such commodities exchanges which is currently 4:15 P.M., New
York time. Securities or other assets for which market quotations are not
readily available (including certain restricted and illiquid securities) are
valued at fair value in accordance with procedures established by and under
the general supervision and responsibility of the Trustees. Such procedures
include the use of independent pricing services which use prices based upon
yields or prices of securities of comparable quality, coupon, maturity and
type; indications as to values from dealers; and general market conditions.
Short-term investments which mature in 60 days or less are valued at
amortized cost if their original maturity was 60 days or less, or by
amortizing their value on the 61st day prior to maturity, if their original
maturity when acquired by the Portfolio was more than 60 days, unless this is
determined not to represent fair value by the Trustees.
Trading in securities on most foreign exchanges and OTC markets is
normally completed before the close of the New York Stock Exchange and may
also take place on days on which the New York Stock Exchange is closed. If
events materially affecting the value of securities occur between the time
when the exchange on which they are traded closes and the time when a
Portfolio's net asset value is calculated, such securities will be valued at
fair value in accordance with procedures established by and under the general
supervision of the Trustees.
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of yield,
actual distributions, total return or capital appreciation in reports, sales
literature and advertisements published by the Trust. Current performance
information for the Funds may be obtained by calling the number provided on
the cover page of this Statement of Additional Information. See "Additional
Information" in the Prospectus.
YIELD QUOTATIONS. As required by regulations of the SEC, current yield
for the Money Market, Tax Exempt Money Market and 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
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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%.
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%.
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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%; 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 (6/30/96): Average annual total return, 1 year: 16.51%;
average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 11.39%; aggregate total return,
1 year: 16.51%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 35.33%.
EQUITY FUND (5/31/96): Average annual total return, 1 year: 25.18%; average
annual total return, 5 years: 14.55%; average annual total return, 10 years
13.63%; aggregate total return, 1 year: 25.18%; aggregate total return, 5
years: 97.21%; aggregate total return, 10 years: 258.83%.
CAPITAL APPRECIATION FUND (5/31/96): Average annual total return, 1 year:
35.48%; average annual total return, 5 years: 16.54%; average annual total
return, 10 years: 11.23%; aggregate total return, 1 year: 35.48%; aggregate
total return, 5 years: 114.96%; aggregate total return, 10 years: 189.98%.
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%.
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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;
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."
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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 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
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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): 1996: $1,375,696; 1995: $1,179,132; 1994: $744,676.
CAPITAL APPRECIATION FUND (May): 1996: $1,554,459; 1995: $1,217,016; 1994:
$1,760,320.
INTERNATIONAL EQUITY FUND (October): 1995: $1,691,642; 1994: $1,413,238;
1993: $639,000.
DIVERSIFIED FUND (June): 1996: $220,206; 1995: $145,589; 1994: $78,737.
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
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made by the Advisor in the manner it considers to be most equitable and
consistent with its fiduciary obligations to a Portfolio. In some instances,
this procedure might adversely affect a Portfolio.
If a Portfolio that writes options effects a closing purchase transaction
with respect to an option written by it, normally such transaction will be
executed by the same broker-dealer who executed the sale of the option. The
writing of options by a Portfolio will be subject to limitations established
by each of the exchanges governing the maximum number of options in each
class which may be written by a single investor or group of investors acting
in concert, regardless of whether the options are written on the same or
different exchanges or are held or written in one or more accounts or through
one or more brokers. The number of options which a Portfolio may write may
be affected by options written by the Advisor for other investment advisory
clients. An exchange may order the liquidation of positions found to be in
excess of these limits, and it may impose certain other sanctions.
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.
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The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of
the shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which each Fund represents a separate series
of shares of beneficial interest. See "Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest
of each shareholder in a Fund (or in the assets of other series, if
applicable). To date shares of the 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
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to such applicants and file with the SEC, together with a copy of the
material to be mailed, a written statement signed by at least a majority of
the Trustees to the effect that in their opinion either such material
contains untrue statements of fact or omits to state facts necessary to make
the statements contained therein not misleading, or would be in violation of
applicable law, and specifying the basis of such opinion. After opportunity
for hearing upon the objections specified in the written statements filed,
the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing
to sustain any of them. If the SEC shall enter an order refusing to sustain
any of such objections, or if, after the entry of an order sustaining one or
more of such objections, the SEC shall find, after notice and opportunity for
hearing, that all objections so sustained have been met, and shall enter an
order so declaring, the Trustees shall mail copies of such material to all
shareholders with reasonable promptness after the entry of such order and the
renewal of such tender.
The Trustees have authorized the issuance and sale to the public of
shares of 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--E. Chang as Trustee of the E. Chao Chang Revocable
Trust (30.06%), Estate of A. Marek (7.83%), Barnett Newman Foundation,
Inc. (6.95%), M.K. Kennedy (5.68%);
Bond Fund--B. Spitzer (9.06%); Boston & Co. (6.98%);
Tax Exempt Bond Fund--Morgan as Agent for Kingsley & Co. Omnibus Account
(6.59%);
New York Total Return Bond Fund--M. Barron (7.56%), Morgan as Agent for
J. Simon (5.61%);
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Capital Appreciation--Forest Laboratories, Inc. (5.86%);
Emerging Markets Equity--Morgan as Agent for Three M Operating
Subsidiaries Ltd. (6.67%);
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. (5.17%);
Japan Equity Fund--Johol & Co. (68.76%), J. Lewis (18.92%), F. Longinotto
(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. (6.45%),
State Street Bank and Trust for E.R. Wright Rollover IRA (6.10%).
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
Prospectus do not contain all the information included in the Trust's
Registration Statement filed with the SEC under the 1933 Act and the Trust's
and the Portfolios' Registration Statements filed under the 1940 Act.
Pursuant to the rules and regulations of the SEC, certain portions have been
omitted. The Registration Statements including the exhibits filed therewith
may be examined at the office of the SEC in Washington D.C.
Statements contained in this Statement of Additional Information and the
Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with
the offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of
the Trust, the Funds or the Distributor. The Prospectus and this Statement
of Additional Information do not constitute an offer by any Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund
or the Distributor to make such offer in such jurisdictions.
FINANCIAL STATEMENTS
The current financial statements of the Funds 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.
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APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
CORPORATE AND MUNICIPAL BONDS
AAA - Debt rated AAA has the highest ratings assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB - Debt rated BB is regarded as having less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
SHORT-TERM TAX-EXEMPT NOTES
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest rating
assigned by Standard & Poor's and has a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a 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
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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.
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APPENDIX B
ADDITIONAL INFORMATION CONCERNING NEW YORK MUNICIPAL OBLIGATIONS
The following information is a summary of special factors affecting
investments in New York municipal obligations. It does not purport to be a
complete description and is based on information from the 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
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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.
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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
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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
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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
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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 sub-stantial 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.
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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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- ----------------------COMPARISON OF NOTES--------------------Pursuant to an
interpretation of the staff of the SEC, the Fund may not invest more than 25%
of its assets in industrial development bonds in projects of similar type or
in the same state. The Fund shall comply with this interpretation until such
time as it may be modified by the staff of the SEC. - Next footnote - 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. - Next footnote -
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. - Next footnote -
Pursuant to an interpretation of the staff of the SEC, the Fund may not
invest more than 25% of its assets in industrial development bonds in
projects of similar type or in the same state. The Fund shall comply with this
interpretation until such time as it may be modified by the staff of the SEC.
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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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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, 1996
Statement of Operations for the Fiscal Year Ended May 31, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements May 31, 1996
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The Selected U.S. Equity Portfolio
Schedule of Investments at May 31, 1996
Statement of Assets and Liabilities at May 31, 1996
Statement of Operations for the Fiscal Year Ended May 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements May 31, 1996
The Pierpont Capital Appreciation Fund
Statement of Assets and Liabilities at May 31, 1996
Statement of Operations for the Fiscal Year Ended May 31, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements May 31, 1996
The U.S. Small Company Portfolio
Schedule of Investments at May 31, 1996
Statement of Assets and Liabilities at May 31, 1996
Statement of Operations for the Fiscal Year Ended May 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements May 31, 1995
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)
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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, 1996
Statement of Operations for the Fiscal Year Ended June 30, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements June 30, 1996
The Diversified Portfolio
Schedule of Investments at June 30, 1996
Statement of Assets and Liabilities at June 30, 1996
Statement of Operations for the Fiscal Year Ended June 30, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements June 30, 1996
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 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 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
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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)
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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.*
2. Restated By-Laws were filed as Exhibit No. 2 to Post-Effective
Amendment No. 14 to the Registration Statement filed on July 28, 1995.
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 were filed as Exhibit No. 18 to Post-Effective
Amendment No. 25 to the Registration Statement filed on September 11,
1996.
_________________________
*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).
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
PIERPONT GROUP, INC.: 461 Fifth Avenue, New York, New York 10017 (records
relating to its assisting the Trustees in carrying out their duties in
supervising the Registrant's affairs).
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 25th 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 25, 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 previously filed.
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
25th 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 25, 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 previosly filed.
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 25th 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/ Lenore J. McCabe
By -------------------------
Lenore J. McCabe
Assistant Secretary and Assistant Treasurer
Pursuant to the requirements of the Securities Act of 1933, the Trust's
Registration Statement has been signed below by the following persons in the
capacities indicated on September 25, 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/ Lenore J. McCabe
*By ------------------------
Lenore J. McCabe
as attorney-in-fact pursuant to a power of attorney previously filed.
C-13
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ------------ ----------------------
EX-99.B1 Declaration of Trust, as amended.
EX-99.B11 Consents of Independent Accountants.
EX-27.1 to
EX-27.15 Financial Data Schedules.
<PAGE>
(RECEIVED CITY CLERK'S OFFICE 92NOV-6 PM 1:37 BOSTON, MA)
(SECRETARY OF THE COMMONWEALTH 92NOV-6 PM 1:32 CORPORATION
DIVISION)
THE PIERPONT FUNDS
DECLARATON OF TRUST
Dated as of November 4, 1992
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I--NAME AND DEFINITIONS 1
Section 1.1 Name 1
Section 1.2 Definitions 1
ARTICLE II--TRUSTEES 3
Section 2.1 Number of Trustees 3
Section 2.2 Term of Office of Trustees 3
Section 2.3 Resignation and Appointment of Trustees 3
Section 2.4 Vacancies 4
Section 2.5 Delegation of Power to Other Trustees 4
ARTICLE III--POWERS OF TRUSTEES 4
Section 3.1 General 4
Section 3.2 Investments 5
Section 3.3 Legal Title 6
Section 3.4 Issuance and Repurchase of Securities 6
Section 3.5 Borrowing Money; Lending Trust Property 6
Section 3.6 Delegation; Committees 6
Section 3.7 Collection and Payment 6
Section 3.8 Expenses 7
Section 3.9 Manner of Acting; By-Laws 7
Section 3.10 Miscellaneous Powers 7
Section 3.11 Principal Transactions 7
Section 3.12 Trustees and Officers as Shareholders 8
ARTICLE IV--INVESTMENT ADVISER, DISTRIBUTOR, ADMINISTRATOR, TRANSFER
AGENT AND SHAREHOLDER SERVICING AGENTS 8
Section 4.1 Investment Adviser 8
Section 4.2 Distributor 9
Section 4.3 Administrator 9
Section 4.4 Transfer Agent and Shareholder Servicing Agents 9
Section 4.5 Parties to Contract 9
i
<PAGE>
ARTICLE V--LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS 10
Section 5.1 No Personal Liability of Shareholders,
Trustees, etc. 10
Section 5.2 Non-Liability of Trustees, etc. 10
Section 5.3 Mandatory Indemnification; Insurance 11
Section 5.4 No Bond Required of Trustees 12
Section 5.5 No Duty of Investigation; Notice in Trust
Instruments, etc. 12
Section 5.6 Reliance on Experts, etc. 13
ARTICLE VI--SHARES OF BENEFICIAL INTEREST 13
Section 6.1 Beneficial Interest 13
Section 6.2 Rights of Shareholders 13
Section 6.3 Trust Only 13
Section 6.4 Issuance of Shares 14
Section 6.5 Register of Shares 14
Section 6.6 Transfer of Shares 14
Section 6.7 Notices 15
Section 6.8 Voting Powers 15
Section 6.9 Series Designation 15
ARTICLE VII--REDEMPTIONS 18
Section 7.1 Redemptions 18
Section 7.2 Suspension of Right of Redemption 18
Section 7.3 Redemption of Shares; Disclosure of Holding 19
Section 7.4 Redemptions of Accounts of Less than
Minimum Amount 19
ARTICLE VIII--DETERMINATION OF NET ASSET VALUE, NET INCOME AND
DISTRIBUTIONS 19
ARTICLE IX--DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS, ETC. 20
--------------------------------------------------------
Section 9.1 Duration 20
Section 9.2 Termination of Trust 20
Section 9.3 Amendment Procedure 20
Section 9.4 Merger, Consolidation and Sale of Assets 22
Section 9.5 Incorporation, Reorganization 22
Section 9.6 Incorporation or Reorganization of Series 23
ARTICLE X--REPORTS TO SHAREHOLDERS AND SHAREHOLDER COMMUNICATIONS 23
------------------------------------------------------
ii
<PAGE>
ARTICLE XI--MISCELLANEOUS 23
Section 11.1 Filing 23
Section 11.2 Governing Law 23
Section 11.3 Counterparts 23
Section 11.4 Reliance by Third Parties 24
Section 11.5 Provisions in Conflict with Law or Regulations 24
Section 11.6 Principal Office 24
APPENDIX I--SERIES DESIGNATION 26
iii
<PAGE>
DEC10P
DECLARATION OF TRUST
OF
THE PIERPONT FUNDS
Dated as of November 4, 1992
WHEREAS, the Trustees desire to establish a trust for the
investment and reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that the beneficial interest in the trust
assets be divided into transferable Shares of Beneficial Interest (par value
$0.001 per share) ("Shares") issued in one or more series as hereinafter
provided; and
NOW THEREFORE, the Trustees hereby declare that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of holders, from time to time, of the Shares issued
hereunder and subject to the provisions hereof.
