As filed with the Securities and Exchange Commission on December 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. 30
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 31
The JPM Pierpont Funds
(formerly, 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):
[ ] Immediately upon filing pursuant to paragraph (b)
[X] on December 27, 1996 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,
1996) on October 29, 1996; Treasury Money Market, Short Term Bond, Bond,
Emerging Markets Equity and International Equity Funds (for their fiscal years
ended October 31, 1996) on December 20, 1996; 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;
<PAGE>
Equity and Capital Appreciation Funds (for their fiscal years ended May 31,
1996) on July 30, 1996; and Diversified Fund (for its fiscal year ended
June 30, 1996) on August 28, 1996. The Registrant has not filed Rule 24f-2
notices with respect to its International Opportunities Fund (for its fiscal
year ended November 30, 1996) because the Registrant has not sold any
securities to the public with respect to that series during the fiscal year
indicated. The Registrant expects to file Rule 24f-2 notices with respect to
its European Equity, Japan Equity and Asia Growth Funds (for their fiscal
years ending December 31, 1996) on or before February 28, 1997 and
International Opportunities Fund (for its fiscal year ending November 30,
1997) on or before January 29, 1998.
The Money Market Portfolio, The Tax Exempt Money Market Portfolio, The
Treasury Money Market Portfolio, The Short Term Bond Portfolio, The U.S. Fixed
Income Portfolio, The Tax Exempt Bond Portfolio, The Selected U.S. Equity
Portfolio, The U.S. Small Company Portfolio, The Non-U.S. Equity Portfolio,
The Diversified Portfolio, The Emerging Markets Equity Portfolio, The New York
Total Return Bond Portfolio and The Series Portfolio have also executed this
Registration Statement.
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THE JPM PIERPONT FUNDS
(ALL FUNDS EXCEPT INTERNATIONAL OPPORTUNITIES FUND)
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; Distributor;
Co-Administrator; Services Agent; Custodian and Transfer Agent;
Shareholder Servicing; Independent Accountants; Expenses.
17. BROKERAGE ALLOCATION AND OTHER PRACTICES: Portfolio Transactions.
18. CAPITAL STOCK AND OTHER SECURITIES: Massachusetts Trust; Description of
Shares.
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19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED: Net Asset
Value; Purchase of Shares; Redemption of Shares; Exchange of Shares;
Dividends and Distributions.
20. TAX STATUS: Taxes.
21. UNDERWRITERS: 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>
THE JPM PIERPONT FUNDS
(INTERNATIONAL OPPORTUNITIES FUND)
CROSS-REFERENCE SHEET
(As Required by Rule 495)
PART A ITEM NUMBER: Prospectus Headings.
1. COVER PAGE: Cover Page.
2. SYNOPSIS: Who May Be a Suitable Investor in the Fund.
3. CONDENSED FINANCIAL INFORMATION: Not Applicable.
4. GENERAL DESCRIPTION OF REGISTRANT: Information About the Master-Feeder
Structure; Who May Be a Suitable Investor in the Fund; Investment
Objective and Policies; Additional Investment Practices and Risks;
Organization.
5. MANAGEMENT OF THE FUND: Management of the Fund and Portfolio;
Organization; Shareholder Inquiries and Services; Additional
Information.
5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE: Not Applicable.
6. CAPITAL STOCK AND OTHER SECURITIES: Information About the Master-Feeder
Structure; Shareholder Inquiries and Services; Net Asset Value; Taxes;
Dividends and Distributions; Organization.
7. PURCHASE OF SECURITIES BEING OFFERED: Purchase of Shares; Exchange of
Shares; Who May Be a Suitable Investor in the Fund; Dividends and
Distributions; Net Asset Value.
8. REDEMPTION OR REPURCHASE: Redemption of Shares; Exchange of Shares; Net
Asset Value.
9. PENDING LEGAL PROCEEDINGS: Not Applicable.
PART B ITEM NUMBER: Statement of Additional Information Headings.
10. COVER PAGE: Cover Page.
11. TABLE OF CONTENTS: Table of Contents.
12. GENERAL INFORMATION AND HISTORY: General.
13. INVESTMENT OBJECTIVES AND POLICIES: Investment Objectives and Policies;
Additional Investments; Investment Restrictions; Quality and
Diversification Requirements; Appendices A, B and C.
14. MANAGEMENT OF THE FUND: Trustees and Officers.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES: Description of
Shares.
16. INVESTMENT ADVISORY AND OTHER SERVICES: Investment Advisor; Distributor;
Co-Administrator; Services Agent; Custodian and Transfer Agent;
Shareholder Servicing; Independent Accountants; Expenses.
17. BROKERAGE ALLOCATION AND OTHER PRACTICES: Portfolio Transactions.
18. CAPITAL STOCK AND OTHER SECURITIES: Massachusetts Trust; Description of
Shares.
<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: 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. 30 (the "Amendment") to the
Registrant's registration statement on Form N-1A (File No. 33-54632) (the
"Registration Statement") is being filed to (i) update the Registrant's
disclosure in the Prospectuses relating to each of The JPM Pierpont Tax Exempt
Money Market Fund and The JPM Pierpont Tax Exempt Bond Fund and Statement of
Additional Information with financial information for the fiscal year ended
August 31, 1996 and (ii) make non-material changes, respond to SEC comments on
the Prospectus relating to The JPM Pierpont International Opportunities Fund
and the Statement of Additional Information and file final forms thereof in
the Registration Statement. 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>
<PAGE>
PROSPECTUS
THE JPM PIERPONT INTERNATIONAL OPPORTUNITIES FUND
60 State Street
Boston, Massachusetts 02109
For information call (800) 521-5411
The investment objective of The JPM Pierpont International Opportunities Fund
(the "Fund") is to provide high total return from a portfolio of equity
securities of foreign companies in developed and, to a lesser extent, developing
markets. Total return consists of realized and unrealized capital gains and
losses plus income.
THE FUND SEEKS TO ACHIEVE ITS OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE
ASSETS IN THE INTERNATIONAL OPPORTUNITIES PORTFOLIO (THE "PORTFOLIO"), WHICH HAS
THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND INVESTS IN THE PORTFOLIO
THROUGH A TWO-TIER MASTER-FEEDER INVESTMENT FUND STRUCTURE. SEE INFORMATION
ABOUT THE MASTER-FEEDER STRUCTURE ON PAGE 2. THE PORTFOLIO INVESTS PRIMARILY IN
COMMON STOCKS AND OTHER EQUITY SECURITIES OF NON-U.S. COMPANIES IN DEVELOPED
MARKETS AND, TO A LESSER EXTENT, COMPANIES IN DEVELOPING MARKETS.
The Fund is a series of The JPM Pierpont Funds, an open end management
investment company organized as a Massachusetts business trust (the
"Trust").
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 should know before investing and should be retained for
future reference. Additional information has been filed with the Securities and
Exchange Commission in a Statement of Additional Information dated December 27,
1996, as amended or 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 or by calling (800) 221-7930. The Fund's
Distributor is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts 02109, Attention: The JPM Pierpont Funds.
SHARES OF 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 GOVERNMENT AGENCY. THE VALUE OF AN INVESTMENT
IN THE FUND MAY FLUCTUATE AND MAY, AT THE TIME IT IS REDEEMED, BE HIGHER OR
LOWER THAN THE AMOUNT ORIGINALLY INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER 27, 1996
<PAGE>
TABLE OF CONTENTS
Page
Expense Table 1
Information About the Master-Feeder Structure 2
Who May Be a Suitable Investor in the Fund 2
Investment Objective and Policies 2
Additional Investment Practices and Risks 3
Management of the Fund and Portfolio 8
Shareholder Inquiries and Services 10
Purchase of Shares 10
Redemption of Shares 12
Exchange of Shares 12
Dividends and Distributions 12
Net Asset Values 13
Taxes 13
Organization 14
Additional Information 14
<PAGE>
THE JPM PIERPONT INTERNATIONAL OPPORTUNITIES FUND
EXPENSE TABLE
An investment in the Fund is not subject to any sales charges or redemption
fees. Operating expenses described below include the expenses of both the Fund
and the Portfolio. The Trustees believe that the Fund's operating expenses are
approximately equal to or less than would be the case if the Fund invested its
assets directly in securities instead of investing all of its investable assets
in the Portfolio.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases(1) . . . . . . None
Sales Charge Imposed on Reinvested Distributions . . . . None
Deferred Sales Load . . . . . . . . . . . . . . . . . . None
Redemption Fees . . . . . . . . . . . . . . . . . . . . None
Exchange Fee . . . . . . . . . . . . . . . . . . . . . . None
ANNUAL OPERATING EXPENSES(2)
Advisory Fees . . . . . . . . . . . . . . . . . . . . . 0.60%
Rule 12b-1 Fees . . . . . . . . . . . . . . . . . . . . None
Other Expenses (after expense limitation) . . . . . . . 0.60%
----
Total Operating Expenses (after expense limitation) . . 1.20%
====
- ---------------------------------------------
(1) Certain Eligible Institutions (defined below) may impose fees in connection
with the purchase of the Fund's shares through such institutions.
(2) These expenses are based on the estimated expenses and estimated average net
assets for the Fund's first fiscal year and through March 30, 1998, after
applicable expense limitation. Without such expense limitation, the estimated
Other Expenses and Total Operating Expenses would be equal on an annual basis to
0.79% and 1.39%, respectively, of the average daily net assets of the Fund.
EXAMPLE
An investor would pay the following expenses on a hypothetical $1,000
investment, assuming a 5% annual return and redemption at the end of each time
period. (The Fund's minimum initial investment is greater than $1,000.)
1 Year . . . . . . . . . . . . . . . . . . . . . . . . . $12
3 Years . . . . . . . . . . . . . . . . . . . . . . . . $38
The above expense table is designed to assist investors in understanding the
various estimated direct and indirect costs and expenses that investors in the
Fund bear. For a complete description of contractual arrangements and other
expenses applicable to the Fund and the Portfolio, see Management of the Fund
and Portfolio and Shareholder Inquiries and Services -- Shareholder Servicing.
THE EXAMPLE IS INCLUDED SOLELY FOR ILLUSTRATIVE PURPOSES AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF FUTURE PERFORMANCE OR EXPENSES. ACTUAL EXPENSES
MAY BE MORE OR LESS THAN THOSE SHOWN.
1
<PAGE>
INFORMATION ABOUT THE MASTER-FEEDER STRUCTURE
The Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio, which has an identical investment objective.
The Fund is a feeder fund and the Portfolio is the master fund in a so-called
master-feeder structure.
In addition to the Fund, other feeder funds may invest in the Portfolio, and
information about these other feeder funds is available from the Fund's
Distributor. The other feeder funds invest in the Portfolio on the same terms as
the Fund and bear a proportionate share of the Portfolio's expenses. The other
feeder funds may sell shares on different terms and under a different pricing
structure than the Fund, which may produce different performance results.
There are certain risks associated with an investment in a master-feeder
structure. Large scale redemptions by other feeder funds in the Portfolio may
reduce the diversification of the Portfolio's investments, reduce economies of
scale and increase the Portfolio's operating expenses. If the Board of Trustees
of the Portfolio approves a change to the investment objective of the Portfolio
that is not approved by the Fund's Board of Trustees, the Fund would be required
to withdraw its investment in the Portfolio and engage the services of an
investment advisor or find a substitute master fund. Withdrawal of the Fund's
interest in the Portfolio might cause the Fund to incur expenses it would not
otherwise be required to pay.
If the Fund is requested to vote on a matter affecting the Portfolio, the Fund
will call a meeting of its shareholders to vote on the matter. The Fund will
vote on any matter at the meeting of the Portfolio's investors in the same
proportion that the Fund's shareholders voted on the matter. The Fund will vote
the shares held by Fund shareholders who do not vote in the same proportion as
the shares of Fund shareholders who do vote.
WHO MAY BE A SUITABLE INVESTOR IN THE FUND
The Fund is designed for long-term investors who want to invest in an actively
managed portfolio of common stocks and other equity securities of non-U.S.
companies in developed and, to a lesser extent, developing markets. Investments
in issuers in developing or emerging markets may be considered speculative and
involve risks not associated with investments in securities of U.S. issuers. An
investment in the Fund, therefore, may be more volatile than an investment in a
fund investing only in more developed world markets. THE FUND DOES NOT REPRESENT
A COMPLETE INVESTMENT PROGRAM NOR IS THE FUND SUITABLE FOR ALL INVESTORS.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide high total return from a portfolio
of equity securities of foreign companies in developed and, to a lesser extent,
developing markets. Total return consists of realized and unrealized capital
gains and losses plus income. The Fund seeks to achieve its objective by
investing all of its investable assets in the Portfolio, which has the same
investment objective as the Fund. The Portfolio invests primarily in common
stocks and other equity securities of non-U.S. companies in developed markets
and, to a lesser extent, companies in developing markets.
PRIMARY INVESTMENTS. In normal circumstances, substantially all and at least 65%
of the value of the Portfolio's total assets are invested in equity securities
of foreign issuers. Equity securities include common stocks, preferred stocks,
warrants, rights, convertible securities, trust certificates, limited
partnership interests and equity participations. The Portfolio's assets are
invested in securities of issuers located in at least three foreign
countries.
2
<PAGE>
The Portfolio's equity investments may not pay dividends or carry voting rights.
The Portfolio's primary equity investments are common stocks of established
companies based in developed countries outside the United States. However, the
Portfolio will also invest in equity securities of issuers located in developing
countries or "emerging markets." 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 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. The
Portfolio will focus its emerging market investments in those countries which it
believes have strongly developing economies and in which the markets are
becoming more sophisticated. An issuer 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. See Additional Investment Practices and Risks.
The Portfolio's investments are primarily quoted in foreign currencies but it
may also invest in securities quoted in the U.S. dollar or multinational
currency units such as the ECU. Through the use of forward foreign currency
exchange contracts, the Advisor actively manages the Portfolio's currency
exposure in developed countries. For further information on foreign currency
exchange transactions, see Additional Investment Practices and Risks.
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 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 Practices and Risks.
HOW INVESTMENTS ARE SELECTED. The Portfolio seeks to achieve its investment
objective through a combination of country allocation, stock selection and
currency management. The Advisor uses a disciplined portfolio construction
process to seek to enhance returns and reduce volatility in the market value of
the Portfolio. To allocate the Portfolio within developed and developing
markets, the Advisor uses fundamental research, quantitative valuation
techniques and experienced judgment to identify those countries whose equity
prices appear most attractive relative to future earnings prospects. Based on
this analysis, the Advisor allocates the Portfolio's assets among countries
emphasizing those countries with the highest expected returns consistent with
overall portfolio liquidity. Under normal circumstances, the Advisor expects
that approximately 80% of the value of the Portfolio's equity investments will
be in companies in developed markets and 20% in companies in emerging markets.
The Advisor may vary this allocation in a manner consistent with the Portfolio's
investment objective and current market conditions.
Using a variety of quantitative valuation techniques and based on analysts'
industry expertise, issuers in each country are ranked within industrial sectors
according to their relative value. Based on this valuation, the Advisor selects
the issuers which appear the most attractive for the Portfolio. The Portfolio
will be diversified across industrial sectors in each country.
3
<PAGE>
The Advisor manages the 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 Short-Term
Trading below.