ARTICLE I
NAME AND DEFINITIONS
SECTION 1.1. NAME. The name of the trust created hereby is "The
Pierpont Funds".
SECTION 1.2. DEFINITIONS. Wherever they are used herein, the
following terms have the following respective meanings:
(a) "ADMINISTRATOR" means a party furnishing services to the Trust
pursuant to any contract described in Section 4.3 hereof.
(b) "BY-LAWS" means the By-laws referred to in Section 3.9 hereof, as
from time to time amended.
(c) "COMMISSION" has the meaning given that term in the 1940 Act.
(d) "CUSTODIAN" means a party employed by the Trust to furnish services
as described in Article X of the By-Laws.
<PAGE>
2
(e) "DECLARATION" means this Declaration of Trust as amended from time
to time. Reference in this Declaration of Trust to "DECLARATION", "HEREOF",
"HEREIN", and "HEREUNDER" shall be deemed to refer to this Declaration rather
than the article or section in which such words appear.
(f) "DISTRIBUTOR" means a party furnishing services to the Trust
pursuant to any contract described in Section 4.2 hereof.
(g) "INTERESTED PERSON" has the meaning given that term in the
1940 Act.
(h) "INVESTMENT ADVISER" means a party furnishing services to the Trust
pursuant to any contract described in Section 4.1 hereof.
(i) "MAJORITY SHAREHOLDER VOTE" has the same meaning as the phrase
"vote of a majority of the outstanding voting securities" as defined in the
1940 Act, except that such term may be used herein with respect to the Shares
of the Trust as a whole or the Shares of any particular series, as the context
may require.
(j) "1940 ACT" means the Investment Company Act of 1940 and the Rules
and Regulations thereunder, as amended from time to time.
(k) "PERSON" means and includes individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities,
whether or not legal entities, and governments and agencies and political
subdivisions thereof, whether domestic or foreign.
(l) "SHAREHOLDER" means a record owner of outstanding Shares.
(m) "SHARES" means the Shares of Beneficial Interest into which the
beneficial interest in the Trust shall be divided from time to time or, when
used in relation to any particular series of Shares established by the
Trustees pursuant to Section 6.9 hereof, equal proportionate transferable
units into which such series of Shares shall be divided from time to
time. The term "Shares" includes fractions of Shares as well as whole Shares.
(n) "SHAREHOLDER SERVICING AGENT" means a party furnishing services to
the Trust pursuant to any shareholder servicing contract described in Section
4.4 hereof.
(o) "TRANSFER AGENT" means a party furnishing services to the Trust
pursuant to any transfer agency contract described in Section 4.4 hereof.
(p) "TRUST" means the trust created hereby.
(q) "TRUST PROPERTY" means any and all property, real or
personal, tangible or intangible, which is owned or held by or for
<PAGE>
3
the account of the Trust or the Trustees, including, without limitation, any
and all property allocated or belonging to any series of Shares pursuant to
Section 6.9 hereof.
(r) "TRUSTEES" means the persons who have signed the Declaration,
so long as they shall continue in office in accordance with the terms hereof,
and all other persons who may from time to time be duly elected or
appointed, qualified and serving as Trustees in accordance with the provisions
hereof, and reference herein to a Trustee or the Trustees shall refer to
such person or persons in their capacity as trustees hereunder.
ARTICLE II
TRUSTEES
SECTION 2.1. NUMBER OF TRUSTEES. The number of Trustees shall be
such number as shall be fixed from time to time by the Trustees, provided,
however, that, subsequent to any sale of shares pursuant to a public offering,
the number of Trustees shall in no event be less than three. [T.M.L.]
SECTION 2.2. TERM OF OFFICE OF TRUSTEES. Subject to the provisions
of Section 16(a) of the 1940 Act, the Trustees shall hold office during
the lifetime of this Trust and until its termination as hereinafter provided;
except that (a) any Trustee may resign his trust (without need for prior or
subsequent accounting) by an instrument in writing signed by him and delivered
to the other Trustees, which shall take effect upon such delivery or upon
such later date as is specified therein; (b) any Trustee may be removed with
cause, at any time by written instrument signed by at least two-thirds of
the remaining Trustees, specifying the date when such removal shall become
effective; (c) any Trustee who has attained a mandatory retirement age
established pursuant to any written policy adopted from time to time by at
least two thirds of the Trustees shall, automatically and without action of
such Trustee or the remaining Trustees, be deemed to have retired in
accordance with the terms of such policy, effective as of the date determined
in accordance with such policy; (d) any Trustee who has become
incapacitated by illness or injury as determined by a majority of the other
Trustees, may be retired by written instrument signed by a majority of the
other Trustees, specifying the date of his retirement; and (e) a Trustee may
be removed at any meeting of Shareholders by a vote of two thirds
of the outstanding Shares of each series. For purposes of the foregoing clause
(b), the term "cause" shall include, but not be limited to, failure to
comply with such written policies as may from time to time be adopted by at
least two thirds of the Trustees with respect to the conduct of Trustees and
attendance at meetings. Upon the resignation, retirement or removal of a
Trustee, or his otherwise ceasing to be a Trustee, he shall execute and
deliver such documents as the remaining Trustees shall require for the
purpose
<PAGE>
4
of conveying to the Trust or the remaining Trustees any Trust Property held
in the name of the resigning, retiring or removed Trustee. Upon the
incapacity or death of any Trustee, his legal representative shall execute
and deliver on his behalf such documents as the remaining Trustees shall
require as provided in the preceding sentence.
SECTION 2.3. RESIGNATION AND APPOINTMENT OF TRUSTEES. In case of
the declination, death, resignation, retirement, removal or inability of any
of the Trustees, or in case a vacancy shall, by reason of an increase in
number, or for any other reason, exist, the remaining Trustees shall
fill such vacancy by appointing such other individual as they in their
discretion shall see fit. Such appointment shall be evidenced by a written
instrument signed by a majority of the Trustees in office. Any such
appointment shall not become effective, however, until the person named in
the written instrument of appointment shall have accepted in writing such
appointment and agreed in writing to be bound by the terms of the
Declaration. Within twelve months of such appointment, the Trustees shall
cause notice of such appointment to be mailed to each Shareholder at his
address as recorded on the books of the Trustees. An appointment of a
Trustee may be made by the Trustees then in office and notice thereof mailed
to Shareholders as aforesaid in anticipation of a vacancy to occur by
reason of retirement, resignation or increase in number of Trustees
effective at a later date, provided that said appointment shall become
effective only at or after the effective date of said retirement,
resignation or increase in number of Trustees. The power of appointment
is subject to the provisions of Section 16 (a) of the 1940 Act.
SECTION 2.4. VACANCIES. The death, declination,
resignation, retirement, removal or incapacity of the Trustees, or any one of
them, shall not operate to annul the Trust or to revoke any existing agency
created pursuant to the terms of this Declaration. Whenever a vacancy in
the number of Trustees shall occur, until such vacancy is filled as
provided in Section 2.3, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees and shall
discharge all the duties imposed upon the Trustees by the Declaration. A
written instrument certifying the existence of such vacancy signed by a
majority of the Trustees shall be conclusive evidence of the existence of
such vacancy.
SECTION 2.5. DELEGATION OF POWER TO OTHER TRUSTEES. Any Trustee may,
by power of attorney, delegate his power for a period not exceeding six
months at any one time to any other Trustee or Trustees; provided that in
no case shall fewer than two Trustees personally exercise the powers granted
to the Trustees under the Declaration except as herein otherwise expressly
provided.
<PAGE>
5
ARTICLE III
POWERS OF TRUSTEES
SECTION 3.1. GENERAL. The Trustees shall have exclusive and
absolute control over the Trust Property and over the business of the Trust
to the same extent as if the Trustees were the sole owners of the Trust
Property and business in their own right, but with such powers of
delegation as may be permitted by the Declaration. The Trustees shall
have power to conduct the business of the Trust and carry on its operations
in any and all of its branches and maintain offices both within and without
the Commonwealth of Massachusetts, in any and all states of the United
States of America, in the District of Columbia, and in any and all
commonwealths, territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign governments,
and to do all such other things and execute all such instruments as the
Trustees deem necessary, proper or desirable in order to promote the
interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of
the Trust made by the Trustees in good faith shall be conclusive. In
construing the provisions of the Declaration, the presumption shall be in
favor of a grant of power to the Trustees.
The enumeration of any specific power herein shall not be construed
as limiting the aforesaid power. Such powers of the Trustees may be
exercised without order of or resort to any court.
SECTION 3.2. INVESTMENTS. (a) The Trustees shall have the power:
(i) to conduct, operate and carry on the business of an
investment company;
(ii) to subscribe for, invest in, reinvest in, purchase or
otherwise acquire, own, hold, pledge, sell, assign, transfer, exchange,
distribute, lend or otherwise deal in or dispose of U.S. and foreign
currencies, any form of gold or other precious metal, commodity contracts,
any form of option contract, contracts for the future acquisition or
delivery of fixed income or other securities, shares of, or any other
interest in, any investment company as defined in the Investment Company
Act of 1940, and securities and related derivatives of every nature and
kind, including, without limitation, all types of bonds, debentures,
stocks, negotiable or non-negotiable instruments, obligations, evidences
of indebtedness, certificates of deposit or indebtedness, commercial paper,
repurchase agreements, bankers' acceptances, and other securities of any
kind, issued, created, guaranteed or sponsored by any and all Persons,
including, without limitation,
<PAGE>
6
(A) states, territories and possessions of the United States and
the District of Columbia and any political subdivision, agency or
instrumentality of any such Person,
(B) the U.S. Government, any foreign government, any
political subdivision or any agency or instrumentality of the U.S. Government,
any foreign government or any political subdivision of the U.S. Government
or any foreign government,
(C) any international or supranational instrumentality,
(D) any bank or savings institution, or
(E) any corporation, trust, partnership or other organization
organized under the laws of the United States or of any state, territory or
possession thereof, or under any foreign law; or in "when issued"
contracts for any such securities, to retain Trust assets in cash and from
time to time to change the securities or obligations in which the assets of
the Trust are invested; and to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such
investments of every kind and description, including, without
limitation, the right to consent and otherwise act with respect thereto,
with power to designate one or more Persons to exercise any of said rights,
powers and privileges in respect of any of said investments; and
(iii) to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, proper
or desirable for the accomplishment of any purpose or the attainment of
any object or the furtherance of any power hereinbefore set forth, and to
do every other act or thing incidental or appurtenant to or connected with
the aforesaid purposes, objects or powers.
(b) The Trustees shall not be limited to investing in securities
or obligations maturing before the possible termination of the Trust, nor
shall the Trustees be limited by any law limiting the investments which
may be made by fiduciaries.
(c) Notwithstanding any other provision of this Declaration to
the contrary, the Trustees shall have the power in their discretion
without any requirement of approval by shareholders to either invest all or a
portion of the Trust Property, or sell all or a portion of the Trust
Property and invest the proceeds of such sales, in another investment
company that is registered under the 1940 Act.
SECTION 3.3. LEGAL TITLE. Legal title to all Trust Property shall
be vested in the Trustees as joint tenants except that the Trustees shall
have power to cause legal title to any Trust Property to be held by or in the
name of one or more of the
<PAGE>
7
Trustees, or in the name of the Trust, or in the name of any other Person
or nominee, on such terms as the Trustees may determine. The right,
title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
resignation, removal or death of a Trustee, such Trustee shall
automatically cease to have any right, title or interest in any of the
Trust Property, and the right, title and interest of such Trustee in the
Trust Property shall vest automatically in the remaining Trustees. Such
vesting and cessation of title shall be effective whether or not
conveyancing documents have been executed and delivered.
SECTION 3.4. ISSUANCE AND REPURCHASE OF SECURITIES. The Trustees
shall have the power to issue, sell, repurchase, redeem, retire, cancel,
acquire, hold, resell, reissue, dispose of, transfer, and otherwise deal in
Shares and, subject to the provisions set forth in Articles VII, VIII and IX
and Section 6.9 hereof, to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares any funds of the Trust or
other Trust Property whether capital or surplus or otherwise, to the full
extent now or hereafter permitted by the laws of the Commonwealth of
Massachusetts governing business corporations.
SECTION 3.5. BORROWING MONEY; LENDING TRUST PROPERTY. The
Trustees shall have power to borrow money or otherwise obtain credit and to
secure the same by mortgaging, pledging or otherwise subjecting as
security the Trust Property, to endorse, guarantee, or undertake the
performance of any obligation, contract or engagement of any other Person and
to lend Trust Property.
SECTION 3.6. DELEGATION; COMMITTEES. The Trustees shall have power
to delegate from time to time to such of their number or to officers,
employees or agents of the Trust the doing of such things and the
execution of such instruments either in the name of the Trust or the names
of the Trustees or otherwise as the Trustees may deem expedient.
SECTION 3.7. COLLECTION AND PAYMENT. Subject to Section 6.9 hereof,
the Trustees shall have power to collect all property due to the Trust; to
pay all claims, including taxes, against the Trust Property; to
prosecute, defend, compromise or abandon any claims relating to the Trust
Property; to foreclose any security interest securing any obligations, by
virtue of which any property is owed to the Trust; and to enter into
releases, agreements and other instruments.
SECTION 3.8. EXPENSES. Subject to Section 6.9 hereof, the
Trustees shall have the power to incur and pay any expenses which in the
opinion of the Trustees are necessary or incidental to carry out any of
the purposes of the Declaration, and to pay reasonable compensation from the
funds of the Trust to themselves as Trustees.
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8
The Trustees shall fix the compensation of all officers, employees and
Trustees.
SECTION 3.9. MANNER OF ACTING; BY-LAWS. Except as otherwise
provided herein or in the By-Laws, any action to be taken by the Trustees may
be taken by a majority of the Trustees present at a meeting of Trustees at
which a quorum is present, including any meeting held by means of a
conference telephone circuit or similar communications equipment by means of
which all persons participating in the meeting can hear each other, or by
written consents of a majority of the Trustees. The Trustees may adopt
By-Laws not inconsistent with this Declaration to provide for the conduct of
the business of the Trust and may amend or repeal such By-Laws to the extent
such power is not reserved to the Shareholders.
SECTION 3.10. MISCELLANEOUS POWERS. The Trustees shall have the
power to: (a) employ or contract with such Persons as the Trustees may deem
desirable for the transaction of the business of the Trust; (b) enter into
joint ventures, partnerships and any other combinations or associations; (c)
remove Trustees or fill vacancies in or add to their number, elect and
remove such officers and appoint and terminate such agents or employees as
they consider appropriate, and appoint from their own number, and terminate,
any one or more committees which may exercise some or all of the power and
authority of the Trustees as the Trustees may determine; (d) purchase,
and pay for out of Trust Property, insurance policies insuring the
Shareholders, the Administrator, Trustees, officers, employees, agents,
the Investment Adviser, the Distributor, selected dealers or independent
contractors of the Trust against all claims arising by reason of holding any
such position or by reason of any action taken or omitted by any such Person
in such capacity, whether or not constituting negligence, or whether or not
the Trust would have the power to indemnify such Person against such
liability; (e) establish pension, profit-sharing, Share purchase, and other
retirement, incentive and benefit plans for any Trustees, officers, employees
or agents of the Trust; (f) to the extent permitted by law, indemnify any
person with whom the Trust has dealings, including any Investment
Adviser, Administrator, Custodian, Distributor, Transfer Agent,
Shareholder Servicing Agent and any dealer, to such extent as the Trustees
shall determine; (g) guarantee indebtedness or contractual obligations of
others; (h) determine and change the fiscal year of the Trust and the method
by which its accounts shall be kept; and (i) adopt a seal for the Trust,
provided, that the absence of such seal shall not impair the validity of any
instrument executed on behalf of the Trust.
SECTION 3.11. PRINCIPAL TRANSACTIONS. Except in transactions
permitted by the 1940 Act, or any order of exemption issued by the
Commission, the Trustees shall not, on behalf of the Trust, buy any
securities (other than Shares) from or sell any securities (other than
Shares) to, or lend any assets of the Trust to, any Trustee or
<PAGE>
9
officer of the Trust or any firm of which any such Trustee or officer is
a member acting as principal, or have any such dealings with any
Investment Adviser, Administrator, Shareholder Servicing Agent, Custodian,
Distributor or Transfer Agent or with any Interested Person of such Person;
but the Trust may, upon customary terms, employ any such Person, or firm or
company in which such Person is an Interested Person, as broker, legal
counsel, registrar, transfer agent, dividend disbursing agent or custodian.
SECTION 3.12. TRUSTEES AND OFFICERS AS SHAREHOLDERS. Except
as hereinafter provided, no officer, Trustee or member of any advisory board
of the Trust, and no member, partner, officer, director or trustee of the
Investment Adviser, Administrator or of the Distributor, and no
Investment Adviser, Administrator or Distributor of the Trust, shall take
long or short positions in the securities issued by the Trust. The foregoing
provision shall not prevent:
(a) The Distributor from purchasing Shares from the Trust if
such purchases are limited (except for reasonable allowances for clerical
errors, delays and errors of transmission and cancellation of orders) to
purchases for the purpose of filling orders for Shares received by the
Distributor and provided that orders to purchase from the Trust are entered
with the Trust or the Custodian promptly upon receipt by the Distributor of
purchase orders for Shares, unless the Distributor is otherwise instructed by
its customer;
(b) The Distributor from purchasing Shares as agent for the account
of the Trust;
(c) The purchase from the Trust or from the Distributor of Shares
by any officer, Trustee or member of any advisory board of the Trust or
by any member, partner, officer, director or trustee of the Investment
Adviser or of the Distributor at a price not lower than the net asset value
of the Shares at the moment of such purchase, provided that any such sales
are only to be made pursuant to a uniform offer described in the current
prospectus or statement of additional information for the Shares being
purchased; or
(d) The Investment Adviser, the Distributor, the Administrator, or
any of their officers, partners, directors or trustees from purchasing Shares
prior to the effective date of the Trust's Registration Statement under the
Securities Act of 1933, as amended, relating to the Shares.
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10
ARTICLE IV
INVESTMENT ADVISER, DISTRIBUTOR, ADMINISTRATOR, TRANSFER AGENT
AND SHAREHOLDER SERVICING AGENTS
SECTION 4.1. INVESTMENT ADVISER. Subject to a Majority Shareholder
Vote of the Shares of each series affected thereby, the Trustees may
in their discretion from time to time enter into one or more investment
advisory or management contracts whereby the other party to each such
contract shall undertake to furnish the Trust such management, investment
advisory, statistical and research facilities and services, promotional
activities, and such other facilities and services, if any, with respect to
one or more series of Shares, as the Trustees shall from time to time
consider desirable and all upon such terms and conditions as the
Trustees may in their discretion determine. Notwithstanding any
provision of the Declaration, the Trustees may delegate to the Investment
Adviser authority (subject to such general or specific instructions
as the Trustees may from time to time adopt) to effect purchases, sales,
loans or exchanges of assets of the Trust on behalf of the Trustees or may
authorize any officer, employee or Trustee to effect such purchases, sales,
loans or exchanges pursuant to recommendations of the Investment Adviser
(and all without further action by the Trustees). Any of such purchases,
sales, loans or exchanges shall be deemed to have been authorized by all the
Trustees. Such services may be provided by one or more Persons.
SECTION 4.2. DISTRIBUTOR. The Trustees may in their discretion
from time to time enter into one or more distribution contracts providing
for the sale of Shares whereby the Trust may either agree to sell the
Shares to the other party to any such contract or appoint any such other party
its sales agent for such Shares. In either case, any such contract shall be
on such terms and conditions as the Trustees may in their discretion
determine, provided that such terms and conditions are not inconsistent with
the provisions of the Declaration or the By-Laws; and such contract may also
provide for the repurchase or sale of Shares by such other party as principal
or as agent of the Trust and may provide that such other party may enter into
selected dealer and sales agreements with registered securities dealers and
depository institutions to further the purpose of the distribution or
repurchase of the Shares. Such services may be provided by one or more
Persons.
SECTION 4.3. ADMINISTRATOR. The Trustees may in their discretion
from time to time enter into one or more administrative services contracts
whereby the other party to each such contract shall undertake to
furnish such administrative services to the Trust as the Trustees shall
from time to time consider desirable and all upon such terms and conditions as
the Trustees may in their discretion determine, provided that such terms and
conditions are
<PAGE>
11
not inconsistent with the provisions of this Declaration or the By-Laws.
Such services may be provided by one or more Persons.
SECTION 4.4. TRANSFER AGENT AND SHAREHOLDER SERVICING AGENTS.
The Trustees may in their discretion from time to time enter into one
or more transfer agency and shareholder servicing contracts whereby the
other party to each such contract shall undertake to furnish such
transfer agency and/or shareholder services to the Trust or to
shareholders of the Trust as the Trustees shall from time to time consider
desirable and all upon such terms and conditions as the Trustees may in their
discretion determine, provided that such terms and conditions are not
inconsistent with the provisions of this Declaration or the By-Laws.
Such services may be provided by one or more Persons. Except as
otherwise provided in the applicable shareholder servicing contract, a
Shareholder Servicing Agent shall be deemed to be the record owner of
outstanding Shares beneficially owned by customers of such Shareholder
Servicing Agent for whom it is acting pursuant to such shareholder
servicing contract.
SECTION 4.5. PARTIES TO CONTRACT. Any contract of the
character described in Section 4.1, 4.2, 4.3 or 4.4 of this Article IV or
any Custodian contract as described in Article X of the By-Laws may be
entered into with any Person, although one or more of the Trustees or
officers of the Trust may be an officer, partner, director, trustee,
shareholder, or member of such other party to the contract, and no such
contract shall be invalidated or rendered voidable by reason of the
existence of any such relationship; nor shall any Person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust under or by reason of any such contract or
accountable for any profit realized directly or indirectly therefrom,
provided that the contract when entered into was not inconsistent with the
provisions of this Article IV or the By-Laws. The same Person may be the
other party to contracts entered into pursuant to Sections 4.1, 4.2, 4.3
and 4.4 above or any Custodian contract as described in Article X of the
By-Laws, and any individual may be financially interested or otherwise
affiliated with Persons who are parties to any or all of the contracts
mentioned in this Section 4.5.
ARTICLE V
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
SECTION 5.1. NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES, ETC.
No Shareholder shall be subject to any personal liability whatsoever to any
Person in connection with Trust Property or the acts, obligations or
affairs of the Trust. No Trustee, officer, employee or agent of the Trust
shall be subject to any personal
<PAGE>
12
liability whatsoever to any Person, other than the Trust or its Shareholders,
in connection with Trust Property or the affairs of the Trust, save only
that arising from bad faith, wilful misfeasance, gross negligence or
reckless disregard for his duty to such Person; and all such Persons shall
look solely to the Trust Property for satisfaction of claims of any
nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee, or agent, as such, of the
Trust, is made a party to any suit or proceeding to enforce any such
liability, he shall not, on account thereof, be held to any personal
liability. The Trust shall indemnify and hold each Shareholder
harmless from and against all claims and liabilities to which such
Shareholder may become subject by reason of his being or having been
a Shareholder, and shall reimburse such Shareholder for all legal and
other expenses reasonably incurred by him in connection with any such
claim or liability. The rights accruing to a Shareholder under this Section
5.1 shall not exclude any other right to which such Shareholder may be
lawfully entitled, nor shall anything herein contained restrict the right of
the Trust to indemnify or reimburse a Shareholder in any appropriate
situation even though not specifically provided herein. Notwithstanding
any other provision of this Declaration to the contrary, no Trust
Property shall be used to indemnify or reimburse any Shareholder of any
Shares of any series other than Trust Property allocated or belonging to that
series.
SECTION 5.2. NON-LIABILITY OF TRUSTEES, ETC. No Trustee,
officer, employee or agent of the Trust shall be liable to the Trust
or to any Shareholder, Trustee, officer, employee, or agent thereof for
any action or failure to act (including without limitation the failure to
compel in any way any former or acting Trustee to redress any breach of
trust) except for his own bad faith, wilful misfeasance, gross negligence
or reckless disregard of his duties.
SECTION 5.3. MANDATORY INDEMNIFICATION; INSURANCE. (a) Subject to
the exceptions and limitations contained in paragraph (b) below:
(i) every person who is or has been a Trustee or officer of the
Trust shall be indemnified by the Trust, to the fullest extent permitted
by law (including the 1940 Act) as currently in effect or as hereafter
amended, against all liability and against all expenses reasonably
incurred or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or otherwise by virtue of
his being or having been a Trustee or officer and against amounts paid or
incurred by him in the settlement thereof;
(ii) the words "claim", "action", "suit", or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal,
administrative or other, including appeals), actual or
<PAGE>
13
threatened; and the words "liability" and "expenses" shall include,
without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust or the Shareholders by reason
of a final adjudication by the court or other body before which the
proceeding was brought that he engaged in wilful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct
of his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable belief
that his action was in the best interest of the Trust; or
(iii) in the event of a settlement involving a payment by a Trustee
or officer or other disposition not involving a final adjudication as
provided in paragraph (b) (i) or (b) (ii) above resulting in a payment by
a Trustee or officer, unless there has been either a determination that
such Trustee or officer did not engage in wilful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office by the court or other body approving the settlement
or other disposition or by a reasonable determination, based upon a review
of readily available facts (as opposed to a full trial-type inquiry) that he
did not engage in such conduct:
(a) by vote of a majority of the Disinterested Trustees acting on
the matter (provided that a majority of the Disinterested Trustees then in
office act on the matter); or
(b) by written opinion of independent legal counsel. (c)
Subject to the provisions of the 1940 Act, the Trust may maintain insurance
for the protection of the Trust Property, its Shareholders, Trustees,
officers, employees and agents in such amount as the Trustees shall
deem adequate to cover possible tort liability (whether or not the Trust
would have the power to indemnify such Persons against such liability),
and such other insurance as the Trustees in their sole judgment shall deem
advisable.