ADDITIONAL INVESTMENT PRACTICES AND RISKS
INVESTING IN FOREIGN SECURITIES. Investing in the securities of foreign issuers
involves risks that are not typically associated with investing in U.S.
dollar-denominated securities of domestic issuers. Investments in foreign
issuers may be affected by changes in currency rates, changes in foreign or U.S.
laws or restrictions applicable to such investments and in exchange control
regulations (E.G., currency blockage). A decline in the exchange rate of the
currency (I.E., weakening of the currency against the U.S. dollar) in which a
portfolio security is quoted or denominated relative to the U.S. dollar would
reduce the value of the portfolio security. Commissions on transactions in
foreign securities may be higher than those for similar transactions on domestic
stock markets. In addition, clearance and settlement procedures may be different
in foreign countries and, in certain markets, such procedures have on occasion
been unable to keep pace with the volume of securities transactions, thus making
it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to U.S. issuers.
There may be less publicly available information about a foreign issuer than
about a U.S. issuer. In addition, there is generally less government regulation
of foreign markets, companies and securities dealers than in the United States.
Foreign securities markets may have substantially less volume than U.S.
securities markets and securities of many foreign issuers are less liquid and
more volatile than securities of comparable U.S. issuers. Furthermore, with
respect to certain foreign countries, there is a possibility of nationalization,
expropriation or confiscatory taxation, imposition of withholding taxes on
dividend or interest payments, limitations on the removal of funds or other
assets, political or social instability or diplomatic developments which could
affect investments in those countries.
INVESTING IN EMERGING MARKETS. Although the Portfolio invests primarily in
securities of established issuers based in developed foreign countries, it will
also invest in securities of issuers in emerging markets countries, including
issuers in Asia, Eastern Europe, Latin and South America and Africa. 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 to a heightened degree.
These heightened risks include (i) greater risks of expropriation, confiscatory
taxation, nationalization, and less social, political and economic stability;
(ii) limitations on daily price changes and the small current size of the
markets for securities of emerging markets issuers and the currently low or
nonexistent volume of trading, resulting in lack of liquidity and in price
volatility; (iii) certain national policies which may restrict the Portfolio's
investment opportunities including limitations on aggregate holdings by foreign
investors and 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.
CURRENCY RISKS. The U.S. dollar value of foreign securities in a foreign
currency will vary with changes in currency exchange rates, which can be
volatile. Accordingly, changes in the value of these currencies against the U.S.
dollar will result in corresponding changes in the U.S. dollar value of the
Portfolio's assets quoted in those currencies. Exchange rates are generally
affected by the forces of supply and demand in the international currency
markets, the relative merits of investing in different countries and the
intervention or failure to intervene of U.S. or
4
<PAGE>
foreign governments and central banks. Some countries in emerging markets
also may have managed currencies, which are not free floating against the U.S.
dollar. In addition, emerging markets are subject to the risk of restrictions
upon the free conversion of their currencies into other currencies. Any
devaluations relative to the U.S. dollar in the currencies in which the
Portfolio's securities are quoted would have a detrimental impact on the Fund's
net asset value.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Portfolio either enters into
currency transactions on a spot (I.E., cash) basis at the prevailing currency
exchange rate or uses forward contracts to purchase or sell foreign currencies
at a future date. A forward foreign currency exchange contract is an obligation
by the Portfolio to purchase or sell a specific currency at a future date at a
predetermined price. 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. 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 (i) hedge against a change in foreign currency exchange rates that
would cause a decline in the value of existing investments quoted in a foreign
currency or (ii) manage its currency exposure to selected countries. To do this,
the Portfolio would enter into a forward contract to sell the foreign currency
in which the investment is quoted in exchange for U.S. dollars or in exchange
for another foreign currency.
Although these transactions are intended to minimize the risk of loss due to a
decline in the value of the hedged currency, at the same time they limit any
potential gain that might be realized should the value of the hedged currency
increase. In addition, forward contracts that convert a foreign currency into
another foreign currency will cause the Portfolio to assume the risk of
fluctuations in the value of the currency purchased against the hedged currency
and the U.S. dollar. The precise matching of the forward contract amounts and
the value of the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of such securities between the date
the forward contract is entered into and the date it matures. The projection of
currency market movements is extremely difficult, and the successful execution
of a hedging strategy is highly uncertain.
DEPOSITORY RECEIPTS. Depository receipts are typically issued by a U.S. or
foreign bank or trust company and evidence ownership of underlying securities of
a U.S. or foreign issuer. Unsponsored programs are organized independently and
without the cooperation of the issuer of the underlying securities. As a result,
available information concerning the issuer may not be as current as for
sponsored depositary instruments, and their prices may be more volatile than if
they were sponsored by the issuers of the underlying securities.
WARRANTS AND CONVERTIBLE SECURITIES. Warrants acquired by the Portfolio entitle
it to buy common stock from the issuer at a specified price and time. Warrants
are subject to the same market risks as stocks, but may be more volatile in
price. The Portfolio's investment in warrants will not entitle it to receive
dividends or exercise voting rights and will become worthless if the warrants
cannot be profitably exercised before their expiration dates. Convertible debt
securities and preferred stock entitle the Portfolio to acquire the issuer's
stock by exchange or purchase for a predetermined rate. Convertible securities
are subject both to the credit and interest rate risks associated with fixed
income securities and to the stock market risk associated with equity
securities.
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INVESTMENTS IN OTHER INVESTMENT COMPANIES. The Portfolio is permitted to invest
up to 10% of its total assets in shares of investment companies and up to 5% of
its total assets in any one investment company as long as that investment does
not represent more than 3% of the total voting stock of the acquired investment
company. Investments in the securities of other investment companies may involve
duplication of advisory fees and other expenses. Certain emerging markets are
closed to investment by foreigners. The Portfolio may be able to invest in
issuers in certain emerging markets primarily through specifically authorized
investment funds.
RESTRICTED AND ILLIQUID SECURITIES. The Portfolio may invest up to 15% of its
net assets in illiquid securities, including certain restricted and private
placement securities. 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 eligible for resale to institutional
investors without registration under the Securities Act of 1933. 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.
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. Under normal circumstances, the
Portfolio will purchase money market instruments to invest temporary cash
balances or to maintain liquidity to meet redemptions. However, the Portfolio
may also invest in money market instruments without limitation as a temporary
defensive measure taken in the Advisor's judgement during, or in anticipation
of, adverse market conditions. These money market instruments include
obligations issued or guaranteed by the U.S. Government or any of its agencies
or instrumentalities, any foreign government or any of its political
subdivisions, commercial paper, bank obligations, repurchase agreements and
other debt obligations of U.S. and foreign issuers. If a repurchase agreement
counterparty defaults on its obligations, the Portfolio may, under some
circumstances, be limited or delayed in disposing of the repurchase agreement
collateral to recover its investment.
WHEN-ISSUED AND FORWARD COMMITMENT TRANSACTIONS. The Portfolio may purchase
when-issued securities and enter into other forward commitments to purchase or
sell securities. The value of securities purchased on a when-issued or forward
commitment basis may decline between the purchase date and the settlement date.
FUTURES AND OPTIONS TRANSACTIONS. The Portfolio may enter into derivative
contracts to hedge against fluctuations in securities prices, changes in
interest rates or as a substitute for the purchase or sale of securities. The
Portfolio may also use derivative contracts for risk management purposes. See
Risk Management in the Statement of Additional Information. The Portfolio may
purchase and sell (write) exchange traded and over-the-counter put and call
options on securities and securities indexes, purchase and sell futures
contracts on securities and securities indexes and purchase and sell (write) put
and call options on futures contracts on securities and securities indexes. Some
options and futures strategies, including selling futures contracts, buying puts
and writing calls, tend to hedge the Portfolio's investments against price
fluctuations. Other strategies, including buying futures contracts, writing puts
and buying calls, tend to increase market exposure. Options and futures
contracts may be combined with each other in order to adjust the risk and return
characteristics of the Portfolio's overall strategy in a manner consistent with
the Portfolio's objective and policies.
All of the Portfolio's transactions in derivative contracts involve a risk of
loss or depreciation due to unanticipated adverse changes in securities prices.
The Portfolio may incur liabilities to a counterparty in connection with
transactions in futures contracts and the writing of options that exceeds the
Portfolio's initial investment. The
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<PAGE>
Portfolio may also lose the entire premium paid for purchased options that
expire before they can be profitably exercised by the Portfolio. In addition,
the Portfolio incurs transaction costs in opening and closing positions in
derivative contracts.
Derivative contracts may sometimes increase or leverage the Portfolio's exposure
to a particular market risk thereby increasing the price volatility of the
Portfolio. The Portfolio is required to offset the leverage inherent in
derivative contracts by maintaining a segregated account consisting of cash or
liquid securities, by holding offsetting portfolio securities or contracts or by
covering written options.
The Portfolio's success in using derivative contracts to hedge portfolio assets
depends on the degree of price correlation between the derivative contract and
the hedged asset. Imperfect correlation may be caused by several factors,
including temporary price disparities among the trading markets for the
derivative contract, the assets underlying the derivative contract and the
Portfolio's assets.
During periods of extreme market volatility, a commodity or options exchange may
suspend or limit trading in an exchange-traded derivative contract, which may
make the contract temporarily illiquid and difficult to price. The Portfolio's
ability to terminate over-the-counter derivative contracts may depend on the
cooperation of the counterparties to such contracts. For thinly traded
derivative contracts, the only source of price quotations may be the selling
dealer or counterparty. In addition, derivative securities and over-the-counter
derivative contracts involve a risk that the issuer or counterparty will fail to
perform its contractual obligations.
The Portfolio will not engage in a transaction in futures or options on futures
for risk management purposes if, immediately thereafter, the sum of initial
margin deposits and premiums required to establish risk management positions in
futures contracts and options on futures would exceed 5% of the Portfolio's net
assets.
PORTFOLIO SECURITIES LOANS. The Portfolio may lend portfolio securities with a
value up to one-third of its total assets. Each loan must be fully
collateralized by cash or other eligible assets. The Portfolio may pay
reasonable fees in connection with securities loans. The Advisor will evaluate
the creditworthiness of prospective institutional borrowers and monitor the
adequacy of the collateral to reduce the risk of default by borrowers.
BORROWING AND REVERSE REPURCHASE AGREEMENTS. The Portfolio may (1) borrow money
from banks solely for temporary or emergency (but not for leverage) purposes and
(2) enter into reverse repurchase agreements for any purpose. The aggregate
amount of such borrowings and reverse repurchase agreements may not exceed
one-third of the Portfolio's total assets less liabilities (other than
borrowings). For the purposes of the Investment Company Act of 1940 (the "1940
Act"), reverse repurchase agreements are considered a form of borrowing by the
Portfolio and, therefore, a form of leverage. Leverage may cause any gains or
losses of the Portfolio to be magnified.
SHORT-TERM TRADING. The Portfolio may sell a portfolio security without regard
to the length of time such security has been held if, in the Advisor's view, the
security meets the criteria for disposal. The annual portfolio turnover rate of
the Portfolio is generally not expected to exceed 100%. A high portfolio
turnover rate involves higher costs to the Portfolio in the form of dealer
spreads and brokerage commissions. This policy is subject to certain
requirements for qualification of the Fund as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the "Code").
INVESTMENT POLICIES AND RESTRICTIONS. Except as otherwise stated in this
Prospectus or the Statement of Additional Information, the Fund's and the
Portfolio's investment objective, policies and restrictions are not
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<PAGE>
fundamental and may be changed without shareholder approval. The Portfolio
is diversified and therefore may not, with respect to 75% of its total assets
(1) invest more than 5% of its total assets in the securities of any one issuer,
other than U.S. Government securities, or (2) acquire more than 10% of the
outstanding voting securities of any one issuer. The Portfolio will not
concentrate (invest 25% or more of its total assets) in the securities of
issuers in any one industry, including any one foreign government.
MANAGEMENT OF THE FUND AND PORTFOLIO
TRUSTEES. The Fund is a series of the Trust, and the Portfolio is a subtrust of
The Series Portfolio (the "Portfolio Trust"). The Trustees of the Trust and the
Portfolio Trust decide upon matters of general policy and review the actions of
Morgan and other service providers. The Trustees of the Trust and the Portfolio
Trust are identified below. A majority of the non-interested Trustees have
adopted written procedures to deal with any potential conflicts of interest that
may arise because the same persons are Trustees of both the Trust and the
Portfolio Trust.
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 of
the Trust and the Portfolio Trust; Chairman,
Pierpont Group, Inc.
Michael P. Mallardi . . . . . . Former Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast
Group
ADVISOR. The Fund has not retained the services of an investment advisor 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 provides investment advice and portfolio
management services to the Portfolio. Subject to the supervision of the
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.
Morgan, with principal offices at 60 Wall Street, New York, New York 10260, is a
New York trust company that 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 advisor to individual
and institutional clients with combined assets under management of over $197
billion (of which the Advisor advises over $30 billion).
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. For
foreign equities, the process also utilizes country exposure and for developed
countries, currency management. Morgan believes that the market price of a
security will, over time, move towards its fundamental value, notwithstanding
short-term fluctuations in price. Morgan has managed international equity
securities since 1974 and emerging markets equity securities since 1990.
8
<PAGE>
The following persons have been primarily responsible for the day-to-day
management and implementation of Morgan's investment process for the Portfolio
since its inception: Paul A. Quinsee, Vice President (employed by Morgan since
February 1992, previously Vice President, Citibank N.A. as a portfolio manager
of international equity investments); and Rudi Leuthold, Managing Director
(employed by Morgan since prior to 1992 as a portfolio manager of international
equity investments).
As compensation for the services rendered and related expenses borne by Morgan
under its 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.
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. Pursuant to Co-Administration Agreements with the Trust and
the Portfolio Trust, Funds Distributor, Inc. ("FDI") serves as the
Co-Administrator for the Fund and the Portfolio. FDI (i) provides office space,
equipment and clerical personnel for maintaining the organization and books and
records of the Fund and the Portfolio; (ii) provides officers for the Trust and
the Portfolio Trust; (iii) prepares and files documents required for
notification of state securities administrators; (iv) reviews and files
marketing and sales literature; (v) files Portfolio regulatory documents and
mails Portfolio communications to Trustees and investors; and (vi) maintains
related books and records.
For its services under the Co-Administration Agreements, each of the Fund and
the Portfolio has agreed to pay FDI fees equal to its allocable share of an
annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the Fund or the Portfolio is based on the ratio of its net
assets to the aggregate net assets of the Trust, the Portfolio Trust and certain
other registered investment companies subject to similar agreements with
FDI.
ADMINISTRATIVE SERVICES AGENT. Pursuant to Administrative Services Agreements
with the Trust and the Portfolio Trust, Morgan provides administrative and
related services to the Fund and the Portfolio, including services related to
tax compliance, preparation of financial statements, calculation of performance
data, oversight of service providers and certain regulatory and Board of
Trustees matters.
Under the Administrative Services Agreements, each of the Fund and the Portfolio
has agreed to pay Morgan fees equal to its allocable share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate net
assets of the Portfolio, the other portfolios in which series of the Trust or
The JPM Institutional Funds invest and JPM Series Trust in accordance with the
following annual schedule: 0.09% on the first $7 billion of their aggregate
average daily net assets and 0.04% of their average daily net assets in excess
of $7 billion, less the complex-wide fees payable to FDI.
DISTRIBUTOR. FDI, a registered broker-dealer, also serves as the Distributor of
shares of the Fund. FDI is a wholly owned indirect subsidiary of Boston
Institutional Group, Inc. FDI's principal business address is 60 State Street,
Suite 1300, Boston, Massachusetts 02109.
FUND SERVICES AGREEMENT. Pursuant to Fund Services Agreements with the Trust and
the Portfolio Trust, Pierpont Group, Inc. ("PGI"), 461 Fifth Avenue, New York,
New York 10017, assists the Trustees in exercising their overall supervisory
responsibilities for the affairs of the Trust and the Portfolio Trust. PGI
provides these services for a fee approximating its reasonable cost.