(d) The rights of indemnification herein provided shall be
severable, shall not affect any other rights to which any Trustee or
officer may now or hereafter be entitled, shall continue as to a Person who
has ceased to be such a Trustee or officer and shall inure to the benefit of
the heirs, executors and administrators of such Person. Nothing contained
herein shall affect any rights to
<PAGE>
14
indemnification to which personnel other than Trustees and officers may
be entitled by contract or otherwise under law.
(e) Expenses of preparation and presentation of a defense to any
claim, action, suit, or proceeding of the character described in paragraph
(a) of this Section 5.3 shall be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by or on behalf of the
recipient to repay such amount if it is ultimately determined that he is not
entitled to indemnification under this Section 5.3, provided that either:
(i) such undertaking is secured by a surety bond or some
other appropriate security or the Trust shall be insured against losses
arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in
office act on the matter) or an independent legal counsel in a written
opinion, shall determine, based upon a review of readily available facts (as
opposed to a full trial-type inquiry), that there is reason to believe
that the recipient ultimately will be found entitled to indemnification.
As used in this Section 5.3 a "Disinterested Trustee" is one (i) who
is not an "Interested Person" of the Trust (including anyone who has been
exempted from being an "Interested Person" by any rule, regulation or
order of the Commission), and (ii) against whom none of such actions,
suits or other proceedings or another action, suit or other proceeding on
the same or similar grounds is then or had been pending.
SECTION 5.4. NO BOND REQUIRED OF TRUSTEES. No Trustee shall
be obligated to give any bond or other security for the performance of any
of his duties hereunder.
SECTION 5.5. NO DUTY OF INVESTIGATION; NOTICE IN TRUST
INSTRUMENTS, ETC. No purchaser, lender, Shareholder Servicing Agent, Transfer
Agent or other Person dealing with the Trustees or any officer, employee or
agent of the Trust shall be bound to make any inquiry concerning the
validity of any transaction purporting to be made by the Trustees or by said
officer, employee or agent or be liable for the application of money or
property paid, loaned, or delivered to or on the order of the Trustees or of
said officer, employee or agent. Every obligation, contract, instrument,
certificate, Share, other security of the Trust or undertaking, and every
other act or thing whatsoever executed in connection with the Trust shall
be conclusively presumed to have been executed or done by the executors
thereof only in their capacity as Trustees under the Declaration or in their
capacity as officers, employees or agents of the Trust. Every written
obligation, contract, instrument, certificate, Share, other security of
the Trust or undertaking made or issued by the Trustees shall recite that the
<PAGE>
15
same is executed or made by them not individually, but as Trustees under
the Declaration, and that the obligations of any such instrument are not
binding upon any of the Trustees or Shareholders individually, but bind only
the trust estate, and may contain any further recital which they or
he may deem appropriate, but the omission of such recital shall not
operate to bind any of the Trustees or Shareholders individually. The
Trustees shall at all times maintain insurance for the protection of the
Trust Property, Shareholders, Trustees, officers, employees and agents in
such amount as the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment
shall deem advisable.
SECTION 5.6. RELIANCE ON EXPERTS, ETC. Each Trustee and officer
or employee of the Trust shall, in the performance of his duties, be
fully and completely justified and protected with regard to any act or any
failure to act resulting from reliance in good faith upon the books of account
or other records of the Trust, upon an opinion of counsel, or upon reports
made to the Trust by any of its officers or employees or by the Investment
Adviser, the Distributor, Transfer Agent, any Shareholder Servicing Agent,
selected dealers, accountants, appraisers or other experts or consultants
selected with reasonable care by the Trustees, officers or employees of the
Trust, regardless of whether such counsel or expert may also be a Trustee.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
SECTION 6.1. BENEFICIAL INTEREST. The interest of the
beneficiaries hereunder may be divided into transferable Shares, which may be
divided into one or more series as provided in Section 6.9 hereof. Each such
series shall have such class or classes of Shares as the Trustees may from
time to time determine. The number of Shares authorized hereunder is
unlimited. All Shares issued hereunder including, without limitation,
Shares issued in connection with a dividend in Shares or a split of Shares,
shall be fully paid and non-assessable.
SECTION 6.2. RIGHTS OF SHAREHOLDERS. The ownership of the
Trust Property of every description and the right to conduct any business
hereinbefore described are vested exclusively in the Trustees, and the
Shareholders shall have no interest therein other than the beneficial
interest conferred by their Shares, and they shall have no right to call for
any partition or division of any property, profits, rights or interests of
the Trust nor can they be called upon to assume any losses of the Trust or
suffer an assessment of any kind by virtue of their ownership of Shares.
The Shares shall be personal property giving only the rights specifically
set forth in the Declaration. The Shares shall not entitle the holder to
preference, pre-emptive, appraisal,
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16
conversion or exchange rights, except as the Trustees may determine with
respect to any series of Shares.
SECTION 6.3. TRUST ONLY. It is the intention of the Trustees to
create only the relationship of Trustee and beneficiary between the
Trustees and the Shareholders. It is not the intention of the Trustees to
create a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in the Declaration shall be construed to make the Shareholders,
either by themselves or with the Trustees, partners or members of a joint
stock association.
SECTION 6.4. ISSUANCE OF SHARES. The Trustees, in their discretion
may, from time to time without vote of the Shareholders, issue Shares, in
addition to the then issued and outstanding Shares and Shares held in the
treasury, to such party or parties and for such amount and type of
consideration, including cash or property, and on such terms as the
Trustees may deem best, and may in such manner acquire other assets
(including the acquisition of assets subject to, and in connection, with the
assumption of liabilities) and businesses. In connection with any issuance of
Shares, the Trustees may issue fractional Shares. The Trustees may from
time to time divide or combine the Shares of any series into a greater or
lesser number without thereby changing their proportionate beneficial
interests in Trust Property allocated or belonging to such series.
Contributions to the Trust may be accepted for, and Shares shall be redeemed
as, whole Shares and/or fractions of a Share.
SECTION 6.5. REGISTER OF SHARES. A register or registers shall be
kept at the principal office of the Trust or at an office of the Transfer
Agent or any one or more Shareholder Servicing Agents which register or
registers, taken together, shall contain the names and addresses of the
Shareholders and the number of Shares held by them respectively and a
record of all transfers thereof. Such register or registers shall be
conclusive as to who are the holders of the Shares and who shall be
entitled to receive dividends or distributions or otherwise to exercise or
enjoy the rights of Shareholders. No Shareholder shall be entitled to
receive payment of any dividend or distribution, nor to have notice
given to him as herein or in the By-Laws provided, until he has given his
address to the Transfer Agent, the Shareholder Servicing Agent which is the
agent of record for such Shareholder, or such other officer or agent of the
Trustees as shall keep the said register for entry thereon. It is not
contemplated that certificates will be issued for the Shares; however, the
Trustees, in their discretion, may authorize the issuance of Share
certificates and promulgate appropriate rules and regulations as to their use.
SECTION 6.6. TRANSFER OF SHARES. Shares shall be transferable on
the records of the Trust only by the record holder
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17
thereof or by his agent thereunto duly authorized in writing, upon delivery
to the Trustees, the Transfer Agent or the Shareholder Servicing Agent which
is the agent of record for such Shareholder, of a duly executed instrument of
transfer, together with any certificate or certificates (if issued) for
such Shares and such evidence of the genuineness of each such execution and
authorization and of other matters as may reasonably be required. Upon
such delivery the transfer shall be recorded on the register of the Trust.
Until such record is made, the Shareholder of record shall be deemed to be
the holder of such Shares for all purposes hereunder and neither the Trustees
nor any Transfer Agent, Shareholder Servicing Agent or registrar nor any
officer, employee or agent of the Trust shall be affected by any notice of
the proposed transfer.
Any person becoming entitled to any Shares in consequence of the
death, bankruptcy, or incompetence of any Shareholder, or otherwise by
operation of law, shall be recorded on the register of Shares as the holder
of such Shares upon production of the proper evidence thereof to the
Trustees, the Transfer Agent or the Shareholder Servicing Agent which is
the agent of record for such Shareholder; but until such record is made, the
Shareholder of record shall be deemed to be the holder of such Shares for all
purposes hereunder and neither the Trustees nor any Transfer Agent,
Shareholder Servicing Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or
incompetence, or other operation of law.
SECTION 6.7. NOTICES. Any and all notices to which any Shareholder
may be entitled and any and all communications shall be deemed duly served or
given if mailed, postage prepaid, addressed to any Shareholder of record at
his last known address as recorded on the register of the Trust.
SECTION 6.8. VOTING POWERS. The Shareholders shall have power to
vote only (i) for the removal of Trustees as provided in Section 2.2
hereof, (ii) with respect to any investment advisory or management
contract as provided in Section 4.1 hereof, (iii) with respect to
termination of the Trust as provided in Section 9.2 hereof, (iv) with respect
to any amendment of this Declaration to the extent and as provided in
Section 9.3 hereof, (v) with respect to any merger, consolidation or
sale of assets as provided in Sections 9.4 and 9.6 hereof, (vi) with
respect to incorporation of the Trust or any series to the extent and as
provided in Sections 9.5 and 9.6 hereof, (vii) to the same extent as the
stockholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Trust or
the Shareholders, and (viii) with respect to such additional matters relating
to the Trust as may be required by the Declaration, the By-Laws or any
registration of the Trust with the Commission (or any successor agency) or any
state, or as the
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18
Trustees may consider necessary or desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote,
except that Shares held in the treasury of the Trust shall not be voted.
Shares shall be voted by individual series on any matter submitted to a vote
of the Shareholders of the Trust except as provided in Section 6.9(g) hereof.
There shall be no cumulative voting in the election of Trustees. Until
Shares are issued, the Trustees may exercise all rights of Shareholders and
may take any action required by law, the Declaration or the By-Laws to be
taken by Shareholders. At any meeting of Shareholders of the Trust or of
any series of the Trust, a Shareholder Servicing Agent may vote any shares as
to which such Shareholder Servicing Agent is the agent of record and which
are not otherwise represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares
otherwise represented at the meeting in person or by proxy as to which such
Shareholder Servicing Agent is the agent of record. Any shares so voted by a
Shareholder Servicing Agent will be deemed represented at the meeting for
quorum purposes. The By-Laws may include further provisions for
Shareholder votes and meetings and related matters.
SECTION 6.9. SERIES DESIGNATION. As set forth in Appendix I hereto,
the Trustees have authorized the division of Shares into series, as
designated and established pursuant to the provisions of Appendix I and this
Section 6.9. The Trustees, in their discretion, may authorize the division of
Shares into one or more additional series, and the different series shall
be established and designated, and the variations in the relative
rights, privileges and preferences as between the different series shall be
fixed and determined by the Trustees upon and subject to the following
provisions:
(a) All Shares shall be identical except that there may be
such variations as shall be fixed and determined by the Trustees between
different series as to purchase price, right of redemption and the price,
terms and manner of redemption, and special and relative rights as to
dividends and on liquidation.
(b) The number of authorized Shares and the number of Shares of
each series that may be issued shall be unlimited. The Trustees may
classify or reclassify any unissued Shares or any Shares previously issued and
reacquired of any series into one or more series that may be established and
designated from time to time. The Trustees may hold as treasury shares
(of the same or some other series), reissue for such consideration and on
such terms as they may determine, or cancel any Shares of any series
reacquired by the Trust at their discretion from time to time.
(c) All consideration received by the Trust for the issuance or sale
of Shares of a particular series, together with all assets
<PAGE>
19
in which such consideration is invested or reinvested, all income and
earnings thereon, profits therefrom, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of such assets, and
any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to that series for
all purposes, subject only to the rights of creditors of such series, and
shall be so recorded upon the books of account of the Trust. In the event
that there are any assets, income, earnings, profits, proceeds, funds or
payments which are not readily identifiable as belonging to any particular
series, the Trustees shall allocate them to and among any one or more of
the series established and designated from time to time in such manner and on
such basis as the Trustees, in their sole discretion, deem fair and equitable.
Each such allocation by the Trustees shall be conclusive and binding upon the
Shareholders of all series for all purposes. No Shareholder of any particular
series shall have any claim on or right to any assets allocated or belonging
to any other series of Shares.
(d) The assets belonging to each particular series shall be
charged with the liabilities of the Trust in respect of that series and all
expenses, costs, charges and reserves attributable to that series, and
any general liabilities, expenses, costs, charges or reserves of the
Trust which are not readily identifiable as belonging to any particular
series shall be allocated and charged by the Trustees to and among any
one or more of the series established and designated from time to time in
such manner and on such basis as the Trustees, in their sole discretion, deem
fair and equitable. Each allocation of liabilities, expenses, costs, charges
and reserves by the Trustees shall be conclusive and binding upon the
Shareholders of all series for all purposes. The Trustees shall have full
discretion, to the extent not inconsistent with the 1940 Act, to determine
which items shall be treated as income and which items as capital; and each
such determination and allocation shall be conclusive and binding upon the
Shareholders. Under no circumstances shall the assets allocated or belonging
to any particular series be charged with liabilities, expenses, costs,
charges or reserves attributable to any other series. All Persons who have
extended credit which has been allocated to a particular series, or who
have a claim or contract which has been allocated to any particular
series, shall look only to the assets of that particular series for
payment of such credit, claim or contract.
(e) The power of the Trustees to invest and reinvest the Trust
Property allocated or belonging to any particular series shall be governed by
Section 3.2 hereof unless otherwise provided in the instrument of the
Trustees establishing such series which is hereinafter described.
(f) Each Share of a series shall represent a beneficial interest in
the net assets allocated or belonging to such series only, and such interest
shall not extend to the assets of the Trust
<PAGE>
20
generally. Dividends and distributions on Shares of a particular series may
be paid with such frequency as the Trustees may determine, which may be
monthly or otherwise, pursuant to a standing vote or votes adopted only once
or with such frequency as the Trustees may determine, to the Shareholders
of that series only, from such of the income and capital gains, accrued or
realized, from the assets belonging to that series, as the Trustees may
determine, after providing for actual and accrued liabilities belonging to
that series. All dividends and distributions on Shares of a particular series
shall be distributed PRO RATA to the Shareholders of that series in
proportion to the number of Shares of that series held by such Shareholders at
the date and time of record established for the payment of such dividends or
distributions. Shares of any particular series of the Trust may be redeemed
solely out of Trust Property allocated or belonging to that series. Upon
liquidation or termination of a series of the Trust, Shareholders of such
series shall be entitled to receive a PRO RATA share of the net assets of such
series only.
(g) Notwithstanding any provision hereof to the contrary, on any
matter submitted to a vote of the Shareholders of the Trust, all Shares then
entitled to vote shall be voted by individual series, except that (i) when
required by the 1940 Act to be voted in the aggregate, Shares shall
not be voted by individual series, and (ii) when the Trustees have
determined that the matter affects only the interests of Shareholders of
one or more series, only Shareholders of such series shall be entitled to
vote thereon.
(h) The establishment and designation of any series of Shares shall
be effective upon the execution by a majority of the Trustees of an
instrument setting forth such establishment and designation and the
relative rights and preferences of such series, or as otherwise provided in
such instrument. At any time that there are no Shares outstanding of any
particular series previously established and designated, the Trustees may
by an instrument executed by a majority of their number abolish that
series and the establishment and designation thereof. Each instrument
referred to in this paragraph shall have the status of an amendment to this
Declaration.
(i) Notwithstanding anything in this Declaration to the contrary,
the Trustees may, in their discretion, authorize the division of Shares
of any series into Shares of one or more classes or subseries of such
series. All Shares of a class or a subseries shall be identical with each
other and with the Shares of each other class or subseries of the same
series except for such variations between classes or subseries as may be
approved by the Board of Trustees and be permitted under the 1940 Act or
pursuant to any exemptive order issued by the Commission.
<PAGE>
21
ARTICLE VII
REDEMPTIONS
SECTION 7.1 REDEMPTIONS. In case any Shareholder at any time desires
to dispose of his Shares, he may deposit his certificate or certificates
therefor, duly endorsed in blank or accompanied by an instrument of transfer
executed in blank, or if the Shares are not represented by any
certificate, a written request or other such form of request as the
Trustees may from time to time authorize, at the office of the Transfer
Agent, the Shareholder Servicing Agent which is the agent of record for such
Shareholder, or at the office of any bank or trust company, either in or
outside of the Commonwealth of Massachusetts, which is a member of the
Federal Reserve System and which the said Transfer Agent or the said
Shareholder Servicing Agent has designated in writing for that purpose,
together with an irrevocable offer in writing in a form acceptable to the
Trustees to sell the Shares represented thereby to the Trust at the net
asset value per Share thereof, next determined after such deposit as provided
in Section 8.1 hereof. Payment for said Shares shall be made to the
Shareholder within seven days after the date on which the deposit is made,
unless (i) the date of payment is postponed pursuant to Section 7.2
hereof, or (ii) the receipt, or verification of receipt, of the purchase
price for the Shares to be redeemed is delayed, in either of which events
payment may be delayed beyond seven days.
SECTION 7.2 SUSPENSION OF RIGHT OF REDEMPTION. The Trust may declare
a suspension of the right of redemption or postpone the date of payment of
the redemption proceeds for the whole or any part of any period (i) during
which the New York Stock Exchange is closed other than customary week-end
and holiday closings, (ii) during which trading on the New York Stock
Exchange is restricted, (iii) during which an emergency exists as a result of
which disposal by the Trust of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Trust fairly to
determine the value of its net assets, or (iv) during which the
Commission for the protection of Shareholders by order permits the
suspension of the right of redemption or postponement of the date of
payment of the redemption proceeds; provided that applicable rules and
regulations of the Commission shall govern as to whether the conditions
prescribed in (ii), (iii) or (iv) exist. Such suspension shall take effect
at such time as the Trust shall specify but not later than the close of
business on the business day next following the declaration of suspension,
and thereafter there shall be no right of redemption or payment of
the redemption proceeds until the Trust shall declare the suspension at
an end, except that the suspension shall terminate in any event on the
first day on which said stock exchange shall have reopened or the period
specified in (ii) or (iii) shall have expired (as to which, in the absence of
an official ruling by the Commission, the determination of the Trust shall be
conclusive). In the case of a
<PAGE>
22
suspension of the right of redemption, a Shareholder may either withdraw
his request for redemption or receive payment based on the net asset value
existing after the termination of the suspension.
SECTION 7.3. REDEMPTION OF SHARES; DISCLOSURE OF HOLDING. If
the Trustees shall, at any time and in good faith, be of the opinion that
direct or indirect ownership of Shares has or may become concentrated in any
Person to an extent which would disqualify the Trust, or any series of
the Trust, as a regulated investment company under the Internal Revenue Code
of 1986, as amended (the "Code"), then the Trustees shall have the power
by lot or other means deemed equitable by them (i) to call for redemption by
any such Person a number of Shares of the Trust, or such series of the Trust,
sufficient to maintain or bring the direct or indirect ownership of Shares of
the Trust, or such series of the Trust, into conformity with the
requirements for such qualification, and (ii) to refuse to transfer or issue
Shares of the Trust, or such series of the Trust, to any Person whose
acquisition of the Shares of the Trust, or such series of the Trust, would
result in such disqualification. The redemption shall be effected at the
redemption price and in the manner provided in Section 7.1 hereof.
The Shareholders of the Trust shall upon demand disclose to
the Trustees in writing such information with respect to direct and
indirect ownership of Shares of the Trust as the Trustees deem necessary to
comply with the provisions of the Code, or to comply with the requirements
of any other authority. Upon the failure of a Shareholder to disclose such
information and to comply with such demand of the Trustees, the Trust
shall have the power to redeem such Shares at a redemption price determined
in accordance with Section 7.1 hereof.
SECTION 7.4 REDEMPTIONS OF ACCOUNTS OF LESS THAN MINIMUM AMOUNT.
The Trustees shall have the power, and any Shareholder Servicing Agent with
whom the Trust has so agreed (or a subcontractor of such Shareholder
Servicing Agent) shall have the power, at any time to redeem Shares of any
Shareholder at a redemption price determined in accordance with Section
7.1 hereof if at such time the aggregate net asset value of the Shares owned
by such Shareholder is less than a minimum amount as determined from time
to time and disclosed in a prospectus of the Trust or in the
Shareholder Servicing Agent's (or sub-contractor's) agreement with its
customer. A Shareholder shall be notified that the aggregate value of his
Shares is less than such minimum amount and allowed 60 days to make an
additional investment before redemption is processed.
<PAGE>
23
ARTICLE VIII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
The Trustees, in their absolute discretion, may prescribe and shall
set forth in the By-Laws or in a duly adopted vote or votes of the Trustees
such bases and times for determining the per Share net asset value of the
Shares or net income, or the declaration and payment of dividends and
distributions, as they may deem necessary or desirable.
ARTICLE IX
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC.
SECTION 9.1. DURATION. The Trust shall continue without limitation
of time but subject to the provisions of this Article IX.
SECTION 9.2. TERMINATION OF TRUST. (a) The Trust may be terminated
(i) by a Majority Shareholder Vote of its Shareholders, or (ii) by the
Trustees by written notice to the Shareholders. Any series of the Trust may
be terminated (i) by a Majority Shareholder Vote of the Shareholders of that
series, or (ii) by the Trustees by written notice to the Shareholders of
that series. Upon the termination of the Trust or any series of the Trust:
(i) The Trust or series of the Trust shall carry on no business
except for the purpose of winding up its affairs;
(ii) The Trustees shall proceed to wind up the affairs of the Trust
or series of the Trust and all the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust or series of the
Trust shall have been wound up, including the power to fulfill or discharge
the contracts of the Trust, collect the assets of the Trust or series of the
Trust, sell, convey, assign, exchange, transfer or otherwise dispose
of all or any part of the remaining Trust Property of the Trust or
series of the Trust to one or more Persons at public or private sale for
consideration which may consist in whole or in part of cash, securities or
other property of any kind, discharge or pay the liabilities of the Trust
or series of the Trust, and to do all other acts appropriate to liquidate
the business of the Trust or series of the Trust; provided, that any sale,
conveyance, assignment, exchange, transfer or other disposition of all or
substantially all of the Trust Property of the Trust or series of the Trust
shall require Shareholder approval in accordance with Section 9.4 or 9.6
hereof, respectively; and
(iii) After paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases, indemnities and
refunding agreements as they deem necessary for their protection,
<PAGE>
24
the Trustees may distribute the remaining Trust Property of the Trust or
series of the Trust, in cash or in kind or partly in cash and partly in kind,
among the Shareholders of the Trust or series of the Trust according to their
respective rights.
(b) After termination of the Trust or series of the Trust
and distribution to the Shareholders of the Trust or series of the Trust as
herein provided, a majority of the Trustees shall execute and lodge among
the records of the Trust an instrument in writing setting forth the
fact of such termination, and the Trustees shall thereupon be discharged
from all further liabilities and duties hereunder with respect to the
Trust or series of the Trust, and the rights and interests of all
Shareholders of the Trust or series of the Trust shall thereupon cease.
SECTION 9.3. AMENDMENT PROCEDURE. (a) This Declaration may be
amended by a Majority Shareholder Vote of the Shareholders or by any
instrument in writing, without a meeting, signed by a majority of the
Trustees and consented to by the holders of not less than a majority of the
Shares of the Trust. The Trustees may also amend this Declaration
without the vote or consent of Shareholders to designate series in
accordance with Section 6.9 hereof, to change the name of the Trust, to
supply any omission, to cure, correct or supplement any ambiguous,
defective or inconsistent provision hereof, or to conform this
Declaration to the requirements of applicable federal laws or regulations
or the requirements of the regulated investment company provisions of the
Internal Revenue Code of 1986, as amended, or to (i) change the state or
other jurisdiction designated herein as the state or other jurisdiction
whose laws shall be the governing law hereof, (ii) effect such changes
herein as the Trustees find to be necessary or appropriate (A) to permit
the filing of this Declaration under the laws of such state or other
jurisdiction applicable to trusts or voluntary associations, (B) to permit
the Trust to elect to be treated as a "regulated investment company" under
the applicable provisions of the Internal Revenue Code of 1986, as
amended, or (C) to permit the transfer of shares (or to permit the transfer
of any other beneficial interests or shares in the Trust, however
denominated), and (iii) in conjunction with any amendment contemplated by
the foregoing clause (i) or the foregoing clause (ii) to make any and all
such further changes or modifications to this Declaration as the Trustees
find to be necessary or appropriate, any finding of the Trustees
referred to in the foregoing clause (ii) or clause (iii) to be
conclusively evidenced by the execution of any such amendment by a majority
of the Trustees, but the Trustees shall not be liable for failing so to do.
(b) No amendment which the Trustees have determined would affect
the rights, privileges or interests of holders of a particular series of
Shares, but not the rights, privileges or interests of holders of all
series of Shares generally, and which would otherwise require a Majority
Shareholder Vote under paragraph
<PAGE>
25
(a) of this Section 9.3, may be made except with the vote or consent by
a Majority Shareholder Vote of Shareholders of such series.
(c) Notwithstanding any other provision of this Declaration to
the contrary, the Trustees shall have the power in their discretion
without any requirement of approval by shareholders to either invest all or a
portion of the Trust Property, or sell all or a portion of the Trust
Property and invest the proceeds of such sales, in another investment
company that is registered under the 1940 Act.
(d) Notwithstanding any other provision hereof, no amendment may
be made under this Section 9.3 which would change any rights with respect
to the Shares, or any series of Shares, by reducing the amount payable
thereon upon liquidation of the Trust or by diminishing or eliminating
any voting rights pertaining thereto, except with the Majority Shareholder
Vote of the Shares or that series of Shares. Nothing contained in this
Declaration shall permit the amendment of this Declaration to impair the
exemption from personal liability of the Shareholders, Trustees, officers,
employees and agents of the Trust or to permit assessments upon Shareholders.