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<PAGE>
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company ("State
Street"), 225 Franklin Street, Boston, Massachusetts 02110, serves as the
custodian and fund accounting agent for the Fund and the Portfolio and as the
Fund's transfer and dividend disbursing agent. State Street keeps the books of
account for the Fund and the Portfolio.
EXPENSES. In addition to the fees payable to the service providers
identified above, the Fund and the Portfolio are responsible for usual and
customary expenses associated with their respective operations. These include,
among other things, organization expenses, legal fees, audit and accounting
expenses, insurance costs, the compensation and expenses of the Trustees,
interest, taxes and extraordinary expenses (such as for litigation). For the
Fund, such expenses also include printing and mailing reports, notices and proxy
statements to shareholders and registration fees under federal and state
securities laws. For the Portfolio, such expenses also include registration fees
under foreign securities laws and brokerage commissions.
Morgan has agreed that it will, at least through March 30, 1998, maintain the
Fund's total operating expenses (which includes expenses of the Fund and the
Portfolio) at the annual rate of 1.20% of the Fund's average daily net assets.
This expense limitation does not cover extraordinary expenses during the
period.
SHAREHOLDER INQUIRIES AND SERVICES
Shareholders may call J.P. Morgan Funds Services at (800) 521-5411 for
information about the Fund and assistance with shareholder transactions.
SHAREHOLDER SERVICING. Under a shareholder servicing agreement with the Trust,
Morgan, acting directly or through an agent (designated as an Eligible
Institution), provides account administration and personal and account
maintenance services to Fund shareholders. These services include assisting in
the maintenance of accurate account records; processing orders to purchase and
redeem shares of the Fund; and responding to shareholder inquiries. The Fund has
agreed to pay Morgan a fee for these services at an annual rate of 0.25% of the
average daily net assets of the Fund.
The Fund may be sold to or through Eligible Institutions, including financial
institutions and broker-dealers, that may be paid fees by Morgan or its
affiliates for services provided to their clients that invest in the Fund. See
Eligible Institutions. Organizations that provide recordkeeping or other
services to certain employee benefit or retirement plans that include the Fund
as an investment alternative may also be paid a fee.
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 the 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
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<PAGE>
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.
MINIMUM INVESTMENT REQUIREMENTS. The Fund requires a minimum initial investment
of $100,000, except that for investors who were shareholders of another JPM
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 certain investors
including investors for whom the Advisor is a fiduciary, who are employees of
the Advisor, who maintain related accounts with the Fund, other JPM Pierpont
Funds or with the Advisor, who make investments for a group of clients, such as
financial advisors, trust companies and their investment advisors, or who
maintain retirement accounts with the Fund.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value 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 Fund shares, 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 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 becomes a holder of record on the next business day upon the Fund's
receipt of payment in immediately available funds. 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. Shares may be sold to or through Eligible Institutions,
including financial institutions and broker-dealers, that may be paid fees by
Morgan or its affiliates for services provided to their clients that invest in
the Fund. Organizations that provide recordkeeping or other services to certain
employee benefit or retirement plans that include the Fund as an investment
alternative may also be paid a fee.
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.
Although there is no sales charge levied directly by the Fund, Eligible
Institutions may establish their own terms and conditions for providing their
services and may charge investors a transaction-based or other fee for their
services. Such charges may vary among Eligible Institutions but in all cases
will be retained by the Eligible Institution and not remitted to the Fund or
Morgan.
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<PAGE>
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem Fund shares, 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 ("NAV"). See Net Asset Value.
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. Cash 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.
OTHER REDEMPTION PROCESSING INFORMATION. Redemption requests may not be
processed if the redemption request is not submitted in proper form. To be in
proper form the Fund must have received the shareholder's certified taxpayer
identification number and address. In addition, if shares were paid for by check
and the check has not yet cleared, redemption proceeds will not be transmitted
until the check has cleared, which may take up to 15 days. The Fund reserves the
right to suspend the right of redemption or postpone the payment of redemption
proceeds to the extent permitted by the Securities and Exchange Commission.
MANDATORY REDEMPTION. If a redemption of shares reduces the value of a
shareholder's account balance below the required initial minimum investment ,
the Fund may redeem the remaining shares in the account 60 days after providing
written notice to the shareholder of the mandatory redemption. An account will
not be subject to mandatory redemption if the shareholder purchases sufficient
shares during the 60-day period to increase the account balance to the required
minimum investment amount.
EXCHANGE OF SHARES
Shares of the Fund may be exchanged for shares of any of The JPM Pierpont Funds
or The JPM Institutional Funds at net asset value without a sales charge.
Shareholders should read the prospectus of the fund into which they are
exchanging and may only exchange between fund accounts that are registered in
the same name, address and taxpayer identification number. After the exchange,
shareholders must meet the minimum investment requirements for the fund in which
they are then investing. An exchange is a redemption of shares from one fund and
a purchase of shares in another and is therefore a taxable transaction that may
have tax consequences. The Fund reserves the right to discontinue, alter or
limit the exchange privilege at any time. Exchanges are available only in states
where an exchange may legally be made.
DIVIDENDS AND DISTRIBUTIONS
The Fund's net investment income and realized net capital gains, if any, will be
distributed at least annually. Dividends and distributions will be payable to
shareholders of record on the record date. The Fund's dividends and
distributions are paid in additional Fund shares unless the shareholder elects
to have them paid in cash. The tax
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<PAGE>
treatment of dividends and distributions is the same whether they are paid
in shares or cash. Cash dividends and distributions are either (1) credited to
the shareholder's account at Morgan or the shareholder's Eligible Institution or
(2) in the case of certain Morgan clients, paid by a check mailed in accordance
with the client's instructions.
NET ASSET VALUE
The Fund computes its NAV at 4:15 p.m. New York time on each business day. The
NAV is determined by subtracting from the value of the Fund's total assets (the
value of the Fund's investment in the Portfolio) the amount of its liabilities
and dividing the remainder by the number of outstanding shares.
TAXES
The Fund intends to elect to be treated as a regulated investment company under
Subchapter M of the Code. To qualify as such, the Fund must satisfy certain
requirements relating to the sources of its income, diversification of its
assets and distribution of its income to shareholders. As a regulated investment
company, the Fund will not be subject to federal income or excise tax on any net
investment income and net realized capital gains that are distributed to
shareholders in accordance with certain timing requirements of the Code.
Dividends paid by the Fund from net investment income, certain foreign currency
gains, and the excess of net short-term capital gain over net long-term capital
loss will be taxable to its shareholders as ordinary income. Distributions paid
by the Fund from the excess of net long-term capital gain over net short-term
capital loss and designated as "capital gain dividends" will be taxable as
long-term capital gains regardless of how long shareholders have held their
shares. These tax consequences will apply whether distributions are received in
additional shares or in cash. The Fund's dividends and distributions will
generally not qualify for the corporate dividends-received deduction under the
Code. Shareholders will be informed annually about the amount and character, for
federal income tax purposes, of distributions received from the Fund.
The Fund anticipates that it may be required to pay foreign taxes on its income
from certain foreign investments, which will reduce its return from those
investments. The Fund may elect to pass through qualifying foreign taxes to its
shareholders. If this election is made, shareholders will then include their
share of such taxes in income (in addition to actual dividends and
distributions) and may be entitled, subject to applicable limitations, to a
corresponding federal income tax credit or deduction. The Fund will provide
appropriate information to shareholders if this election is made.
Investors should consider the adverse tax implications of buying shares before a
distribution. Investors who purchase shares shortly before the record date for a
distribution will pay a per share price that includes the value of the
anticipated distribution and will be taxed on the distribution even though the
distribution represents a return of a portion of the purchase price.
Redemptions of shares, whether for cash or in-kind, are taxable events on which
a shareholder may recognize a gain or loss and may be subject to special tax
rules if the redeemed shares were held less than six months or if a reinvestment
occurs. Individuals and certain other shareholders may be subject to 31% backup
withholding of federal income tax on distributions and redemptions if they fail
to furnish their correct taxpayer identification number and certain
certifications or if they are otherwise subject to backup withholding.
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<PAGE>
In addition to federal taxes, a shareholder may be subject to state or local
taxes on distributions of income and gains received on shares of the Fund.
Shareholders are urged to consult their own tax advisors concerning specific
questions about federal, state and local taxes.
ORGANIZATION
The Trust was organized on November 4, 1992 as a Massachusetts business trust.
The Trust currently has 16 series of shares, including the Fund, that are
offered to the public.
Shareholders of the Fund are entitled to one full or fractional vote for each
share of the Fund. There is no cumulative voting and shares have no preemption
or conversion rights. The Trust does not intend to hold annual meetings of
shareholders. The Trustees will call special meetings of shareholders to the
extent required by the Trust's Declaration of Trust or the 1940 Act. The 1940
Act requires the Trustees, under certain circumstances, to call a meeting to
allow shareholders to vote on the removal of a Trustee and to assist
shareholders in communicating with each other.
ADDITIONAL INFORMATION
SHAREHOLDER REPORTS AND CONFIRMATIONS. The Fund sends to its shareholders annual
and semiannual reports. The financial statements appearing in annual reports are
audited by independent accountants. Shareholders will also be sent confirmations
of each purchase and redemption transaction and monthly statements reflecting
all account activity.
TELEPHONE TRANSACTIONS. All shareholders are entitled to initiate redemptions
and other transactions by telephone. However, a transaction authorized by
telephone and reasonably believed by the Fund, Morgan, an Eligible Institution
or the Distributor to be genuine may result in a loss to the investor if the
transaction is not in fact genuine. The Fund will employ reasonable procedures
to confirm that investor instructions communicated by telephone are genuine.
These include requiring investors to give their personal identification numbers
and tape recording telephone instructions. If these procedures are not followed,
the Fund, Morgan, the investor's Eligible Institution or the Distributor may be
liable for any losses resulting from unauthorized or fraudulent instructions.
PERFORMANCE ADVERTISING. The Fund may advertise historical performance
information and compare its performance to other investments or relevant
indexes. An advertisement may also include data supplied by Lipper Analytical
Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson Associates and other
industry publications.
The Fund may advertise average annual total return and other forms of total
return data. Average annual total return is determined by computing the average
annual percentage change in value of $1,000 invested at NAV for specified
periods ending with the most recent calendar quarter. The total return
calculation assumes a complete redemption of the investment at the end of the
relevant period. The Fund may also advertise total return on a cumulative,
average, year-by-year or other basis for specified periods. The investment
results of the Fund will fluctuate over time and should not be considered a
representation of the Fund's performance in the future.
Performance information may be obtained by calling Morgan at (800) 521-5411.
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<PAGE>
THE
JPM
PIERPONT
INTERNATIONAL
OPPORTUNITIES
FUND
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE TRUST OR THE DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER BY THE TRUST OR BY THE DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE TRUST OR THE
DISTRIBUTOR TO MAKE SUCH AN OFFER IN SUCH JURISDICTION.
PROS239-9612
PROSPECTUS
DECEMBER 27, 1996
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
The JPM Pierpont Tax Exempt Money Market Fund
60 State Street
Boston, Massachusetts 02109
For information call (800) 521-5411
The JPM Pierpont Tax Exempt Money Market Fund (the "Fund") seeks to provide a
high level of current income exempt from federal income tax and maintain a high
level of liquidity. It is designed for investors who seek current income exempt
from federal income tax, stability of capital and liquidity.
The Fund is a diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The JPM Pierpont
Funds, an open-end management investment company organized as a Massachusetts
business trust (the "Trust").
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO
OF SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING
ALL OF ITS INVESTABLE ASSETS IN THE TAX EXEMPT MONEY MARKET PORTFOLIO (THE
"PORTFOLIO"), A CORRESPONDING DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT COMPANY
HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND INVESTS IN THE
PORTFOLIO THROUGH A TWO-TIER MASTER-FEEDER INVESTMENT FUND STRUCTURE. SEE
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE ON PAGE 4.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or "Advisor").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and it should be retained
for future reference. Additional information about the Fund has been filed with
the Securities and Exchange Commission in a Statement of Additional Information
dated December 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 JPM 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. ALTHOUGH
THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, THERE
CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO CONTINUE TO DO SO.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER 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............................................ 4
Investment Objective and Policies...................... 5
Additional Investment Information and Risk
Factors.............................................. 6
Investment Restrictions................................ 8
Management of the Trust and the Portfolio.............. 9
Shareholder Servicing.................................. 11
Page
Purchase of Shares..................................... 12
Redemption of Shares................................... 13
Exchange of Shares..................................... 13
Dividends and Distributions............................ 14
Net Asset Value........................................ 14
Organization........................................... 15
Taxes.................................................. 15
Additional Information................................. 17
</TABLE>
<PAGE>
The JPM Pierpont Tax Exempt Money Market Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed for investors who seek current income exempt from federal
income tax, stability of capital and liquidity. See Taxes. The Fund seeks to
achieve its investment objective by investing all of its investable assets in
The Tax Exempt Money Market Portfolio, a diversified open-end management
investment company having the same investment objective as the Fund. Since the
investment characteristics and experience of the Fund will correspond directly
with those of the Portfolio, the discussion in this Prospectus focuses on the
investments and investment policies of the Portfolio.
THE JPM PIERPONT TAX EXEMPT MONEY MARKET FUND SEEKS TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE
TO CONTINUE TO DO SO.
The Fund requires a minimum initial investment of $25,000, except that for
investors who were shareholders of a JPM Pierpont Fund as of September 29, 1995,
the minimum initial investment is $10,000. See Purchase of Shares. The minimum
subsequent investment is $5,000. If a shareholder reduces his or her investment
in shares of the Fund to less than the $10,000 applicable minimum investment,
the investment may 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>
* Certain Eligible Institutions (defined below) may impose fees in connection
with the purchase of the Fund's shares through such institutions.
1
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees............................................................................. 0.19%
Rule 12b-1 Fees........................................................................... None
Other Expenses............................................................................ 0.28%
---------
Total Operating Expenses.................................................................. 0.47%
</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 and
reflect the fact that no expense reimbursement arrangements are currently
applicable. Historical Total Operating Expenses expressed as a ratio to
historical average daily net assets were 0.48%.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year....................................................................................... $ 5
3 Years...................................................................................... $ 15
5 Years...................................................................................... $ 26
10 Years..................................................................................... $ 59
</TABLE>
The above expense table is designed to assist investors in understanding the
various direct and indirect costs and expenses that investors in the Fund bear.