(e) A certificate signed by a majority of the Trustees setting forth
an amendment and reciting that it was duly adopted by the Shareholders or
by the Trustees as aforesaid, and executed by a majority of the Trustees,
shall be conclusive evidence of such amendment when lodged among the
records of the Trust.
(f) Notwithstanding any other provision hereof, until such time as
a Registration Statement under the Securities Act of 1933, as amended,
covering the first public offering of Shares of the Trust shall have become
effective, this Declaration may be amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument
signed by a majority of the Trustees.
SECTION 9.4. MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust
may merge or consolidate with any other corporation, association, trust or
other organization or may sell, lease or exchange all or substantially
all of the Trust Property (or all or substantially all of the Trust Property
allocated or belonging to a particular series of the Trust) including its
good will, upon such terms and conditions and for such consideration when
and as authorized at any meeting of Shareholders called for such purpose by
the vote of the holders of two-thirds of the outstanding Shares of all
series of the Trust voting as a single class, or of the affected series of
the Trust, as the case may be, or by an instrument or instruments in writing
without a meeting, consented to by the vote of the holders of two-thirds of
the outstanding Shares of all series of the Trust voting as a single class,
or of the affected series of the Trust, as the case may be; provided,
<PAGE>
26
however, that if such merger, consolidation, sale, lease or exchange
is recommended by the Trustees, the vote or written consent by Majority
Shareholder Vote shall be sufficient authorization; and any such merger,
consolidation, sale, lease or exchange shall be deemed for all
purposes to have been accomplished under and pursuant to the statutes
of the Commonwealth of Massachusetts. Nothing contained herein shall be
construed as requiring approval of Shareholders for any sale of assets in the
ordinary course of the business of the Trust.
SECTION 9.5. INCORPORATION, REORGANIZATION. With the approval of
the holders of a majority of the Shares outstanding and entitled to
vote, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction, or any
other trust, unit investment trust, partnership, association or other
organization to take over all of the Trust Property or to carry on any
business in which the Trust shall directly or indirectly have any interest,
and to sell, convey and transfer the Trust Property to any such
corporation, trust, partnership, association or organization in exchange
for the shares or securities thereof or otherwise, and to lend money to,
subscribe for the shares or securities of, and enter into any contracts with
any such corporation, trust, partnership, association or organization
in which the Trust holds or is about to acquire shares or any other interest.
Subject to Section 9.4 hereof, the Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any
such corporation, trust, partnership, association or other organization if and
to the extent permitted by law. Nothing contained in this Section 9.5
shall be construed as requiring approval of Shareholders for the Trustees to
organize or assist in organizing one or more corporations, trusts,
partnerships, associations or other organizations and selling, conveying
or transferring a portion of the Trust Property to such organization or
entities.
SECTION 9.6. INCORPORATION OR REORGANIZATION OF SERIES. With
the approval of a Majority Shareholder Vote of any series, the Trustees may
sell, lease or exchange all of the Trust Property allocated or belonging
to that series, or cause to be organized or assist in organizing a
corporation or corporations under the laws of any other jurisdiction, or any
other trust, unit investment trust, partnership, association or other
organization, to take over all of the Trust Property allocated or
belonging to that series and to sell, convey and transfer such Trust Property
to any such corporation, trust, unit investment trust, partnership,
association, or other organization in exchange for the shares or securities
thereof or otherwise.
<PAGE>
27
ARTICLE X
REPORTS TO SHAREHOLDERS AND SHAREHOLDER COMMUNICATIONS
The Trustees shall at least semi-annually submit to the Shareholders
a written financial report of the transactions of the Trust, including
financial statements which shall at least annually be certified by
independent public accountants.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. FILING. This Declaration and any amendment hereto
shall be filed in the office of the Secretary of the Commonwealth of
Massachusetts and in such other place or places as may be required
under the laws of the Commonwealth of Massachusetts and may also be filed
or recorded in such other places as the Trustees deem appropriate. Each
amendment so filed shall state or be accompanied by a certificate signed and
acknowledged by a Trustee stating that such action was duly taken in the
manner provided herein, and unless such amendment or such certificate sets
forth some later time for the effectiveness of such amendment, such amendment
shall be effective upon its filing. A restated Declaration, integrating into
a single instrument all of the provisions of the Declaration which are then
in effect and operative, may be executed from time to time by a majority of
the Trustees and shall, upon filing with the Secretary of the Commonwealth
of Massachusetts, be conclusive evidence of all amendments contained
therein and may thereafter be referred to in lieu of this original
Declaration and the various amendments thereto.
SECTION 11.2. GOVERNING LAW. This Declaration is executed by
the Trustees and delivered in the Commonwealth of Massachusetts and with
reference to the laws thereof, and the rights of all parties and the
validity and construction of every provision hereof shall be subject
to and construed according to the laws of said Commonwealth.
SECTION 11.3. COUNTERPARTS. This Declaration may be
simultaneously executed in several counterparts, each of which shall be
deemed to be an original, and such counterparts, together, shall
constitute one and the same instrument, which shall be sufficiently
evidenced by any such original counterpart.
SECTION 11.4. RELIANCE BY THIRD PARTIES. Any certificate executed by
an individual who, according to the records of the Trust, is a Trustee
hereunder certifying to: (i) the number or identity of Trustees or
Shareholders, (ii) the due authorization of the execution of any instrument
or writing, (iii) the form of any vote passed at a meeting of Trustees or
Shareholders, (iv) the fact
<PAGE>
28
that the number of Trustees or Shareholders present at any meeting or
executing any written instrument satisfies the requirements of this
Declaration, (v) the form of any By-Laws adopted by or the identity of any
officers elected by the Trustees, or (vi) the existence of any fact or facts
which in any manner relates to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person dealing with
the Trustees and their successors.
SECTION 11.5. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS. (a)
The provisions of this Declaration are severable, and if the Trustees
shall determine, with the advice of counsel, that any such provision is in
conflict with the 1940 Act, the regulated investment company provisions of
the Internal Revenue Code of 1986, as amended, or with other applicable laws
and regulations, the conflicting provision shall be deemed never to have
constituted a part of this Declaration; provided however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior
to such determination.
(b) If any provision of this Declaration shall be held invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability
shall attach only to such provision in such jurisdiction and shall not in
any manner affect such provision in any other jurisdiction or any other
provision of the Declaration in any jurisdiction.
<PAGE>
29
SECTION 11.6. PRINCIPAL OFFICE. The principal office of the Trust
is 6 St. James Avenue, 9th Floor, Boston, Massachusetts, 02116.
IN WITNESS WHEREOF, the undersigned have executed this instrument as
of the 4th day of November, 1992.
/s/THOMAS M. LENZ
Thomas M. Lenz
as Trustee
and not individually
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, SS.
November 4, 1992
Then personally appeared the above-named Thomas M. Lenz, who
severally acknowledged the foregoing instrument to be their free act and deed.
Before me,
/s/MARK PIETKIEWICZ
Notary Public
My commission expires: January 24, 1997
[MARK PIETKIEWICZ NOTARY PUBLIC MY COMMISSION EXPIRES JAN. 24, 1997]
<PAGE>
Appendix I
THE PIERPONT FUNDS
Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.001 per share)
Pursuant to Section 6.9 of the Declaration of Trust, dated as of
November 4, 1992 (the "Declaration of Trust"), of The Pierpont Funds (the
"Trust"), the Trustees hereby establish and designate eight series of Shares
(as defined in the Declaration of Trust) (the "Funds") to have the following
special and relative rights:
1. The Funds shall be designated as follows:
The Pierpont Treasury Money Market Fund
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
The Pierpont International Equity Fund
2. Each Fund shall be authorized to hold cash, invest in securities,
instruments and other properties and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Securities Act of 1933 to the extent pertaining to the offering of
Shares of such Fund. Each Share of a Fund shall be redeemable, shall be
entitled to one vote (or fraction thereof in respect of a fractional
share) on matters on which Shares of the Fund shall be entitled to vote, shall
represent a PRO RATA beneficial interest in the assets allocated or belonging
to the Fund, and shall be entitled to receive its PRO RATA share of the net
assets of the Fund upon liquidation of the Fund, all as provided in Section
6.9 of the Declaration of Trust. The proceeds of sales of Shares of a Fund,
together with any income and gain thereon, less any diminution or expenses
thereof, shall irrevocably belong to that Fund, unless otherwise required by
law.
3. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to the Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated among
the Funds
<PAGE>
[FEB 5 1993 OFFICE OF THE CLERK CITY HALL BOSTON, MA 02201]
[RECEIVED FEB 5 1993 SECRETARY OF STATE CORPORATION DIVISION]
JPM10 Appendix I
THE PIERPONT FUNDS
Amended and Restated Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.001 per share)
Dated as of January 29, 1993
Pursuant to Section 6.9 of the Declaration of Trust, dated as of
November 4, 1992 (the "Declaration of Trust"), of The Pierpont Funds (the
"Trust"), the Trustees of the Trust hereby amend and restate the Establishment
and Designation of Series appended to the Declaration of Trust to establish
and to designate one additional series of Shares (as defined in the
Declaration of Trust), such additional series of Shares together with the
eight existing series of Shares totalling nine series of Shares (each a "Fund"
and collectively the "Funds").
1. The Funds shall be designated as follows:
The Pierpont Treasury Money Market Fund
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
The Pierpont International Equity Fund
The Pierpont Short Term Bond Fund
and shall have the following special and relative
rights:
2. Each Fund shall be authorized to hold cash, invest in securities,
instruments and other properties and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Securities Act of 1933 to the extent pertaining to the offering of
Shares of such Fund. Each Share of a Fund shall be redeemable, shall be
entitled to one vote (or fraction thereof in respect of a fractional share) on
matters on which Shares of the Fund shall be entitled to vote, shall represent
a pro rata beneficial interest in the assets allocated or belonging to the
Fund, and shall be entitled to receive its pro rata share of the net assets of
the Fund upon liquidation of the Fund, all as provided in Section 6.9 of the
Declaration of Trust. The proceeds of sales of Shares of a Fund, together with
any income and gain thereon, less any diminution or expenses thereof, shall
irrevocably belong to that Fund, unless otherwise required by law.
3. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect
<PAGE>
to the Fund as provided in, Rule 18f-2, as from time to time in effect, under
the Investment Company Act of 1940, as amended, or any successor rule, and by
the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated among
the Funds as set forth in Section 6.9 of the Declaration of Trust.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, the Trustees (including any successor Trustees) shall
have the right at any time and from time to time to reallocate assets and
expenses, to change the designation of any Fund now or hereafter created, or
otherwise to change the special and relative rights of any Fund. as set forth
in Section 6.9 of the Declaration of Trust.
<PAGE>
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, the Trustees (including any successor Trustees) shall
have the right at any time and from time to time to reallocate assets and
expenses, to change the designation of any Fund now or hereafter created, or
otherwise to change the special and relative rights of any Fund.
IN WITNESS WHEREOF, the undersigned have executed this instrument as
of the 29th day of January, 1993.
/s/Frederick S. Addy
Frederick S. Addy
/s/ William G. Burns
William G. Burns
/s/ Arthur C. Eschenlauer
Arthur C. Eschenlauer
/s/ Matthew Healey
Matthew Healey
/s/ Michael P. Mallardi
Michael P. Mallardi
JPM10
<PAGE>
[RECEIVED JUL 6 1993 SECRETARY OF STATE CORPORATION DIVISION]
[RECEIVED CITY CLERK'S OFFICE 93JUL-6PM 2:09 BOSTON, MA]
JPM10A Appendix I
THE PIERPONT FUNDS
Second Amended and Restated Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.001 per share)
Dated as of June 24, 1993
Pursuant to Section 6.9 of the Declaration of Trust, dated as of
November 4, 1992 (the "Declaration of Trust"), of The Pierpont Funds (the
"Trust"), the Trustees of the Trust hereby amend and restate the Amended and
Restated Establishment and Designation of Series appended to the Declaration
of Trust to establish and to designate six additional series of Shares (as
defined in the Declaration of Trust), such additional series of Shares
together with the nine existing series of Shares totalling fifteen series of
Shares (each a "Fund" and collectively the "Funds").
1. The Funds shall be designated as follows:
The Pierpont Treasury Money Market Fund
The Pierpont Money Market Fund
The Pierpont Tax Exempt Money Market Fund
The Pierpont Bond Fund
The Pierpont Tax Exempt Bond Fund
The Pierpont Equity Fund
The Pierpont Capital Appreciation Fund
The Pierpont International Equity Fund
The Pierpont Short Term Bond Fund
The Pierpont U.S. Stock Fund
The Pierpont Diversified Fund
The Pierpont International Bond Fund
The Pierpont Emerging Markets Equity Fund
The Pierpont International Fixed Income Fund
The Pierpont US$ Short Duration Tax Exempt Fund
and shall have the following special and relative
rights:
2. Each Fund shall be authorized to hold cash, invest in securities,
instruments and other properties and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Securities Act of 1933 to the extent pertaining to the offering of
Shares of such Fund. Each Share of a Fund shall be redeemable, shall be
entitled to one vote (or fraction thereof in respect of a fractional share) on
matters on which Shares of the Fund shall be entitled to vote, shall represent
a pro rata beneficial interest in the assets allocated or belonging to the
Fund, and shall be entitled to receive its pro rata share of the net assets of
the Fund upon liquidation of the Fund, all as provided in Section 6.9 of the
Declaration of Trust. The proceeds of sales of Shares of a Fund, together with
any income and gain thereon, less any
<PAGE>
diminution or expenses thereof, shall irrevocably belong to that
Fund, unless otherwise required by law.
3. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to the Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated among
the Funds as set forth in Section 6.9 of the Declaration of Trust.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, the Trustees (including any successor Trustees) shall
have the right at any time and from time to time to reallocate assets and
expenses, to change the designation of any Fund now or hereafter created, or
otherwise to change the special and relative rights of any Fund.
IN WITNESS WHEREOF, the undersigned have executed this instrument as
of the 24th day of June, 1993. This instrument may be executed by the Trustees
on separate counterparts but shall be effective only when signed by a majority
of the Trustees.
/s/ Frederick S. Addy
Frederick S. Addy
William G. Burns
/s/ Arthur C. Eschenlauer
Arthur C. Eschenlauer
/s/ Matthew Healey
Matthew Healey
Michael P. Mallardi
JPM10A
<PAGE>
[RECEIVED CITY CLERK'S OFFICE 93DEC 21 AM10:47 BOSTON, MA]
[RECEIVED DEC 21 1993 SECRETARY OF STATE CORPORATION DIVISION]
JPM10C
Appendix I
THE PIERPONT FUNDS
Third Amended and Restated Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.001 per share)
Dated as of December 16, 1993
Pursuant to Sections 6.9 and 9.3 of the Declaration of Trust, dated
as of November 4, 1992 (the "Declaration of Trust"), of The Pierpont Funds
(the "Trust"), the Trustees of the Trust hereby amend and restate the Second
Amended and Restated Establishment and Designation of Series appended to the
Declaration of Trust to change the names of The Pierpont International Fixed
Income Fund and The Pierpont US$ Short Duration Tax Exempt Fund to "The
Pierpont Emerging Markets Fixed Income Fund" and "The Pierpont New York
Municipal Bond Fund", respectively, two series of Shares (as defined in the
Declaration of Trust) of the fifteen series of Shares (each a "Fund" and
collectively the "Funds") of the Trust.
1. The Funds shall be designated as follows:
The Pierpont Treasury Money Market Fund
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
The Pierpont International Equity Fund
The Pierpont Short Term Bond Fund
The Pierpont U.S. Stock Fund
The Pierpont Diversified Fund
The Pierpont International Bond Fund
The Pierpont Emerging Markets Equity Fund
The Pierpont Emerging Markets Fixed Income Fund
The Pierpont New York Municipal Bond Fund
and shall have the following special and relative
rights:
2. Each Fund shall be authorized to hold cash, invest in securities,
instruments and other properties and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Securities Act of 1933 to the extent pertaining to the offering of
Shares of such Fund. Each Share of a Fund shall be redeemable, shall be
entitled to one vote (or fraction thereof in respect of a fractional share) on
matters on which Shares of the Fund shall be entitled to vote, shall represent
a pro rata beneficial interest in the assets allocated or belonging to the
Fund, and shall be entitled to receive its pro rata share of the net assets of
the Fund upon liquidation of the Fund, all as provided in Section 6.9
<PAGE>
of the Declaration of Trust. The proceeds of sales of Shares of a Fund,
together with any income and gain thereon, less any diminution or expenses
thereof, shall irrevocably belong to that Fund, unless otherwise required by
law.
3. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to the Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated among
the Funds as set forth in Section 6.9 of the Declaration of Trust.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, the Trustees (including any successor Trustees) shall
have the right at any time and from time to time to reallocate assets and
expenses, to change the designation of any Fund now or hereafter created, or
otherwise to change the special and relative rights of any Fund.
IN WITNESS WHEREOF, the undersigned have executed this instrument as
of the 16th day of December, 1993. This instrument may be executed by the
Trustees on separate counterparts but shall be effective only when signed by a
majority of the Trustees.
Frederick S. Addy
/s/ William G. Burns
William G. Burns
/s/ Arthur C. Eschenlauer
Arthur C. Eschenlauer
/s/ Matthew Healey
Matthew Healey
/s/ Michael P. Mallardi
Michael P. Mallardi
JPM10C
<PAGE>
[RECEIVED MAR 28 1994 SECRETARY OF STATE CORPORATION DIVISION]
[MAR 28 1994 OFFICE OF THE CLERK CITY HALL BOSTON, MA 02201]
THE PIERPONT FUNDS
Fourth Amended and Restated Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.001 per share)
Dated as of March 8, 1994
Pursuant to Sections 6.9 and 9.3 of the Declaration of Trust, dated
as of November 4, 1992 (the "Declaration of Trust"), of The Pierpont Funds
(the "Trust"), the Trustees of the Trust hereby amend and restate the Third
Amended and Restated Establishment and Designation of Series appended to the
Declaration of Trust to change the name of The Pierpont New York Municipal
Bond Fund to "The Pierpont New York Total Return Bond Fund", one series of
Shares (as defined in the Declaration of Trust), and to designate three
additional series of Shares, such additional series of Shares together with
the fifteen existing series of Shares totalling eighteen series of Shares
(each a "Fund" and collectively the "Funds") of the Trust.
1. The Funds shall be designated as follows:
The Pierpont Treasury Money Market Fund
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
The Pierpont International Equity Fund
The Pierpont Short Term Bond Fund
The Pierpont U.S. Stock Fund
The Pierpont Diversified Fund
The Pierpont International Bond Fund
The Pierpont Emerging Markets Equity Fund
The Pierpont Emerging Markets Fixed Income Fund
The Pierpont New York Total Return Bond Fund
The Pierpont Asia Growth Fund
The Pierpont Japan Equity Fund
The Pierpont European Equity Fund
and shall have the following special and relative
rights:
2. Each Fund shall be authorized to hold cash, invest in securities,
instruments and other properties and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Securities Act of 1933 to the extent pertaining to the offering of
Shares of such Fund. Each Share of a Fund shall be redeemable, shall be
entitled to one vote (or fraction thereof in respect of a fractional share) on
matters on which Shares of the Fund shall be
<PAGE>
entitled to vote, shall represent a pro rata beneficial interest in the assets
allocated or belonging to the Fund, and shall be entitled to receive its pro
rata share of the net assets of the Fund upon liquidation of the Fund, all as
provided in Section 6.9 of the Declaration of Trust. The proceeds of sales of
Shares of a Fund, together with any income and gain thereon, less any
diminution or expenses thereof, shall irrevocably belong to that Fund, unless
otherwise required by law.
3. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to the Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated among
the Funds as set forth in Section 6.9 of the Declaration of Trust.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, the Trustees (including any successor Trustees) shall
have the right at any time and from time to time to reallocate assets and
expenses, to change the designation of any Fund now or hereafter created, or
otherwise to change the special and relative rights of any Fund.
IN WITNESS WHEREOF, the undersigned have executed this instrument as
of the 8th day of March, 1994. This instrument may be executed by the Trustees
on separate counterparts but shall be effective only when signed by a majority
of the Trustees.
Frederick S. Addy
/s/ William G. Burns
William G. Burns
/s/ Arthur C. Eschenlauer
Arthur C. Eschenlauer
/s/ Matthew Healey
Matthew Healey
/s/ Michael P. Mallardi
Michael P. Mallardi
JPM10D
<PAGE>
Exhibit 11
CONSENTS OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 26 to the registration statement on Form N-1A (the
"Registration Statement") of our reports dated July 25, 1996, 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, 1996 Annual Reports, which are
also incorporated by reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated August 26, 1996, relating to the financial
statements and financial highlights of The Pierpont Diversified Fund and the
financial statements and supplementary data of The Diversified Portfolio
appearing in the June 30, 1996 Annual Report, which is also incorporated by
reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated October 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 Prospectuses 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.
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated December 22, 1995, relating to the financial
statements and financial highlights of The Pierpont Emerging Markets Equity
Fund, The Pierpont Bond Fund and The
<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 Prospectuses 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 Bond
Fund and the financial statements and supplementary data of The New York Total
Return Bond Portfolio appearing in the March 31, 1996 Annual Report, which is
also incorporated by reference into the Registration Statement.
We 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 26, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the report on
Form-SAR dated May 31, 1996 for The Pierpont Money Market Fund and is
qualified in its entirety by reference to such report.
</LEGEND>
<CIK>0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 012
<NAME> THE PIERPONT MONEY MARKET FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-1-1996
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 1955340
<RECEIVABLES> 4
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1955347
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 8476
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1946821
<SHARES-COMMON-STOCK> 1946470
<SHARES-COMMON-PRIOR> 2152017
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 50
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1946871
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 56432
<OTHER-INCOME> 0
<EXPENSES-NET> 2237
<NET-INVESTMENT-INCOME> 54195
<REALIZED-GAINS-CURRENT> 106
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 54301
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 54195
<DISTRIBUTIONS-OF-GAINS> 1157
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6295597
<NUMBER-OF-SHARES-REDEEMED> 6552677
<SHARES-REINVESTED> 51533
<NET-CHANGE-IN-ASSETS> (206598)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1103
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1594
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2237
<AVERAGE-NET-ASSETS> 2108473
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .026
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .026
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE FEBRUARY 29,
1996 SEMI-ANNUAL REPORT FOR THE PIERPONT TAX EXEMPT MONEY MARKET FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI-ANNUAL REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 007
<NAME> THE PIERPONT TAX EXEMPT MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 1,018,519,390
<INVESTMENTS-AT-VALUE> 1,018,286,303
<RECEIVABLES> 0
<ASSETS-OTHER> 29,449
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,018,315,752
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 2,649,850
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,015,926,530
<SHARES-COMMON-STOCK> 15,015,581,650
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (233,087)
<OVERDISTRIBUTION-GAINS> (27,541)
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,015,665,902
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,235,153
<OTHER-INCOME> 0
<EXPENSES-NET> 1,191,853
<NET-INVESTMENT-INCOME> 16,043,300
<REALIZED-GAINS-CURRENT> 25,583
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 16,068,883
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 16,043,300
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,868,602,812
<NUMBER-OF-SHARES-REDEEMED> 1,852,980,387
<SHARES-REINVESTED> 14,949,194
<NET-CHANGE-IN-ASSETS> 30,571,619
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,381,580
<AVERAGE-NET-ASSETS> 976,936,123
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .017
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .017
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE
SEMI-ANNUAL
REPORT DATED APRIL 30, 1996 FOR THE PIERPONT TREASURY MONEY
MARKET FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI-ANNUAL
REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 001
<NAME> THE PIERPONT TREASURY MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-1-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 177525237
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 8218
<ASSETS-OTHER> 34703
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 177568158
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 859519
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 176628869
<SHARES-COMMON-STOCK> 176628869
<SHARES-COMMON-PRIOR> 171060762
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 79770
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 176708639
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5716417
<OTHER-INCOME> 0
<EXPENSES-NET> 265435
<NET-INVESTMENT-INCOME> 5288808
<REALIZED-GAINS-CURRENT> 85638
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5374446
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5288808
<DISTRIBUTIONS-OF-GAINS> 64955
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 990659020
<NUMBER-OF-SHARES-REDEEMED> 989771975
<SHARES-REINVESTED> 4681062
<NET-CHANGE-IN-ASSETS> 5588790
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 59087
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 169386
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 551829
<AVERAGE-NET-ASSETS> 214799516
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.02
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI-ANNUAL
REPORT DATED APRIL 30, 1996 FOR THE PIERPONT SHORT TERM BOND FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI-ANNUAL REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 002
<NAME> THE PIERPONT SHORT TERM BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-1-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 9122802
<INVESTMENTS-AT-VALUE> 9122802
<RECEIVABLES> 4907
<ASSETS-OTHER> 13767
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9407476
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 49654
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9443366
<SHARES-COMMON-STOCK> 957971
<SHARES-COMMON-PRIOR> 1050173
<ACCUMULATED-NII-CURRENT> (475)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (44993)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (40076)
<NET-ASSETS> 9357822
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 276464
<OTHER-INCOME> 0
<EXPENSES-NET> 30475
<NET-INVESTMENT-INCOME> 245989
<REALIZED-GAINS-CURRENT> 26150
<APPREC-INCREASE-CURRENT> (78272)
<NET-CHANGE-FROM-OPS> 193867
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 245989
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 233944
<NUMBER-OF-SHARES-REDEEMED> (337797)
<SHARES-REINVESTED> 11651
<NET-CHANGE-IN-ASSETS> (92202)
<ACCUMULATED-NII-PRIOR> (475)
<ACCUMULATED-GAINS-PRIOR> (71143)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 70085