The fees and expenses included in Other Expenses are the fees paid to Morgan
under the Administrative Services and the Shareholder Servicing Agreement,
organization 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 conjuction 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 August 31
-------------------------------------------------------------------------------------
1996 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................. 0.0318 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........ 0.0318 0.0334 0.0212 0.0215 0.0319 0.0460
------------- ------------- ------------- --------- -------- --------------
Less Distributions:
Dividends from Net Investment Income.. (0.0318) (0.0336) (0.0212) (0.0214) (0.0317) (0.0460)
Distributions from Net Realized
Gains................................ -- -- (0.0000)(a) (0.0002) -0- -0-
------------- ------------- ------------- --------- -------- --------------
Total Distributions..................... (0.0318) (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............................ 3.23% 3.41% 2.14% 2.15% 3.19% 4.60%
Ratios and Supplemental Data:
Net Assets, End of Period (In
Thousands)........................... $1,050,371 $985,069 $973,599 $1,007,330 $922,358 $877,422
Ratio to Average Net Assets:
Expenses............................ 0.48% 0.51% 0.52% 0.52% 0.53% 0.55%
Net Investment Income............... 3.17% 3.35% 2.10% 2.14% 3.16% 4.60%
Decrease Reflected in Above Expense
Ratio due to Expense
Reimbursements..................... -- 0.00%(b) 0.01% 0.01% 0.01% 0.01%
<CAPTION>
1990 1989 1988 1987 1986
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- --------- --------- --------- ---------
Income from Investment Operations:
Net Investment Income................. 0.0550 0.0581 0.0455 0.0387 0.0460
Net Realized Gain (Loss) on
Investment........................... -0- 0.0001 0.0001 0.0005 0.0001
---------- --------- --------- --------- ---------
Total from Investment Operations........ 0.0550 0.0582 0.0456 0.0392 0.0461
---------- --------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income.. (0.0550) (0.0581) (0.0455) (0.0387) (0.0460)
Distributions from Net Realized
Gains................................ -0- (0.0001) (0.0001) (0.0005) (0.0001)
---------- --------- --------- --------- ---------
Total Distributions..................... (0.0550) (0.0582) (0.0456) (0.0392) (0.0461)
---------- --------- --------- --------- ---------
Net Asset Value, End of Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- --------- --------- --------- ---------
---------- --------- --------- --------- ---------
Total Return............................ 5.50% 5.82% 4.56% 3.92% 4.61%
Ratios and Supplemental Data:
Net Assets, End of Period (In
Thousands)........................... $903,157 $876,051 $895,596 $980,544 $868,028
Ratio to Average Net Assets:
Expenses............................ 0.57% 0.53% 0.55% 0.56% 0.61%
Net Investment Income............... 5.51% 5.79% 4.54% 3.88% 4.59%
Decrease Reflected in Above Expense
Ratio due to Expense
Reimbursements..................... -- -- -- -- --
</TABLE>
- ------------
(1) In July, 1993 the Fund's predecessor contributed all of its investable
assets to The Tax Exempt Money Market Portfolio.
(a) Less than $0.0001 per share.
(b) Less than 0.01%.
3
<PAGE>
SPECIAL INFORMATION CONCERNING 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.
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.
4
<PAGE>
For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Additional Investment
Information and Risk Factors and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment
Restrictions.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and the Portfolio is described below,
together with the policies they employ in their efforts to achieve this
objective. Additional information about the investment policies of the Fund and
the Portfolio appears in the Statement of Additional Information under
Investment Objectives and Policies. There can be no assurance that the
investment objective of the Fund or the Portfolio will be achieved.
The Fund's investment objective is to provide a high level of current income
that is exempt from federal income tax and maintain a high level of liquidity.
The Fund is designed for investors who seek current income exempt from federal
income tax, stability of capital and liquidity. See Taxes. The Fund attempts to
achieve its objective by investing all of its investable assets in The Tax
Exempt Money Market Portfolio, a diversified open-end management investment
company having the same investment objective as the Fund.
The Portfolio attempts to achieve its investment objective by investing
primarily in the following municipal securities which earn interest exempt from
federal income tax in the opinion of bond counsel for the issuer and which have
effective maturities not greater than thirteen months and by maintaining a
dollar-weighted average portfolio maturity of not more than 90 days. During
normal market conditions, the Portfolio will invest at least 80% of its net
assets in tax exempt obligations. Interest on these securities may be subject to
state and local taxes. For more detailed information regarding tax matters,
including the applicability of the alternative minimum tax, see Taxes.
MUNICIPAL BONDS. The Portfolio may invest in bonds issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies, authorities and
instrumentalities. These obligations may be general obligation bonds secured by
the issuer's pledge of its full faith, credit and taxing power for the payment
of principal and interest, or they may be revenue bonds payable from specific
revenue sources, but not generally backed by the issuer's taxing power. These
include industrial development bonds where payment is the responsibility of the
private industrial user of the facility financed by the bonds. The Portfolio may
invest more than 25% of its assets in industrial development bonds, but may not
invest more than 25% of its assets in these bonds in projects of similar type or
in the same state.
MUNICIPAL NOTES. The Portfolio may also invest in municipal notes of various
types, including notes issued in anticipation of receipt of taxes, the proceeds
of the sale of bonds, other revenues or grant proceeds, as well as municipal
commercial paper and municipal demand obligations such as variable rate demand
notes and master demand obligations. The interest rate on variable rate demand
notes is adjustable at periodic intervals as specified in the notes. Master
demand obligations permit the investment of fluctuating amounts at periodically
adjusted interest rates. They are governed by agreements between the municipal
issuer and Morgan acting as agent, for no additional 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.
5
<PAGE>
QUALITY INFORMATION. The Portfolio will limit its investments to those
securities which, in accordance with guidelines adopted by the Trustees, present
minimal credit risks. In addition, the Portfolio will not purchase any municipal
obligation unless (i) it is rated with the highest rating assigned to short-term
debt securities (or, in the case of New York State municipal notes, with one of
the two highest ratings assigned to short-term debt securities) by at least two
nationally recognized statistical rating organizations such as Moody's and
Standard & Poor's, (ii) it is rated by only one agency with such rating, or
(iii) it is not rated and is determined to be of comparable quality.
Determinations of comparable quality shall be made in accordance with procedures
established by the Trustees. For a more detailed discussion of applicable
quality requirements, see Investment Objectives and Policies in the Statement of
Additional Information. These standards must be satisfied at the time an
investment is made. If the quality of the investment later declines below the
quality required for purchase, the Portfolio shall dispose of the investment,
subject in certain circumstances to a finding by the Trustees that disposing of
the investment would not be in the Portfolio's best interest. The credit quality
of variable rate demand notes and other municipal obligations is frequently
enhanced by various arrangements with domestic or foreign financial
institutions, such as letters of credit, guarantees and insurance, and these
arrangements are considered, 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 causes 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.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and for fixed income securities no interest
accrues to the Portfolio until settlement. At the time of settlement a
when-issued security may be valued at less than its purchase price. The
Portfolio maintains with the Custodian a separate account with a segregated
portfolio of securities in an amount at least equal to these commitments. When
entering into a when-issued or delayed delivery transaction, the Portfolio will
rely on the other party to consummate the transaction; if the other party fails
to do so, the Portfolio may be disadvantaged. It is the current policy of the
Portfolio not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions with brokers, dealers or banks that meet the credit guidelines
established by the Portfolio's Trustees. In a repurchase agreement, the
Portfolio buys a security from a seller that has agreed to repurchase it at a
mutually agreed upon date and price, reflecting the interest rate effective for
the term of the agreement. The term of these agreements is usually from
overnight to one week. A repurchase agreement may be viewed as a fully
collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities as collateral with a market value at least equal to
the purchase price plus accrued interest and this value is maintained during the
term of the agreement. If the seller defaults and the collateral value declines,
the Portfolio might incur a loss. If bankruptcy proceedings are
6
<PAGE>
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 by the Portfolio and, therefore, is a form of
leverage. Leverage may cause any gains or losses of the Portfolio to be
magnified. For more information, see Investment Objectives and Policies in the
Statement of Additional Information.
TAXABLE INVESTMENTS. The Portfolio attempts to invest its assets in tax exempt
municipal securities; however, the Portfolio is permitted to invest up to 20% of
the value of its total assets in securities, the interest income on which may be
subject to federal, state or local income taxes. The Portfolio may make taxable
investments pending investment of proceeds from sales of its interests or
portfolio securities, pending settlement of purchases of portfolio securities,
to maintain liquidity or when it is advisable in Morgan's opinion because of
adverse market conditions. The Portfolio will invest in taxable securities only
if there are no tax exempt securities available for purchase or if the after tax
yield from an investment in taxable securities exceeds the yield on available
tax exempt securities. The taxable investments permitted for the Portfolio
include obligations of the U.S. Government and its agencies and
instrumentalities, bank obligations, commercial paper and repurchase agreements.
PUTS. The Portfolio may purchase without limit municipal bonds or notes together
with the right to resell them at an agreed price or yield within a specified
period prior to maturity. This right to resell is known as a put. The aggregate
price paid for securities with puts may be higher than the price which otherwise
would be paid. Consistent with the investment objective of the Portfolio and
subject to the supervision of the Trustees, the purpose of this practice is to
permit the Portfolio to be fully invested in tax exempt securities while
maintaining the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large withdrawals and to
7
<PAGE>
purchase at a later date securities other than those subject to the put. The
principal risk of puts is that the put writer may default on its obligation to
repurchase. Morgan will monitor each writer's ability to meet its obligations
under puts.
The amortized cost method is used by the Portfolio to value all municipal
securities; no value is assigned to any puts.
SYNTHETIC VARIABLE RATE INSTRUMENTS. The Portfolio may invest in certain
synthetic variable rate instruments. Such instruments generally involve the
deposit of a long-term tax exempt bond in a custody or trust arrangement and the
creation of a mechanism to adjust the long-term interest rate on the bond to a
variable short-term rate and a right (subject to certain conditions) on the part
of the purchaser to tender it periodically to a third party at par. Morgan will
review the structure of synthetic variable rate instruments to identify credit
and liquidity risks (including the conditions under which the right to tender
the instrument would no longer be available) and will monitor those risks. In
the event that the right to tender the instrument is no longer available, the
risk to the Portfolio will be that of holding the long-term bond, which may
require the disposition of the bond which could be at a loss.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may not acquire any illiquid securities if, as a result thereof, more
than 10% of the market value of the Portfolio's net assets would be in illiquid
investments. Subject to this non-fundamental policy limitation, the Portfolio
may acquire investments that are illiquid or have limited liquidity, such as
private placements or investments that are not registered under the Securities
Act of 1933, as amended (the "1933 Act"), and cannot be offered for public sale
in the United States without first being registered under the 1933 Act. An
illiquid investment is any investment that cannot be disposed of within seven
days in the normal course of business at approximately the amount at which it is
valued by the Portfolio. The price the Portfolio pays for illiquid securities or
receives upon resale may be lower than the price paid or received for similar
securities with a more liquid market. Accordingly the valuation of these
securities will reflect any limitations on their liquidity.
The Portfolio may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's
implementation of these guidelines on a periodic basis.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio are
subject to the following fundamental limitations: (a) the Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except U.S. government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer.
The investment objective of the Fund and the Portfolio, together with the
investment restrictions described below and in the Statement of Additional
Information, except as noted, are deemed fundamental policies, i.e., they may be
changed only with the approval of the holders of a majority of the outstanding
voting securities of the Fund and the Portfolio. The Fund has the same
investment restrictions as the Portfolio, except that the Fund may invest all
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of its investable assets in another open-end investment company with the same
investment objective and restrictions (such as the Portfolio). References below
to the Portfolio's investment restrictions also include the Fund's investment
restrictions.
The Portfolio may not (i) borrow money, except from banks for temporary,
extraordinary or emergency purposes and then only in amounts up to 10% of the
value of the Portfolio's total assets, taken at cost at the time of borrowing,
or purchase securities while borrowings exceed 5% of its total assets; or
mortgage, pledge or hypothecate any assets except in connection with any such
borrowings in amounts up to 10% of the value of the Portfolio's net assets at
the time of borrowing; or (ii) acquire industrial revenue bonds if as a result
more than 5% of the Portfolio's total assets would be invested in industrial
revenue bonds where payment of principal and interest is the responsibility of
companies with fewer than three years of operating history.
For a more detailed discussion of the above investment restrictions, as well as
a description of certain other investment restrictions, see Investment
Restrictions in the Statement of Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the
Portfolio, the Trustees decide upon matters of general policy and review the
actions of the Advisor and other service providers. The Trustees of the Trust
and of the Portfolio are identified below.
<TABLE>
<S> <C>
Frederick S. Addy.................................. Former Executive Vice President and Chief
Financial
Officer, Amoco Corporation
William G. Burns................................... Former Vice Chairman of the Board and Chief
Financial Officer, NYNEX Corporation
Arthur C. Eschenlauer.............................. Former Senior Vice President, Morgan Guaranty
Trust Company of New York
Matthew Healey..................................... Chairman and Chief Executive Officer;
Chairman,
Pierpont Group, Inc.
Michael P. Mallardi................................ Former Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast
Group
</TABLE>
A majority of the disinterested Trustees have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust, the Portfolio and
The JPM Institutional Funds, up to and including creating a separate board of
trustees. See Trustees and Officers in the Statement of Additional Information
for more information about the Trustees and Officers of the Fund and the
Portfolio.
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pierpont
Group, Inc. in providing these services. Pierpont Group, Inc. was organized in
1989 at the request of the Trustees of The Pierpont Family of Funds for the
purpose of providing these services at cost to 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.
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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 $197 billion (of which the Advisor advises over $30
billion). Morgan provides investment advice and portfolio management services to
the Portfolio. Subject to the supervision of the Portfolio's Trustees, Morgan
makes the Portfolio's day-to-day investment decisions, arranges for the
execution of portfolio transactions and generally manages the Portfolio's
investments. See Investment Advisor in the Statement of Additional Information.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio (the inception date of
each person's responsibility for the Portfolio and her or his business
experience for the past five years is indicated parenthetically): Daniel B.
Mulvey, Vice President (since August, 1995, employed by Morgan since September
1991) and Elizabeth A. Augustin, Vice President (since January, 1992, employed
by Morgan since prior to 1991).
As compensation for the services rendered and related expenses borne by Morgan
under the Investment Advisory Agreement with the Portfolio, the Portfolio has
agreed to pay Morgan a fee, which is computed daily and may be paid monthly, at
the annual rate of 0.20% of the Portfolio's average daily net assets up to $1
billion, and 0.10% of average daily net assets in excess of $1 billion.
Under separate agreements, Morgan also provides 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. Pursuant to Co-Administration Agreements with the Trust and
the Portfolio, Funds Distributor, Inc. ("FDI") serves as the Co-Administrator
for the Fund and the Portfolio. FDI (i) provides office space, equipment and
clerical personnel for maintaining the organization and books and records of the
Fund and the Portfolio; (ii) provides officers for the Trust and the Portfolio;
(iii) prepares and files documents required for notification of state securities
administrators; (iv) reviews and files marketing and sales literature; (v) files
Portfolio regulatory documents and mails Portfolio communications to Trustees
and investors; and (vi) maintains related books and records.
For their services under the Co-Administration Agreements, each of the Fund and
the Portfolio has agreed to pay FDI fees equal to its allocable share of an
annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the Fund or the Portfolio is based on the ratio of its net
assets to the aggregate net assets of the Trust and certain other registered
investment companies subject to similar agreements with FDI.
ADMINISTRATIVE SERVICES AGENT. Pursuant to Administrative Services Agreements
with the Trust and the Portfolio, Morgan provides administrative and related
services to the Fund and the Portfolio, including services related to tax
compliance, preparation of financial statements, calculation of performance
data, oversight of service providers and certain regulatory and Board of
Trustees matters.
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<PAGE>
Under the Administrative Services Agreements, each of the Fund and the Portfolio
has agreed to pay Morgan fees equal to its allocable share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate net
assets of the Trust and certain other registered investment companies managed by
the Advisor in accordance with the following annual schedule: 0.09% on the first
$7 billion of their aggregate average daily net assets and 0.04% of their
aggregate average daily net assets in excess of $7 billion, less the
complex-wide fees payable to FDI.
DISTRIBUTOR. FDI, a registered broker-dealer, also serves as the Distributor of
shares of the Fund and as exclusive placement agent for the Portfolio. FDI is a
wholly-owned indirect subsidiary of Boston Institutional Group, Inc. FDI's
principal business address is 60 State Street, Suite 1300, Boston, Massachusetts
02109.
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,
Administrator 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 custodian
fees and brokerage expenses.
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 value of Fund shares
owned by or for shareholders for whom Morgan is acting as shareholder servicing
agent) of 0.15% of the Fund's average daily net assets up to $2 billion and
0.10% of average daily net assets in excess of $2 billion. Under the terms of
the Shareholder Servicing Agreement with the Fund, Morgan may delegate one or
more of its responsibilities to other entities at Morgan's expense.
The Fund may be sold to or through Eligible Institutions, including financial
institutions and broker-dealers, that may be paid fees by Morgan or its
affiliates for services provided to their clients that invest in the Fund. See
Eligible Institutions. Organizations that provide recordkeeping or other
services to certain employee benefit or retirement plans that include the Fund
as an investment alternative may also be paid a fee.
Shareholders should address all inquiries to J.P. Morgan Funds Services, Morgan
Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York 10036
or call (800) 521-5411.
The business days of the Fund and the Portfolio are the days the New York Stock
Exchange is open.
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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 agent for the customer.
All purchase orders must be accepted by the Distributor. Investors must be
either customers of Morgan or of an Eligible Institution or 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 Trust reserves the right to determine the purchase orders that it will
accept.
The Fund requires a minimum initial investment of $25,000. For investors who
were shareholders of a JPM Pierpont Fund as of September 29, 1995, the minimum
initial investment in any other JPM Pierpont Fund is $10,000. The minimum
subsequent investment for all investors is $5,000. These minimum investment
requirements may be waived for certain investors, including investors for whom
the Advisor is a fiduciary, who are employees of the Advisor, who maintain
related accounts with the Fund, other JPM Pierpont Funds or the Advisor, who
make investments for a group of clients, such as financial advisors, trust
companies and investment advisors, or who maintain retirement accounts with the
Funds.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value per share next determined after
receipt of an order. Prospective investors may purchase shares with the
assistance of an Eligible Institution that may establish its own terms,
conditions and charges.
To purchase shares in the Fund, investors should request their Morgan
representative (or a representative of their Eligible Institution) to assist
them in placing a purchase order with the Fund's Distributor and to transfer
immediately available funds to the Fund's Distributor on the same day. Any
shareholder may also call J.P. Morgan Funds Services at (800) 521-5411 for
assistance in placing an order for Fund shares. Immediately available funds must
be received by 11:00 A.M. New York time on a business day for the purchase to be
effective and dividends to be earned on the same day. The Fund does not accept
orders after the indicated time. If funds are received after 11 A.M. New York
time for any reason, including that the day is a Federal Reserve holiday, the
purchase is not effective and dividends are not earned until the next business
day.
ELIGIBLE INSTITUTIONS. The services provided by Eligible Institutions may
include establishing and maintaining shareholder accounts, processing purchase
and redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the Eligible Institution, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as Morgan or the Eligible Institution's clients may
reasonably request and agree upon with the Eligible Institution. Although there
is no sales charge levied directly by the Fund, Eligible Institutions may
establish their own terms and conditions for providing their services and may
charge investors a transaction-based or other fee for their services. Such
charges may vary among Eligible Institutions but in all cases will be retained
by the Eligible Institutions and not remitted to the Fund or Morgan.
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<PAGE>
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
Morgan or his or her Eligible Institution, as appropriate, to submit a
redemption request to the Fund or may telephone J.P. Morgan Funds Services
directly at (800) 521-5411 and give the Shareholder Service Representative a
preassigned shareholder Personal Identification Number and the amount of the
redemption. The Fund executes effective redemption requests at the next
determined net asset value per share. See Net Asset Value. See Additional
Information below for an explanation of the telephone redemption policy of The
Pierpont Funds.
A redemption request received on a business day prior to 11:00 A.M. New York
time is effective on that day. A redemption request received after that time
becomes effective on the next day. Proceeds of an effective redemption are
generally deposited the same day in immediately available funds to the
shareholder's account at Morgan or at his Eligible Institution or, in the case
of certain Morgan customers, are mailed by check or wire transferred in
accordance with the customer's instructions. If a redemption request becomes
effective on a day when the New York Stock Exchange is open but which is a
Federal Reserve holiday, the proceeds are paid the next business day. See
Further Redemption Information.
MANDATORY REDEMPTION BY THE FUND. If the value of a shareholder's holdings in
the Fund falls below $10,000 for more than 30 days because of a redemption of
shares, the shareholder's remaining shares may be redeemed by the Fund 60 days
after written notice to the shareholder unless the account is increased to
$10,000 or more. For example, a shareholder whose initial and only investment is
$10,000 may be subject to mandatory redemption resulting from any redemption
that causes his or her investment to fall below $10,000.
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions from
the Fund may not be processed if a redemption request is not submitted in proper
form. To be in proper form, the Fund must have received the shareholder's
taxpayer identification number and address. As discussed under Taxes below, the
Fund may be required to impose "back-up" withholding of federal income tax on
dividends, distributions and redemption proceeds when non-corporate investors
have not provided a certified taxpayer identification number. In addition, if a
shareholder sends a check for the purchase of Fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days.
The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other
periods as the 1940 Act or the Securities and Exchange Commission may permit.
See Redemption of Shares in the Statement of Additional Information.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other JPM 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 JPM 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
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<PAGE>
Redemption of Shares in this Prospectus and in the prospectuses for the other
JPM Pierpont Funds and The JPM Institutional Funds. See also Additional
Information below for an explanation of the telephone exchange policy of The JPM
Pierpont Funds.
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income tax
purposes. The Fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state
securities laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
All of the Fund's net investment income is declared as a dividend daily and paid
monthly. If an investor's shares are redeemed during a month, accrued but unpaid
dividends are paid with the redemption proceeds. The net investment income of
the Fund for dividend purposes consists of its pro rata share of the net income
of the Portfolio less the Fund's expenses. Dividends and distributions are
payable to shareholders of record at the time of declaration. The net investment
income of the Fund for each business day is determined immediately prior to the
determination of net asset value. Net investment income for other days is
determined at the time net asset value is determined on the prior business day.
Shares of the Fund earn dividends on the business day their purchase is
effective, but not on the business day their redemption is effective. See
Purchase of Shares and Redemption of Shares.
Substantially all the realized net capital gains, if any, of the Fund are
declared and paid on an annual basis, except that an additional capital gains
distribution may be made in a given year to the extent necessary to avoid the
imposition of federal excise tax on the Fund.
Dividends and capital gains distributions paid by the Fund are automatically
reinvested in additional shares of the Fund unless the shareholder has elected
to have them paid in cash. Dividends and distributions to be paid in cash are
credited to the shareholder's account at Morgan or at his Eligible Institution
or, in the case of certain Morgan customers, are mailed by check in accordance
with the customer's instructions. The Fund reserves the right to discontinue,
alter or limit the automatic reinvestment privilege at any time.
NET ASSET VALUE
Net asset value per share for the Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in the
Portfolio and other assets) the amount of its liabilities and dividing the
remainder by the number of its outstanding shares, rounded to the nearest cent.
Expenses, including the fees payable to Morgan, are accrued daily. The Portfolio
values all portfolio securities by the amortized cost method. This method
attempts to maintain for the Fund a constant net asset value per share of $1.00.
No assurances can be given that this goal can be attained. See Net Asset Value
in the Statement of Additional Information for more information on valuation of
portfolio securities for the Portfolio.
The Fund computes its net asset value once daily at 4:00 P.M. New York time on
Monday through Friday, except that the net asset value is not computed for the
Fund on 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, sixteen 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,
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
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<PAGE>
investment income and capital gains less any available capital loss
carryforwards are distributed to shareholders within allowable time limits. The
Portfolio intends to qualify as an association treated as a partnership for
federal income tax purposes. As such, the Portfolio should not be subject to
tax. The Fund's status as a regulated investment company is dependent on, among
other things, the Portfolio's continued qualification as a partnership for
federal income tax purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to non-corporate shareholders.
The Fund intends to qualify to pay exempt-interest dividends to its shareholders
by having, at the close of each quarter of its taxable year, at least 50% of the
value of its total assets consist of tax exempt securities. An exempt-interest
dividend is that part of dividend distributions made by the Fund which consists
of interest received by the Fund on tax exempt securities. Exempt-interest
dividends received from the Fund will be treated for federal income tax purposes
as tax exempt interest income. In view of the Fund's investment policies, it is
expected that a substantial portion of the Fund's dividends will be
exempt-interest dividends, although the Fund may from time to time realize and
distribute net short-term capital gains and may invest limited amounts in
taxable securities under certain circumstances. See Taxable Investments.
Interest on certain tax exempt municipal obligations issued after August 7, 1986
is a preference item for purposes of the alternative minimum tax applicable to
individuals and corporations. Under tax regulations to be issued, the portion of
an exempt-interest dividend of a regulated investment company that is allocable
to these obligations will be treated as a preference item for purposes of the
alternative minimum tax.
Corporations should, however, be aware that interest on all municipal securities
will be included in calculating (i) adjusted current earnings for purposes of
the alternative minimum tax applicable to them, (ii) the additional tax imposed
on certain corporations by the Superfund Revenue Act of 1986, and (iii) the
foreign branch profits tax imposed on effectively connected earnings and profits
of United States branches of foreign corporations. Furthermore, special tax
provisions may apply to certain financial institutions and property and casualty
insurance companies, and they should consult their tax advisors before
purchasing shares of the Fund.
Interest on indebtedness incurred or continued by a shareholder (whether a
corporation or an individual) to purchase or carry shares of the Fund is not
deductible. The Treasury has been given authority to issue regulations which
would disallow the interest deduction if incurred to purchase or carry shares of
the Fund owned by the taxpayer's spouse, minor child or entity controlled by the
taxpayer. Entities or persons who are "substantial users" (or related persons)
of facilities financed by tax exempt bonds should consult their tax advisors
before purchasing shares of the Fund.
Distributions of taxable net investment income and realized net short-term
capital gains in excess of net long-term capital losses are taxable as ordinary
income to shareholders of the Fund whether such distributions are taken in cash
or reinvested in additional shares. Distributions of this type to corporate
shareholders of the Fund are not eligible for the dividends-received deduction.
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
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<PAGE>
shareholders are not eligible for the dividends-received deduction. The Fund
does not expect to realize long-term capital gains and thus does not contemplate
paying distributions taxable to shareholders who are subject to tax as long-term
capital gains.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
such shares. In addition, any loss realized by a shareholder upon the redemption
or exchange of shares in the Fund held six months or less will be disallowed to
the extent of any exempt-interest dividends received by the shareholder with
respect to the shares. See Taxes in the Statement of Additional Information.
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The financial
statements appearing in annual reports are audited by independent accountants.
Shareholders also will be sent confirmations of each purchase and redemption and
monthly statements, reflecting all other account activity, including dividends
and any distributions reinvested in additional shares or credited as cash.
All shareholders are given the privilege to initiate transactions automatically
by telephone upon opening an account. However, an investor should be aware that
a transaction authorized by telephone and reasonably believed to be genuine by
the Fund, Morgan, his Eligible Institution or the Distributor may subject the
investor to risk of loss if such instruction is subsequently found not to be
genuine. The Fund will employ reasonable procedures, including requiring
investors to give their Personal Identification Number and tape recording of
telephone instructions, to confirm that instructions communicated from investors
by telephone are genuine; if it does not, the Fund, the Shareholder Servicing
Agent or a shareholder's Eligible Institution may be liable for any losses due
to unauthorized or fraudulent instructions.
The Fund may make historical performance information available and may compare
its performance to other investments or relevant indexes, including data from
Lipper Analytical Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson
Associates, Donoghue's Money Market and Tax Free Money Market fund averages and
other industry publications. The Fund may advertise "yield," "effective yield,"
and "tax equivalent yield". Yield refers to the net income generated by an
investment in the Fund over a stated seven-day period. This income is then
annualized--i.e., the amount of income generated by the investment during that
week is assumed to be generated each week over a 52-week period and is shown as
a percentage of the investment. Effective yield is calculated similarly to the
yield, but, when annualized, the income earned by an investment in the Fund is
assumed to be reinvested; the effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment. Tax
equivalent yield is calculated similarly to the yield for the Fund, except that
the yield is increased using a stated income tax rate to demonstrate the taxable
yield necessary to produce an after-tax equivalent to the Fund.
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
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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>
------------------------------------
The
JPM Pierpont
Tax Exempt
Money Market
Fund
<TABLE>
<S> <C>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE TRUST OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER BY THE TRUST OR BY THE DISTRIBUTOR TO SELL OR A SOLICITATION OF
ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE TRUST OR THE
DISTRIBUTOR TO MAKE SUCH OFFER IN SUCH JURISDICTION. PROSPECTUS
PROS228-9612 DECEMBER 27, 1996
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
PROSPECTUS
The JPM Pierpont Tax Exempt Bond Fund
60 State Street
Boston, Massachusetts 02109
For information call (800) 521-5411
The JPM Pierpont Tax Exempt Bond Fund (the "Fund") seeks to provide a high level
of current income exempt from federal income tax consistent with moderate risk
of capital and maintenance of liquidity. It is designed for investors who seek
tax exempt yields greater than those generally available from a portfolio of
short-term tax exempt obligations and who are willing to incur the greater price
fluctuation of longer-term instruments.
The Fund is a diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The JPM Pierpont
Funds, an open-end management investment company organized as a Massachusetts
business trust (the "Trust").
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO
OF SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY INVESTING
ALL OF ITS INVESTABLE ASSETS IN THE TAX EXEMPT BOND PORTFOLIO (THE "PORTFOLIO"),
A CORRESPONDING DIVERSIFIED OPEN-END MANAGEMENT INVESTMENT COMPANY HAVING THE
SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND INVESTS IN THE PORTFOLIO THROUGH
A TWO-TIER MASTER-FEEDER INVESTMENT FUND STRUCTURE. SEE SPECIAL INFORMATION
CONCERNING INVESTMENT STRUCTURE ON PAGE 4.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or "Advisor").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and it should be retained
for future reference. Additional information about the Fund has been filed with
the Securities and Exchange Commission in a Statement of Additional Information
dated December 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 JPM 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 DECEMBER 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....................................... 4
Investment Objective and Policies................. 5
Additional Investment Information and Risk
Factors......................................... 7
Investment Restrictions........................... 9
Management of the Trust and the Portfolio......... 10
Shareholder Servicing............................. 12
Page
Purchase of Shares................................ 12
Redemption of Shares.............................. 14
Exchange of Shares................................ 14
Dividends and Distributions....................... 15
Net Asset Value................................... 15
Organization...................................... 16
Taxes............................................. 16
Additional Information............................ 18
Appendix.......................................... 20
</TABLE>
<PAGE>
The JPM Pierpont Tax Exempt Bond Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed for investors who seek tax exempt yields greater than those
generally available from a portfolio of short-term tax exempt obligations and
who are willing to incur the greater price fluctuation of longer-term
instruments. The Fund seeks to achieve its investment objective by investing all
of its investable assets in The Tax Exempt Bond Portfolio, a diversified
open-end management investment company having the same investment objective as
the Fund. Since the investment characteristics and experience of the Fund will
correspond directly with those of the Portfolio, the discussion in this
Prospectus focuses on the investments and investment policies of the Portfolio.
The net asset value of shares in the Fund fluctuates with changes in the value
of the investments in the Portfolio.
The Fund requires a minimum initial investment of $100,000, except that for
investors who were shareholders of a JPM Pierpont Fund as of September 29, 1995,
the minimum initial investment is $10,000. Certain omnibus accounts require a
minimum initial investment of $250,000. The minimum subsequent investment is
$5,000. If a shareholder reduces his or her investment in the Fund to less than
the applicable minimum investment, the investment may be subject to mandatory
redemption. See Redemption of Shares--Mandatory Redemption by the Fund.