<AVERAGE-NET-ASSETS> 9000693
<PER-SHARE-NAV-BEGIN> 9.84
<PER-SHARE-NII> .26
<PER-SHARE-GAIN-APPREC> (.07)
<PER-SHARE-DIVIDEND> (.26)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.77
<EXPENSE-RATIO> .67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI-ANNUAL
REPORT DATED APRIL 30, 1996 FOR THE PIERPONT BOND FUND AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH SEMI-ANNUAL REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 003
<NAME> THE PIERPONT BOND FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 142265
<INVESTMENTS-AT-VALUE> 142265
<RECEIVABLES> 30
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 142302
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 108
<TOTAL-LIABILITIES> 108
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 144507
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 136
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (863)
<ACCUM-APPREC-OR-DEPREC> (1586)
<NET-ASSETS> 142193541
<DIVIDEND-INCOME> 16
<INTEREST-INCOME> 4714
<OTHER-INCOME> 0
<EXPENSES-NET> 471
<NET-INVESTMENT-INCOME> 4259
<REALIZED-GAINS-CURRENT> 2109
<APPREC-INCREASE-CURRENT> (6095)
<NET-CHANGE-FROM-OPS> 273
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4256
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18368496
<NUMBER-OF-SHARES-REDEEMED> 19139722
<SHARES-REINVESTED> 3943797
<NET-CHANGE-IN-ASSETS> (809975)
<ACCUMULATED-NII-PRIOR> 132486
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 471
<AVERAGE-NET-ASSETS> 143248
<PER-SHARE-NAV-BEGIN> 10.41
<PER-SHARE-NII> .31
<PER-SHARE-GAIN-APPREC> (.28)
<PER-SHARE-DIVIDEND> (.31)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.13
<EXPENSE-RATIO> .66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE
FEBRUARY 29,
1996 SEMI-ANNUAL REPORT FOR THE PIERPONT TAX EXEMPT BOND FUND AND
IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI-ANNUAL REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 006
<NAME> THE PIERPONT TAX EXEMPT BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 356,101,441
<INVESTMENTS-AT-VALUE> 377,265,678
<RECEIVABLES> 579,865
<ASSETS-OTHER> 1,340
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 377,846,883
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 433,534
<TOTAL-LIABILITIES> 433,534
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 356,257,677
<SHARES-COMMON-STOCK> 31,736,201
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (115,435)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,164,237
<NET-ASSETS> 377,413,349
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,895,456
<OTHER-INCOME> 0
<EXPENSES-NET> 456,167
<NET-INVESTMENT-INCOME> 8,439,289
<REALIZED-GAINS-CURRENT> 457,962
<APPREC-INCREASE-CURRENT> 4,692,382
<NET-CHANGE-FROM-OPS> 13,589,633
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,439,289
<DISTRIBUTIONS-OF-GAINS> 455,297
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 25,407,865
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,107,682
<AVERAGE-NET-ASSETS> 362,045,147
<PER-SHARE-NAV-BEGIN> 11.73
<PER-SHARE-NII> .28
<PER-SHARE-GAIN-APPREC> .17
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .29
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.89
<EXPENSE-RATIO> .61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE REPORT
ON FORM N-SAR DATED MAY 31, 1996 FOR THE PIERPONT EQUITY FUND AND
IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 010
<NAME> THE PIERPONT EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-1-1995
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 330534
<RECEIVABLES> 524
<ASSETS-OTHER> 44
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 331102
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 1088
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 260409
<SHARES-COMMON-STOCK> 14898
<SHARES-COMMON-PRIOR> 13351
<ACCUMULATED-NII-CURRENT> 2921
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 18611
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 48073
<NET-ASSETS> 0
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 6587
<EXPENSES-NET> 1037
<NET-INVESTMENT-INCOME> 5550
<REALIZED-GAINS-CURRENT> 33977
<APPREC-INCREASE-CURRENT> 27374
<NET-CHANGE-FROM-OPS> 66901
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4148
<DISTRIBUTIONS-OF-GAINS> 22307
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3197
<NUMBER-OF-SHARES-REDEEMED> 2905
<SHARES-REINVESTED> 1255
<NET-CHANGE-IN-ASSETS> 1547
<ACCUMULATED-NII-PRIOR> 1519
<ACCUMULATED-GAINS-PRIOR> 6941
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2414
<AVERAGE-NET-ASSETS> 296457
<PER-SHARE-NAV-BEGIN> 19.42
<PER-SHARE-NII> .38
<PER-SHARE-GAIN-APPREC> 4.23
<PER-SHARE-DIVIDEND> (.29)
<PER-SHARE-DISTRIBUTIONS> (1.59)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 22.15
<EXPENSE-RATIO> .81
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED MAY 31, 1996 FOR THE PIERPONT CAPITAL APPRECIATION FUND
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 011
<NAME> THE PIERPONT CAPITAL APPRECIATION FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-1-1995
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 221022
<RECEIVABLES> 316
<ASSETS-OTHER> 17
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 221355
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 435
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 169679
<SHARES-COMMON-STOCK> 8431
<SHARES-COMMON-PRIOR> 8137
<ACCUMULATED-NII-CURRENT> 904
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12974
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 37359
<NET-ASSETS> 220916
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 2590
<EXPENSES-NET> 453
<NET-INVESTMENT-INCOME> 2138
<REALIZED-GAINS-CURRENT> 21807
<APPREC-INCREASE-CURRENT> 35761
<NET-CHANGE-FROM-OPS> 59706
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2045
<DISTRIBUTIONS-OF-GAINS> 22174
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1414
<NUMBER-OF-SHARES-REDEEMED> 2005
<SHARES-REINVESTED> 886
<NET-CHANGE-IN-ASSETS> 295
<ACCUMULATED-NII-PRIOR> 811
<ACCUMULATED-GAINS-PRIOR> 13341
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 700
<AVERAGE-NET-ASSETS> 195091
<PER-SHARE-NAV-BEGIN> 22.02
<PER-SHARE-NII> 3.04
<PER-SHARE-GAIN-APPREC> 4.18
<PER-SHARE-DIVIDEND> .26
<PER-SHARE-DISTRIBUTIONS> 2.78
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.20
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI-ANNUAL
REPORT DATED APRIL 30, 1996 FOR THE PIERPONT INTERNATIONAL EQUITY FUND AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI-ANNUAL REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 004
<NAME> THE PIERPONT INTERNATIONAL EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-1-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 205097
<RECEIVABLES> 123
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 205226
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 153
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 180720
<SHARES-COMMON-STOCK> 17804
<SHARES-COMMON-PRIOR> 17375
<ACCUMULATED-NII-CURRENT> 85
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5363
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18905
<NET-ASSETS> 205073
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 944
<EXPENSES-NET> 330
<NET-INVESTMENT-INCOME> 614
<REALIZED-GAINS-CURRENT> 5441
<APPREC-INCREASE-CURRENT> 18961
<NET-CHANGE-FROM-OPS> 25016
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4122
<DISTRIBUTIONS-OF-GAINS> 5796
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2833
<NUMBER-OF-SHARES-REDEEMED> 3010
<SHARES-REINVESTED> 606
<NET-CHANGE-IN-ASSETS> 429
<ACCUMULATED-NII-PRIOR> 3593
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 330
<AVERAGE-NET-ASSETS> 195304
<PER-SHARE-NAV-BEGIN> 10.68
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 1.38
<PER-SHARE-DIVIDEND> .24
<PER-SHARE-DISTRIBUTIONS> .34
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.52
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED JUNE 30, 1996 FOR THE PIERPONT DIVERSIFIED FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 008
<NAME> THE PIERPONT DIVERSIFIED FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 53208
<INVESTMENTS-AT-VALUE> 26
<RECEIVABLES> 16
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 53250
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 52
<TOTAL-LIABILITIES> 52
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 4354
<SHARES-COMMON-PRIOR> 2000
<ACCUMULATED-NII-CURRENT> 690
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1140
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3539
<NET-ASSETS> 53198
<DIVIDEND-INCOME> 500
<INTEREST-INCOME> 958
<OTHER-INCOME> 0
<EXPENSES-NET> 356
<NET-INVESTMENT-INCOME> 1102
<REALIZED-GAINS-CURRENT> 1956
<APPREC-INCREASE-CURRENT> 2096
<NET-CHANGE-FROM-OPS> 5154
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 830
<DISTRIBUTIONS-OF-GAINS> 1142
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2576
<NUMBER-OF-SHARES-REDEEMED> 392
<SHARES-REINVESTED> 170
<NET-CHANGE-IN-ASSETS> 2354
<ACCUMULATED-NII-PRIOR> 290
<ACCUMULATED-GAINS-PRIOR> 431
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 495
<AVERAGE-NET-ASSETS> 36264
<PER-SHARE-NAV-BEGIN> 11.2
<PER-SHARE-NII> .3
<PER-SHARE-GAIN-APPREC> 1.48
<PER-SHARE-DIVIDEND> .32
<PER-SHARE-DISTRIBUTIONS> .44
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.22
<EXPENSE-RATIO> .98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI-ANNUAL
REPORT DATED APRIL 30, 1996 FOR THE PIERPONT EMERGING MARKETS FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI-ANNUAL REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 005
<NAME> THE PIERPONT EMERGING MARKETS EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-1-1995
<PERIOD-END> APR-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 60643
<RECEIVABLES> 0
<ASSETS-OTHER> 178
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60821
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 51
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 63438
<SHARES-COMMON-STOCK> 5671
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (19)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3784)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1135
<NET-ASSETS> 60770
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 658
<EXPENSES-NET> 466
<NET-INVESTMENT-INCOME> 192
<REALIZED-GAINS-CURRENT> (304)
<APPREC-INCREASE-CURRENT> 6962
<NET-CHANGE-FROM-OPS> 6850
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 368
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2995467
<NUMBER-OF-SHARES-REDEEMED> 2469511
<SHARES-REINVESTED> 31373
<NET-CHANGE-IN-ASSETS> 562329
<ACCUMULATED-NII-PRIOR> 156
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 3480
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 466
<AVERAGE-NET-ASSETS> 55589
<PER-SHARE-NAV-BEGIN> 9.65
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 1.10
<PER-SHARE-DIVIDEND> .07
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.72
<EXPENSE-RATIO> 1.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE ANNUAL REPORT
DATED MARCH 31, 1996 FOR THE PIERPONT NEW YORK TOTAL RETURN BOND FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 013
<NAME> THE PIERPONT NEW YORK TOTAL RETURN BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 49,368,602
<INVESTMENTS-AT-VALUE> 50,589,730
<RECEIVABLES> 3,638
<ASSETS-OTHER> 8,458
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 50,601,826
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 78,920
<TOTAL-LIABILITIES> 78,920
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 49,185,929
<SHARES-COMMON-STOCK> 4,887,998
<SHARES-COMMON-PRIOR> 3,771,960
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 115,849
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,221,128
<NET-ASSETS> 50,522,906
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,319,353
<OTHER-INCOME> 0
<EXPENSES-NET> 335,349
<NET-INVESTMENT-INCOME> 1,984,004
<REALIZED-GAINS-CURRENT> 333,789
<APPREC-INCREASE-CURRENT> 619,489
<NET-CHANGE-FROM-OPS> 2,937,282
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,984,004
<DISTRIBUTIONS-OF-GAINS> 114,843
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,595,286
<NUMBER-OF-SHARES-REDEEMED> 645,002
<SHARES-REINVESTED> 165,754
<NET-CHANGE-IN-ASSETS> 12,385,780
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 353,439
<AVERAGE-NET-ASSETS> 44,786,000
<PER-SHARE-NAV-BEGIN> 10.11
<PER-SHARE-NII> .46
<PER-SHARE-GAIN-APPREC> .26
<PER-SHARE-DIVIDEND> .46
<PER-SHARE-DISTRIBUTIONS> .03
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.34
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE REPORT
ON FORM N-SAR DATED JUNE 30, 1996 FOR THE PIERPONT EUROPEAN
EQUITY FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 015
<NAME> THE PIERPONT EUROPEAN EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 15
<RECEIVABLES> 0
<ASSETS-OTHER> 31
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 46
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31
<TOTAL-LIABILITIES> 31
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15
<SHARES-COMMON-STOCK> 1
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 15
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> .31
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.33
<EXPENSE-RATIO> 1.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE REPORT
ON FORM N-SAR DATED JUNE 30, 1996 FOR THE PIERPONT JAPAN EQUITY
FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 016
<NAME> THE PIERPONT JAPAN EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 338
<RECEIVABLES> 0
<ASSETS-OTHER> 31
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 369
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31
<TOTAL-LIABILITIES> 31
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 345
<SHARES-COMMON-STOCK> 35
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (5)
<NET-ASSETS> 338
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> (2)
<APPREC-INCREASE-CURRENT> (5)
<NET-CHANGE-FROM-OPS> (7)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 35
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 35
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 17
<AVERAGE-NET-ASSETS> 258
<PER-SHARE-NAV-BEGIN> 10
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> (.34)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.65
<EXPENSE-RATIO> 1.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED JUNE 30, 1996 FOR THE PIERPONT ASIA GROWTH FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE PIERPONT FUNDS
<SERIES>
<NUMBER> 014
<NAME> THE PIERPONT ASIA GROWTH FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 78
<RECEIVABLES> 0
<ASSETS-OTHER> 31
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 109
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 31
<TOTAL-LIABILITIES> 31
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 77
<SHARES-COMMON-STOCK> 7
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1
<NET-ASSETS> 78
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 1
<REALIZED-GAINS-CURRENT> 1
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 8
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16
<AVERAGE-NET-ASSETS> 16
<PER-SHARE-NAV-BEGIN> 10
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> (.06)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.95
<EXPENSE-RATIO> 1.6
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>