This Prospectus describes the financial history, investment objective and
policies, management and operation of the Fund to enable investors to decide if
the Fund suits their needs. The Fund operates 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>
* Certain Eligible Institutions (defined below) may impose fees in connection
with the purchase of the Fund's shares through such institutions.
1
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees........................................................... 0.30%
Rule 12b-1 Fees......................................................... None
Other Expenses.......................................................... 0.36%
------
Total Operating Expenses................................................ 0.66%
</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 and
reflect the fact that no expense reimbursement arrangements are currently
applicable. Historical Total Operating Expenses expressed as a ratio to
historical average daily net assets were 0.64%.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year.................................................................. $ 7
3 Years................................................................. $ 21
5 Years................................................................. $ 37
10 Years................................................................ $ 82
</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, organization 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 August 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............. $ 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........... 0.55 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....... (0.08) 0.29 (0.35) 0.56 0.41 0.44 (0.10) 0.13 (0.12) (0.27)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
Investment
Operations......... 0.47 0.84 0.16 1.11 1.03 1.12 0.60 0.84 0.59 0.42
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less Distributions:
Dividends from Net
Investment
Income........... (0.55) (0.55) (0.51) (0.55) (0.62) (0.68) (0.70) (0.71) (0.71) (0.69)
Distributions from
Net Realized
Gains............ (0.02) (0.01) (0.24) (0.12) -0- -0- -0- -0- -0- (0.04)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
Distributions...... (0.57) (0.56) (0.75) (0.67) (0.62) (0.68) (0.70) (0.71) (0.71) (0.73)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End
of Period.......... $ 11.63 $ 11.73 $ 11.45 $ 12.04 $ 11.60 $ 11.19 $ 10.75 $ 10.85 $ 10.72 $ 10.84
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total Return........ 4.01% 7.63% 1.35% 9.88% 9.47% 10.67% 5.65% 8.11% 5.64% 3.43%
Ratios and
Supplemental Data:
Net Assets, End of
Period (In
Thousands)....... $369,987 $352,005 $392,460 $485,013 $360,343 $239,709 $151,755 $133,638 $118,066 $137,944
Ratio to Average
Net Assets:
Expenses........ 0.64% 0.71% 0.71% 0.74% 0.77% 0.78% 0.79% 0.80% 0.80% 0.80%
Net Investment
Income......... 4.67% 4.87% 4.39% 4.64% 5.45% 6.12% 6.43% 6.62% 6.62% 6.17%
Decrease
Reflected in
the Above
Expense Ratio
due to Expense
Reimbursements... -- -- -- 0.01% 0.01% 0.02% 0.04% 0.06% 0.08% 0.05%
Portfolio
Turnover......... -- -- -- 40.80%(a) 19.94% 16.39% 7.45% 10.19% 20.03% 51.77%
<CAPTION>
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:
Dividends from Net
Investment
Income........... (0.75)
Distributions from
Net Realized
Gains............ (0.07)
--------
Total
Distributions...... (0.82)
--------
Net Asset Value, End
of Period.......... $ 11.15
--------
--------
Total Return........ 16.05%
Ratios and
Supplemental Data:
Net Assets, End of
Period (In
Thousands)....... $125,475
Ratio to Average
Net Assets:
Expenses........ 0.80%
Net Investment
Income......... 6.94%
Decrease
Reflected in
the Above
Expense Ratio
due to Expense
Reimbursements... 0.11%
Portfolio
Turnover......... 38.12%
</TABLE>
- ---------
(a) 1993 Portfolio Turnover reflects the period September 1, 1992 to July 11,
1993 and has not been annualized. In July, 1993, the Fund's predecessor
contributed all of its investable assets to The Tax Exempt Bond Portfolio.
3
<PAGE>
SPECIAL INFORMATION CONCERNING 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.
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.
4
<PAGE>
For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Additional Investment
Information and Risk Factors and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment
Restrictions.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and the Portfolio is described below,
together with the policies they employ in their efforts to achieve this
objective. Additional information about the investment policies of the Fund and
the Portfolio appears in the Statement of Additional Information under
Investment Objectives and Policies. There can be no assurance that the
investment objective of the Fund or the Portfolio will be achieved.
The Fund's investment objective is to provide a high level of current income
exempt from federal income tax consistent with moderate risk of capital and
maintenance of liquidity. See Taxes. The Fund attempts to achieve its investment
objective by investing all of its investable assets in The Tax Exempt Bond
Portfolio, a diversified open-end management investment company having the same
investment objective as the Fund.
The Fund is designed for investors who seek tax exempt yields greater than those
generally available from a portfolio of short term tax exempt obligations and
who are willing to incur the greater price fluctuation of longer-term
instruments.
The Portfolio attempts to achieve its investment objective by investing
primarily in municipal securities which earn interest exempt from federal income
tax in the opinion of bond counsel for the issuer. During normal market
conditions, the Portfolio will invest at least 80% of its net assets in tax
exempt obligations. Interest on these securities may be subject to state and
local taxes. For more detailed information regarding tax matters, including the
applicability of the alternative minimum tax, see Taxes.
Morgan believes that based upon current market conditions, the Portfolio will
consist of a portfolio of securities with a duration of four to seven years. In
view of the duration of the Portfolio, under normal market conditions, the
Fund's yield can be expected to be higher and its net asset value less stable
than those of a money market fund. Duration is a measure of the weighted average
maturity of the bonds held in the Portfolio and can be used as a measure of the
sensitivity of the Portfolio's market value to changes in interest rates. The
maturities of the individual securities in the Portfolio may vary widely,
however, as Morgan adjusts the Portfolio's holdings of long-term and short-term
debt securities to reflect its assessment of prospective changes in interest
rates, which may adversely affect current income.
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. Portfolio transactions are undertaken principally to
accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates, but the Portfolio may also engage in short-term
trading consistent with its objective. To the extent the Portfolio engages in
short-term trading, it may incur increased transaction costs. See Taxes below.
The portfolio turnover rate for the fiscal year ended August 31, 1996 was 25%.
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
5
<PAGE>
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
the Portfolio fluctuates, the Portfolio attempts to preserve the value of its
investments to the extent consistent with its objective.
MUNICIPAL BONDS. The Portfolio may invest in bonds issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies, authorities and
instrumentalities. These obligations may be general obligation bonds secured by
the issuer's pledge of its full faith, credit and taxing power for the payment
of principal and interest, or they may be revenue bonds payable from specific
revenue sources, but not generally backed by the issuer's taxing power. These
include industrial development bonds where payment is the responsibility of the
private industrial user of the facility financed by the bonds. The Portfolio may
invest more than 25% of its assets in industrial development bonds, but may not
invest more than 25% of its assets in industrial development bonds in projects
of similar type or in the same state.
MONEY MARKET INSTRUMENTS. The Portfolio may also invest in municipal notes of
various types, including notes issued in anticipation of receipt of taxes, the
proceeds of the sale of bonds, other revenues or grant proceeds, as well as
municipal commercial paper and municipal demand obligations such as variable
rate demand notes and master demand obligations. The interest rate on variable
rate demand notes is adjustable at periodic intervals as specified in the notes.
Master demand obligations permit the investment of fluctuating amounts at
periodically adjusted interest rates. They are governed by agreements between
the municipal issuer and Morgan acting as agent, for no additional fee, in its
capacity as Advisor to the Portfolio and as fiduciary for other clients.
Although master demand obligations are not marketable to third parties, the
Portfolio considers them to be liquid because they are payable on demand. For
more information about municipal notes, see Investment Objectives and Policies
in the Statement of Additional Information.
The Portfolio will invest in money market instruments that meet the quality
requirements described below except that short-term municipal obligations of New
York State issuers may be rated MIG-2 by Moody's or SP-2 by Standard & Poor's.
Under normal circumstances, the Portfolio will purchase these securities to
invest temporary cash balances or to maintain liquidity to meet withdrawals.
However, the Portfolio may also invest in money market instruments as a
temporary defensive measure taken during, or in anticipation of, adverse market
conditions.
QUALITY INFORMATION. The Portfolio will not purchase any municipal obligation
unless it is rated at least A, MIG-1 or Prime-1 by Moody's or A, SP-1 or A1 by
Standard & Poor's (except for short-term obligations of New York State issuers
as described above) or it is unrated and in Morgan's opinion it is of comparable
quality. These standards must be satisfied at the time an investment is made. If
the quality of the investment later declines, the Portfolio may continue to hold
the investment.
In certain circumstances, the Portfolio may also invest up to 20% of the value
of its total assets in taxable securities. In addition, the Portfolio may
purchase municipal obligations together with puts, purchase municipal
obligations on a when-issued or delayed delivery basis, enter into repurchase
and reverse repurchase agreements, purchase synthetic variable rate instruments,
lend its portfolio securities and purchase certain privately placed securities.
For a discussion of these transactions, see Additional Investment Information
and Risk Factors.
6
<PAGE>
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and for fixed income securities no interest
accrues to the Portfolio until settlement. At the time of settlement a
when-issued security may be valued at less than its purchase price. The
Portfolio maintains with the Custodian a separate account with a segregated
portfolio of securities in an amount at least equal to these commitments. When
entering into a when-issued or delayed delivery transaction, the Portfolio will
rely on the other party to consummate the transaction; if the other party fails
to do so, the Portfolio may be disadvantaged. It is the current policy of the
Portfolio not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions with brokers, dealers or banks that meet the credit guidelines
established by the Portfolio's Trustees. In a repurchase agreement, the
Portfolio buys a security from a seller that has agreed to repurchase it at a
mutually agreed upon date and price, reflecting the interest rate effective for
the term of the agreement. The term of these agreements is usually from
overnight to one week. A repurchase agreement may be viewed as a fully
collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities as collateral with a market value at least equal to
the purchase price plus accrued interest and this value is maintained during the
term of the agreement. If the seller defaults and the collateral value declines,
the Portfolio might incur a loss. If bankruptcy proceedings are commenced with
respect to the seller, the Portfolio's realization upon the disposition of
collateral may be delayed or limited. Investments in certain repurchase
agreements and certain other investments which may be considered illiquid are
limited. See Illiquid Investments; Privately Placed and other Unregistered
Securities below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in an amount up to 33 1/3% of
the value of the Portfolio's net assets. The Portfolio may lend its securities
if such loans are secured continuously by cash or equivalent collateral or by a
letter of credit in favor of the Portfolio at least equal at all times to 100%
of the market value of the securities loaned, plus accrued interest. While such
securities are on loan, the borrower will pay the Portfolio any income accruing
thereon. Loans will be subject to termination by the Portfolio in the normal
settlement time, generally three business days after notice, or by the borrower
on one day's notice. Borrowed securities must be returned when the loan is
terminated. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the Portfolio and its
respective investors. The Portfolio may pay reasonable finders' and custodial
fees in connection with a loan. In addition, the Portfolio will consider all
facts and circumstances, including the creditworthiness of the borrowing
financial institution, and the Portfolio will not make any loans in excess of
one year.
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
7
<PAGE>
Company Act of 1940, as amended (the "1940 Act"), it is considered a form of
borrowing by the Portfolio and, therefore, is a form of leverage. Leverage may
cause any gains or losses of the Portfolio to be magnified. For more
information, see Investment Objectives and Policies in the Statement of
Additional Information.
TAXABLE INVESTMENTS. The Portfolio attempts to invest its assets in tax exempt
municipal securities; however, the Portfolio is permitted to invest up to 20% of
the value of its total assets in securities, the interest income on which may be
subject to federal, state or local income taxes. The Portfolio may make taxable
investments pending investment of proceeds from sales of its interests or
portfolio securities, pending settlement of purchases of portfolio securities,
to maintain liquidity or when it is advisable in Morgan's opinion because of
adverse market conditions. The Portfolio will invest in taxable securities only
if there are no tax exempt securities available for purchase or if the expected
return from an investment in taxable securities exceeds the expected return on
available tax exempt securities. In abnormal market conditions, if, in the
judgment of Morgan, tax exempt securities satisfying the Portfolio's investment
objective may not be purchased, the Portfolio may, for defensive purposes only,
temporarily invest more than 20% of its net assets in debt securities the
interest on which is subject to federal, state or local income taxes. The
taxable investments permitted for the Portfolio include obligations of the U.S.
Government and its agencies and instrumentalities, bank obligations, commercial
paper and repurchase agreements and other debt securities which meet the
Portfolio's quality requirements. See Taxes.
PUTS. The Portfolio may purchase without limit municipal bonds or notes together
with the right to resell them at an agreed price or yield within a specified
period prior to maturity. This right to resell is known as a put. The aggregate
price paid for securities with puts may be higher than the price which otherwise
would be paid. Consistent with the investment objective of the Portfolio and
subject to the supervision of the Trustees, the purpose of this practice is to
permit the Portfolio to be fully invested in tax exempt securities while
maintaining the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large withdrawals, to purchase at a later date
securities other than those subject to the put and to facilitate Morgan's
ability to manage the portfolio actively. The principal risk of puts is that the
put writer may default on its obligation to repurchase. Morgan will monitor each
writer's ability to meet its obligations under puts.
The amortized cost method is used by the Portfolio to value all municipal
securities with maturities of less than 60 days; when these securities are
subject to puts separate from the underlying securities, no value is assigned to
the puts. The cost of any such put is carried as an unrealized loss from the
time of purchase until it is exercised or expires. See the Statement of
Additional Information for the valuation procedure if the Portfolio were to
invest in municipal securities with maturities of 60 days or more that are
subject to separate puts.
SYNTHETIC VARIABLE RATE INSTRUMENTS. The Portfolio may invest in certain
synthetic variable rate instruments. Such instruments generally involve the
deposit of a long-term tax exempt bond in a custody or trust arrangement and the
creation of a mechanism to adjust the long-term interest rate on the bond to a
variable short-term rate and a right (subject to certain conditions) on the part
of the purchaser to tender it periodically to a third party at par. Morgan will
review the structure of synthetic variable rate instruments to identify credit
and liquidity risks (including the conditions under which the right to tender
the instrument would no longer be available) and will monitor those risks. In
the event that the right to tender the instrument is no longer available, the
risk to the Portfolio will be that of holding the long-term bond.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may not acquire any illiquid securities if, as a result thereof, more
than 15% of the market value of the Portfolio's net assets would be in illiquid
investments. Subject to this non-fundamental policy limitation, the Portfolio
may acquire investments that
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<PAGE>
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.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio are
subject to the following fundamental limitations: (a) the Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except U.S. government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer.
The investment objective of the Fund and the Portfolio, together with the
investment restrictions described below and in the Statement of Additional
Information, except as noted, are deemed fundamental policies, i.e., they may be
changed only with the approval of the holders of a majority of the outstanding
voting securities of the Fund and the Portfolio. The Fund has the same
investment restrictions as the Portfolio, except that the Fund may invest all of
its investable assets in another open-end investment company with the same
investment objective and restrictions (such as the Portfolio). References below
to the Portfolio's investment restrictions also include the Fund's investment
restrictions.
The Portfolio may not (i) borrow money, except from banks for extraordinary or
emergency purposes and then only in amounts up to 10% of the value of the
Portfolio's total assets, taken at cost at the time of borrowing, or purchase
securities while borrowings exceed 5% of its total assets; or mortgage, pledge
or hypothecate any assets except in connection with any such borrowings in
amounts up to 10% of the value of the Portfolio's net assets at the time of
borrowing; or (ii) acquire industrial revenue bonds if as a result more than 5%
of the Portfolio's total assets would be invested in industrial revenue bonds
where payment of principal and interest is the responsibility of companies with
fewer than three years of operating history.
For a more detailed discussion of the above investment restrictions, as well as
a description of certain other investment restrictions, see Investment
Restrictions in the Statement of Additional Information.
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MANAGEMENT OF THE TRUST AND THE PORTFOLIO
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the
Portfolio, the Trustees decide upon matters of general policy and review the
actions of the Advisor and other service providers. The Trustees of the Trust
and of the Portfolio are identified below.
<TABLE>
<S> <C>
Frederick S. Addy.................................. Former Executive Vice President and Chief
Financial Officer, Amoco Corporation
William G. Burns................................... Former Vice Chairman of the Board and Chief
Financial Officer, NYNEX Corporation
Arthur C. Eschenlauer.............................. Former Senior Vice President, Morgan Guaranty
Trust Company of New York
Matthew Healey..................................... Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi................................ Former Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast
Group
</TABLE>
A majority of the disinterested Trustees have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust, the Portfolio and
The JPM Institutional Funds, up to and including creating a separate board of
trustees. See Trustees and Officers in the Statement of Additional Information
for more information about the Trustees and Officers of the Fund and the
Portfolio.
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pierpont
Group, Inc. in providing these services. Pierpont Group, Inc. was organized in
1989 at the request of the Trustees of The Pierpont Family of Funds for the
purpose of providing these services at cost to 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 $197 billion (of which the Advisor advises over $30
billion). Morgan provides investment advice and portfolio management services to
the Portfolio. Subject to the supervision of the Portfolio's Trustees, Morgan
makes the Portfolio's day-to-day investment decisions, arranges for the
execution of portfolio transactions and generally manages the Portfolio's
investments. See Investment Advisor in the Statement of Additional Information.
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<PAGE>
Morgan uses a sophisticated, disciplined, collaborative process for managing all
asset classes. For fixed income portfolios, this process focuses on the
systematic analysis of real interest rates, sector diversification and
quantitative and credit analysis. Morgan has managed portfolios of domestic
fixed income securities on behalf of its clients for over fifty years. The
Portfolio managers making investments in domestic fixed income securities work
in conjunction with fixed income, credit, capital market and economic research
analysts, as well as traders and administrative officers.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio and its predecessor
entity (the inception date of each person's responsibility for the Portfolio (or
its predecessor) and his or her business experience for the past five years is
indicated parenthetically): Elizabeth A. Augustin, Vice President (since
January, 1992, employed by Morgan since prior to 1991) and Gregory J. Harris,
Vice President (since January, 1996, employed by Morgan since prior to 1991).
As compensation for the services rendered and related expenses borne by Morgan
under the Investment Advisory Agreement with the Portfolio, the Portfolio has
agreed to pay Morgan a fee, which is computed daily and may be paid monthly, at
the annual rate of 0.30% of the Portfolio's average daily net assets.
Under separate agreements, Morgan also provides 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. Pursuant to Co-Administration Agreements with the Trust and
the Portfolio, Funds Distributor, Inc. ("FDI") serves as the Co-Administrator
for the Fund and the Portfolio. FDI (i) provides office space, equipment and
clerical personnel for maintaining the organization and books and records of the
Fund and the Portfolio; (ii) provides officers for the Trust and the Portfolio;
(iii) prepares and files documents required for notification of state securities
administrators; (iv) reviews and files marketing and sales literature; (v) files
Portfolio regulatory documents and mails Portfolio communications to Trustees
and investors; and (vi) maintains related books and records.
For its services under the Co-Administration Agreements, each of the Fund and
the Portfolio has agreed to pay FDI fees equal to its allocable share of its
annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the Fund or the Portfolio is based on the ratio of its net
assets to the aggregate net assets of the Trust and certain other registered
investment companies subject to similar agreements with FDI.
ADMINISTRATIVE SERVICES AGENT. Pursuant to Administrative Services Agreements
with the Trust and the Portfolio, Morgan provides administrative and related
services to the Fund and the Portfolio, including services related to tax
compliance, preparation of financial statements, calculation of performance
data, oversight of service providers and certain regulatory and Board of
Trustees matters.
Under the Administrative Services Agreements, each of the Fund and the Portfolio
has agreed to pay Morgan fees equal to its allocable share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate net
assets of the Trust and certain other registered investment companies managed by
the Advisor in accordance with the following annual schedule: 0.09% on the first
$7 billion of their aggregate average daily net assets and 0.04% of their
aggregate average daily net assets in excess of $7 billion, less the
complex-wide fees payable to FDI.
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<PAGE>
DISTRIBUTOR. FDI, a registered broker-dealer, also serves as the Distributor of
shares of the Fund and as exclusive placement agent for the Portfolio. FDI is a
wholly-owned indirect subsidiary of Boston Institutional Group, Inc. FDI's
principal business address is 60 State Street, Suite 1300, Boston, Massachusetts
02109.
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 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
custodian fees and brokerage expenses.
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 value of Fund shares
owned by or for shareholders for whom Morgan is acting as shareholder servicing
agent) of 0.20% of the Fund's average daily net assets. Under the terms of the
Shareholder Servicing Agreement with the Fund, Morgan may delegate one or more
of its responsibilities to other entities at Morgan's expense.
The Fund may be sold to or through Eligible Institutions, including financial
institutions and broker-dealers, that may be paid fees by Morgan or its
affiliates for services provided to their clients that invest in the Fund. See
Eligible Institutions. Organizations that provide recordkeeping or other
services to certain employee benefit or retirement plans that include the Fund
as an investment alternative may also be paid a fee.
Shareholders should address all inquiries to J.P. Morgan Funds Services, Morgan
Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York 10036
or call (800) 521-5411.
The business days of the Fund and the Portfolio are the days the New York Stock
Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
as 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 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
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<PAGE>
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 Trust 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 JPM 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 certain investors, including investors for whom
the Advisor is a fiduciary, who are employees of the Advisor, who maintain
related accounts with the Fund, other JPM Pierpont Funds or the Advisor, who
make investments for a group of clients, such as financial advisors, trust
companies and investment advisors, or who maintain retirement accounts with the
Funds.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value per share next determined after
receipt of an order. Prospective investors may purchase shares with the
assistance of an Eligible Institution that may establish its own terms,
conditions and charges.
To purchase shares in the Fund, investors should request their Morgan
representative (or a representative of their Eligible Institution) to assist
them in placing a purchase order with the Fund's Distributor. Any shareholder
may also call J.P. Morgan Funds Services at (800) 521-5411 for assistance in
placing an order for Fund shares. If the Fund receives a purchase order prior to
4:00 P.M. New York time on any business day, the purchase of Fund shares is
effective and is made at the net asset value determined that day. If the Fund
receives a purchase order after 4:00 P.M. New York time, the purchase is
effective and is made at net asset value determined on the next business day.
All purchase orders for Fund shares must be accompanied by instructions to
Morgan (or an Eligible Institution) to transfer immediately available funds to
the Fund's Distributor on settlement date. The settlement date is generally the
business day after the purchase is effective. The purchaser will begin to
receive the daily dividends on the settlement date. See Dividends and
Distributions.
ELIGIBLE INSTITUTIONS. The services provided by Eligible Institutions may
include establishing and maintaining shareholder accounts, processing purchase
and redemption transactions, arranging for bank wires, performing 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.
Although there is no sales charge levied directly by the Fund, Eligible
Institutions may establish their own terms and conditions for providing their
services and may charge investors a transaction-based or other fee for their
services. Such charges may vary among Eligible Institutions but in all cases
will be retained by the Eligible Institution and not remitted to the Fund or
Morgan.
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<PAGE>
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
JPM Pierpont Funds.
A redemption request received by the Fund or its agent prior to 4:15 P.M. New
York time is effective on that day. A redemption request received after that
time becomes effective on the next business day. Proceeds of an effective
redemption are deposited on settlement date in immediately available funds to
the shareholder's account at Morgan or at his Eligible Institution or, in the
case of certain Morgan customers, are mailed by check or wire transferred in
accordance with the customer's instructions. The redeemer will continue to
receive dividends on these shares through the day before the settlement date.
Settlement date is generally the next business day after a redemption is
effective and, subject to Further Redemption Information below, in any event is
within seven days. See Dividends and Distributions.
MANDATORY REDEMPTION BY THE FUND. If the value of a shareholder's holdings in
the Fund falls below the applicable minimum investment amount 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 applicable
minimum investment amount or more. Investors who were shareholders of a JPM
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 JPM 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 JPM 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
14
<PAGE>
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 JPM Pierpont Funds and The
JPM Institutional Funds. See also Additional Information below for an
explanation of the telephone exchange policy of The JPM Pierpont Funds.
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income tax
purposes. The Fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state
securities laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute substantially all of its net investment income.
The net investment income of the Fund is declared as a dividend daily
immediately prior to the determination of the net asset value of the Fund on
that day and paid monthly. If an investor's shares are redeemed during a month,
accrued but unpaid dividends are paid with the redemption proceeds. The net
investment income of the Fund for dividend purposes consists of its pro rata
share of the net income of the Portfolio less the Fund's expenses. Expenses of
the Fund and the Portfolio, including the fees payable to Morgan, are accrued
daily. Shares will accrue dividends as long as they are issued and outstanding.
Shares are issued and outstanding as of the settlement date of a purchase order
to the settlement date of a redemption order.
Substantially all the realized net capital gains, if any, of the Fund are
declared and paid on an annual basis, except that an additional capital gains
distribution may be made in a given year to the extent necessary to avoid the
imposition of federal excise tax on the Fund.
Dividends and capital gains distributions paid by the Fund are automatically
reinvested in additional shares of the Fund unless the shareholder has elected
to have them paid in cash. Dividends and distributions to be paid in cash are
credited to the shareholder's account at Morgan or at his Eligible Institution
or, in the case of certain Morgan customers, are mailed by check in accordance
with the customer's instructions. The Fund reserves the right to discontinue,
alter or limit the automatic reinvestment privilege at any time.
NET ASSET VALUE
Net asset value per share for the Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in the
Portfolio and other assets) the amount of its liabilities and dividing the
remainder by the number of its outstanding shares, rounded to the nearest cent.
Expenses, including the fees payable to Morgan, are accrued daily. See Net Asset
Value in the Statement of Additional Information for information on valuation of
portfolio securities for the Portfolio.
The Fund computes its net asset value once daily at 4:00 P.M. New York time on
Monday through Friday, except that the net asset value is not computed for the
Fund 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.
The Fund intends to qualify to pay exempt-interest dividends to its shareholders
by having, at the close of each quarter of its taxable year, at least 50% of the
value of its total assets consist of tax exempt securities. An exempt-interest
dividend is that part of dividend distributions made by the Fund which consists
of interest received by the Fund on tax exempt securities. Exempt-interest
dividends received from the Fund will be treated for federal income tax purposes
as tax exempt interest income. In view of the Fund's investment policies, it is
expected that a substantial portion of the Fund's dividends will be
exempt-interest dividends, although the Fund may from time to time realize and
distribute net short-term capital gains and may invest limited amounts in
taxable securities under certain circumstances. See Taxable Investments.
Interest on certain tax exempt municipal obligations issued after August 7, 1986
is a preference item for purposes of the alternative minimum tax applicable to
individuals and corporations. Under tax regulations to be issued, the portion of
an exempt-interest dividend of a regulated investment company that is allocable
to these obligations will be treated as a preference item for purposes of the
alternative minimum tax.
Corporations should, however, be aware that interest on all municipal securities
will be included in calculating (i) adjusted current earnings for purposes of
the alternative minimum tax applicable to them, (ii) the additional tax imposed
on certain corporations by the Superfund Revenue Act of 1986, and (iii) the
foreign branch profits tax imposed on effectively connected earnings and profits
of United States branches of foreign corporations. Furthermore, special tax
provisions may apply to certain financial institutions and property and casualty
insurance companies, and they should consult their tax advisors before
purchasing shares of the Fund.
Interest on indebtedness incurred or continued by a shareholder (whether a
corporation or an individual) to purchase or carry shares of the Fund is not
deductible. The Treasury has been given authority to issue regulations which
would disallow the interest deduction if incurred to purchase or carry shares of
the Fund owned by the taxpayer's spouse, minor child or entity controlled by the
taxpayer. Entities or persons who are "substantial users" (or related persons)
of facilities financed by tax exempt bonds should consult their tax advisors
before purchasing shares of the Fund.
Distributions of taxable net investment income and realized net short-term
capital gains in excess of net long-term capital losses are taxable as ordinary
income to shareholders of the Fund whether such distributions are taken in cash
or reinvested in additional shares. Distributions of this type to corporate
shareholders of the Fund are not eligible for the dividends-received deduction.
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Distributions of net long-term capital gains in excess of net short-term capital
losses are taxable to shareholders of the Fund as long-term capital gains
regardless of how long a shareholder has held shares in the Fund and regardless
of whether taken in cash or reinvested in additional shares. Long-term capital
gains distributions to corporate shareholders are not eligible for the
dividends-received deduction.
Any distribution of capital gains will have the effect of reducing the net asset
value of Fund shares held by a shareholder by the same amount as the
distribution. If the net asset value of the shares is reduced below a
shareholder's cost as a result of such a distribution, the distribution,
although constituting a return of capital to the shareholder, will be taxable as
described above.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
such shares. In addition, any loss realized by a shareholder upon the redemption
or exchange of shares in the Fund held six months or less will be disallowed to
the extent of any exempt-interest dividends received by the shareholder with
respect to these shares. See Taxes in the Statement of Additional Information.
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The financial
statements appearing in annual reports are audited by independent accountants.
Shareholders also will be sent confirmations of each purchase and redemption and
monthly statements, reflecting all other account activity, including dividends
and any distributions reinvested in additional shares or credited as cash.
All shareholders are given the privilege to initiate transactions automatically
by telephone upon opening an account. However, an investor should be aware that
a transaction authorized by telephone and reasonably believed to be genuine by
the Fund, Morgan, his Eligible Institution or the Distributor may subject the
investor to risk of loss if such instruction is subsequently found not to be
genuine. The Fund will employ reasonable procedures, including requiring
investors to give their Personal Identification Number and tape recording of
telephone instructions, to confirm that instructions communicated from investors
by telephone are genuine; if it does not, the Fund, the Shareholder Servicing
Agent or a shareholder's Eligible Institution may be liable for any losses due
to unauthorized or fraudulent instructions.
The Fund may make historical performance information available and may compare
its performance to other investments or relevant indexes, including data from
Lipper Analytical Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson
Associates, Standard & Poors 500 Composite Stock Price Index, the Dow Jones
Industrial Average, the Frank Russell Indexes and other industry publications.
The Fund may advertise "yield" and "tax equivalent yield". Yield refers to the
net income generated by an investment in the Fund over a stated 30-day period.
This income is then annualized--i.e., the amount of income generated by the
investment during the 30-day period is assumed to be generated each 30-day
period for twelve periods and is shown as a percentage of the investment. The
income earned on the investment is also assumed to be reinvested at the end of
the sixth 30-day period. The tax equivalent yield is calculated similarly to the
yield for the Fund, except that the yield is increased using a stated income tax
rate to demonstrate the taxable yield necessary to produce an after-tax
equivalent to the Fund.
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The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of
operations, if less) assuming that all distributions and dividends by the Fund
were reinvested on the reinvestment dates during the period and less all
recurring fees. These methods of calculating yield and total return are required
by regulations of the Securities and Exchange Commission. Yield and total return
data similarly calculated, unless otherwise indicated, over other specified
periods of time may also be used. See Performance Data in the Statement of
Additional Information. All performance figures are based on historical earnings
and are not intended to indicate future performance. Shareholders may obtain
performance information by calling Morgan at (800) 521-5411.
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APPENDIX
The Portfolio is permitted to enter into the futures and options transactions
described below, but it does not currently intend to do so.
The Portfolio may (a) purchase and sell exchange traded and over-the-counter
(OTC) put and call options on fixed income securities and indexes of fixed
income securities, (b) purchase and sell futures contracts on fixed income
securities and indexes of fixed income securities and (c) purchase put and call
options on futures contracts on fixed income securities and indexes of fixed
income securities.
The Portfolio may use futures contracts and options for hedging purposes. The
Portfolio may not use futures contracts and options for speculation.
The Portfolio may utilize options and futures contracts to manage its exposure
to changing interest rates and/or security prices. Some options and futures
strategies, including selling futures contracts and buying puts, tend to hedge
the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Advisor and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which involves
investment strategies and risks different from those associated with ordinary
portfolio securities transactions, and there can be no guarantee that their use
will increase the Portfolio's return. While the use of these instruments by the
Portfolio may reduce certain risks associated with owning its portfolio
securities, these techniques themselves entail certain other risks. If the
Advisor applies a strategy at an inappropriate time or judges market conditions
or trends incorrectly, options and futures strategies may lower the Portfolio's
return. Certain strategies limit the Portfolio's possibilities to realize gains
as well as limiting its exposure to losses. The Portfolio could also experience
losses if the prices of its options and futures positions were poorly correlated
with its other investments, or if it could not close out its positions because
of an illiquid secondary market. In addition, the Portfolio will incur
transaction costs, including trading commissions and option premiums, in
connection with its futures and options transactions and these transactions
could significantly increase the Portfolio's turnover rate.
The Portfolio may purchase put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts, only
if such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Portfolio's net assets, and (ii) the aggregate margin deposits required on all
such futures or options thereon held at any time do not exceed 5% of the
Portfolio's total assets.
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by
allowing it to expire or by
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exercising the option. The Portfolio may also close out a put option position by
entering into an offsetting transaction, if a liquid market exists. If the
option is allowed to expire, the Portfolio will lose the entire premium it paid.
If the Portfolio exercises a put option on a security, it will sell the
instrument underlying the option at the strike price. If the Portfolio exercises
an option on an index, settlement is in cash and does not involve the actual
sale of securities. If an option is American style, it may be exercised on any
day up to its expiration date. A European style option may be exercised only on
its expiration date.
The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the instrument underlying the option at the option's strike price. A
call buyer typically attempts to participate in potential price increases of the
instrument underlying the option with risk limited to the cost of the option if
security prices fall. At the same time, the buyer can expect to suffer a loss if
security prices do not rise sufficiently to offset the cost of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put option,
it takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the instrument underlying the option if the other party to
the option chooses to exercise it. The Portfolio may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a put
option the Portfolio has written, however, the Portfolio must continue to be
prepared to pay the strike price while the option is outstanding, regardless of
price changes, and must continue to post margin as discussed below.
If the price of the underlying instrument rises, a put writer would generally
expect to profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it is likely
that the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would expect to
suffer a loss. This loss should be less than the loss from purchasing and
holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.
Writing a call option obligates the Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an index of
securities or a futures contract is required to deposit cash or securities or a
letter of credit as margin and to make mark to market payments of variation
margin as the position becomes unprofitable.
OPTIONS ON INDEXES. The Portfolio may purchase and sell (write) put and call
options on any securities index based on securities in which the Portfolio may
invest. Options on securities indexes are similar to options on securities,
except that the exercise of securities index options is settled by cash payment
and does not involve the
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actual purchase or sale of securities. In addition, these options are designed
to reflect price fluctuations in a group of securities or segment of the
securities market rather than price fluctuations in a single security. The
Portfolio, in purchasing or selling index options, is subject to the risk that
the value of its portfolio securities may not change as much as an index because
the Portfolio's investments generally will not match the composition of an
index.
For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Portfolio may incur additional
losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When the Portfolio purchases a futures contract, it agrees to purchase a
specified quantity of an underlying instrument at a specified future date or to
make a cash payment based on the value of a securities index. When the Portfolio
sells a futures contract, it agrees to sell a specified quantity of the
underlying instrument at a specified future date or to receive a cash payment
based on the value of a securities index. The price at which the purchase and
sale will take place is fixed when the Portfolio enters into the contract.
Futures can be held until their delivery dates or the position can be (and
normally is) closed out before then. There is no assurance, however, that a
liquid market will exist when the Portfolio wishes to close out a particular
position.
When the Portfolio purchases a futures contract, the value of the futures
contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase the Portfolio's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying instrument
directly. When the Portfolio sells a futures contract, by contrast, the value of
its futures position will tend to move in a direction contrary to the value of
the underlying instrument. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
The purchaser or seller of a futures contract is not required to deliver or pay
for the underlying instrument unless the contract is held until the delivery
date. However, when the Portfolio buys or sells a futures contract it will be
required to deposit "initial margin" with its Custodian in a segregated account
in the name of its futures broker, known as a futures commission merchant (FCM).
Initial margin deposits are typically equal to a small percentage of the
contract's value. If the value of either party's position declines, that party
will be required to make additional "variation margin" payments equal to the
change in value on a daily basis. The party that has a gain may be entitled to
receive all or a portion of this amount. The Portfolio may be obligated to make
payments of variation margin at a time when it is disadvantageous to do so.
Furthermore, it may not always be possible for the Portfolio to close out its
futures positions. Until it closes out a futures position, the Portfolio will be
obligated to continue to pay variation margin. Initial and variation margin
payments do not constitute purchasing on margin for purposes of the Portfolio's
investment restrictions. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.
The Portfolio will segregate liquid, high quality assets in connection with its
use of options and futures contracts to the extent required by the staff of the
Securities and Exchange Commission. Securities held in a segregated account
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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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<TABLE>
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The
JPM Pierpont
Tax Exempt
Bond Fund
</TABLE>
<TABLE>
<S> <C>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE TRUST OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER BY THE TRUST OR BY THE DISTRIBUTOR TO SELL OR A SOLICITATION OF
ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE TRUST OR THE
DISTRIBUTOR TO MAKE SUCH OFFER IN SUCH JURISDICTION. PROSPECTUS
PROS206-9612 DECEMBER 27, 1996
</TABLE>
<PAGE>
PROSPECTUS
THE JPM PIERPONT FUNDS
60 STATE STREET, BOSTON, MASSACHUSETTS 02109
FOR INFORMATION CALL (800) 521-5411
THE JPM 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 JPM PIERPONT FUNDS, AN OPEN-END
MANAGEMENT INVESTMENT COMPANY ORGANIZED AS A MASSACHUSETTS BUSINESS TRUST (THE
"TRUST"). WITH A BROAD RANGE OF INVESTMENT CHOICES, THE JPM 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 JPM 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 JPM 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 JPM 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 JPM 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 JPM 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 JPM 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 JPM 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 JPM 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 JPM 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 JPM 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 JPM 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 JPM 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 JPM 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 JPM 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 JPM PIERPONT
FUNDS, OR BY CALLING (800) 221-7930.
INVESTMENTS IN THE JPM 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 JPM 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 JPM PIERPONT MONEY MARKET FUND, THE JPM PIERPONT
TAX EXEMPT MONEY MARKET FUND AND THE JPM PIERPONT TREASURY MONEY MARKET FUND
SEEK TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, THERE CAN BE NO
ASSURANCE THAT THEY WILL BE ABLE TO CONTINUE TO DO SO.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COM-
MISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PRO-
SPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER 27, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
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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..................... 28
Management of the Trust and the
Portfolios.................................. 30
Shareholder Servicing....................... 33
PAGE
---------
Purchase of Shares.......................... 34
Redemption of Shares........................ 35
Exchange of Shares.......................... 36
Dividends and Distributions................. 37
Net Asset Value............................. 38
Organization................................ 38
Taxes....................................... 39
Additional Information...................... 41
Appendix.................................... A-1
</TABLE>
<PAGE>
THE JPM PIERPONT FUNDS
INVESTORS FOR WHOM THE FUNDS ARE DESIGNED
The JPM 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 JPM Pierpont Money Market Fund, The JPM
Pierpont Tax Exempt Money Market Fund and The JPM Pierpont Treasury Money Market
Fund. For investors seeking higher current income in exchange for some risk of
capital, The JPM Pierpont Short Term Bond Fund, The JPM Pierpont Bond Fund and
The JPM Pierpont Tax Exempt Bond Fund and The JPM Pierpont New York Total Return
Bond Fund are available. For those investors who wish to participate primarily
in the U.S. equity markets, The JPM Pierpont Equity Fund and The JPM Pierpont
Capital Appreciation Fund are attractive alternatives. The JPM Pierpont
International Equity Fund and The JPM 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 JPM Pierpont Diversified Fund is
available.
The JPM Pierpont Money Market Fund, The JPM Pierpont Tax Exempt Money Market
Fund and The JPM 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
JPM 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 JPM 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 JPM Pierpont
International Equity Fund's and The JPM 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 JPM Pierpont Funds is
$100,000, except that the minimum initial investment in The JPM Pierpont Money
Market Fund, The JPM Pierpont Tax Exempt Money Market Fund, and The JPM Pierpont
Treasury Money Market Fund is $25,000. For investors who were shareholders of a
JPM 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 JPM Pierpont Funds to enable
investors to select the Funds which best suit their needs. The JPM Pierpont
Funds operate in a two-tier master-feeder investment fund structure. Formerly,
The JPM Pierpont Money Market Fund, The JPM Pierpont Tax Exempt Money Market
Fund, The JPM Pierpont Bond Fund, The JPM Pierpont Tax Exempt Bond Fund, The JPM
Pierpont Equity Fund, The JPM Pierpont Capital Appreciation Fund and The JPM
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 JPM 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 JPM 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>
* Certain Eligible Institutions (defined below) may impose
fees in connection with the purchase of the Funds'
shares through such institutions.
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% 0.19% 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% 0.28% 0.20% 0.25% 0.43% 0.36% 0.44% 0.30%
----------- ----------- ----------- ----------- --------- ----------- ----------- ------
Total Operating Expenses
(after applicable expense
reimbursement)........... 0.41% 0.47% 0.40% 0.50% 0.73% 0.66% 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 JPM 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 JPM 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, 1996 0.48%
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, 1996 0.64%
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 $ 5 $ 7 $ 7 $ 9
3 Years.............. $ 13 $ 15 $ 13 $ 16 $ 23 $ 21 $ 27
5 Years.............. $ 23 $ 26 $ 22 $ 28 $ 41 $ 37 $ 47
10 Years............. $ 52 $ 59 $ 51 $ 63 $ 91 $ 82 $ 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 JPM 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.</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
THE JPM PIERPONT TAX EXEMPT MONEY MARKET FUND
FOR THE FISCAL YEAR ENDED AUGUST 31
--------------------------------------------------------------------------
1996 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 0.0318 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 0.0318 0.0334 0.0212 0.0215 0.0319 0.0460
------------ ------------ ------------ ---------- --------- ---------
Less Distributions to
Shareholders From:
Net Investment Income (0.0318) (0.0336) (0.0212) (0.0214) (0.0317) (0.0460)
Net Realized Gain -- -- (0.0000)(a) (0.0002) -0- -0-
------------ ------------ ------------ ---------- --------- ---------
Total Distributions to
Shareholders (0.0318) (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 3.23% 3.41% 2.14% 2.15% 3.19% 4.60%
Ratios and Supplemental Data:
Net Assets at End of
Period (in thousands) $1,050,371 $985,069 $973,599 $1,007,330 $922,358 $877,422
Ratios to Average Net
Assets:
Expenses 0.48% 0.51% 0.52% 0.52% 0.53% 0.55%
Net Investment Income 3.17% 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.</FN>
</TABLE>
<TABLE>
<CAPTION>
THE JPM PIERPONT TREASURY MONEY MARKET FUND
FOR THE SIX 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.</FN>
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
THE JPM 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.</FN>
</TABLE>
<TABLE>
<CAPTION>
FOR THE THE JPM 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.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
THE JPM PIERPONT TAX EXEMPT BOND FUND
FOR THE FISCAL YEAR ENDED AUGUST 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 $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 0.55 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 (0.08) 0.29 (0.35 ) 0.56 0.41 0.44 (0.10) 0.13 (0.12) (0.27)
-------- -------- ------ ------ -------- -------- -------- -------- -------- --------
Total From
Investment
Operations 0.47 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 (0.55) (0.55) (0.51 ) (0.55 ) (0.62) (0.68) (0.70) (0.71) (0.71) (0.69)
Net Realized
Gain (0.02) (0.01) (0.24 ) (0.12 ) -0- -0- -0- -0- -0- (0.04)
-------- -------- ------ ------ -------- -------- -------- -------- -------- --------
Total
Distributions to
Shareholders (0.57) (0.56) (0.75 ) (0.67 ) (0.62) (0.68) (0.70) (0.71) (0.71) (0.73)
-------- -------- ------ ------ -------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period $11.63 $11.73 $11.45 $12.04 $11.60 $11.19 $10.75 $10.85 $10.72 $10.84
-------- -------- ------ ------ -------- -------- -------- -------- -------- --------
-------- -------- ------ ------ -------- -------- -------- -------- -------- --------
Total Return 4.01% 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) $369,987 $352,005 $392,460 $485,013 $360,343 $239,709 $151,755 $133,638 $118,066 $137,944
Ratios to
Average Net
Assets:
Expenses 0.64% 0.71% 0.71% 0.74% 0.77% 0.78% 0.79% 0.80% 0.80% 0.80%
Net Investment
Income 4.67% 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.</FN>
</TABLE>
<TABLE>
<CAPTION>
THE JPM 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.
</FN>
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
THE JPM 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.</FN>
</TABLE>
<TABLE>
<CAPTION>
FOR THE THE JPM 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%.</FN>
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
THE JPM 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.</FN>
</TABLE>
<TABLE>
<CAPTION>
THE JPM 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.</FN>
</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 JPM PIERPONT MONEY MARKET FUND
The JPM 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
11
<PAGE>
rated and is determined to be of comparable quality. Determinations of
comparable quality shall be made in accordance with procedures established by
the Trustees. For a more detailed discussion of applicable quality requirements,
see Investment Objectives and Policies in the Statement of Additional
Information. These standards must be satisfied at the time an investment is
made. If the quality of the investment later declines below the quality required
for purchase, the Portfolio shall dispose of the investment, subject in certain
circumstances to a finding by the Trustees that disposing of the investment
would not be in the Portfolio's best interest.
The Portfolio may also invest in securities on a when-issued or delayed
delivery basis and in certain privately placed securities. The Portfolio may
also enter into repurchase and reverse repurchase agreements and loan its
portfolio securities. For a discussion of these investments and for more
information on foreign investments, see Additional Investment Information and
Risk Factors.
THE JPM PIERPONT TAX EXEMPT
MONEY MARKET FUND
The JPM 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
12
<PAGE>
the investment later declines below the quality required for purchase, the
Portfolio shall dispose of the investment, subject in certain circumstances to a
finding by the Trustees that disposing of the investment would not be in the
Portfolio's best interest. The credit quality of variable rate demand notes and
other municipal obligations is frequently enhanced by various arrangements with
domestic or foreign financial institutions, such as letters of credit,
guarantees and insurance, and these arrangements are considered, 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 JPM PIERPONT TREASURY
MONEY MARKET FUND
The JPM 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 JPM PIERPONT SHORT TERM BOND FUND
The JPM 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 JPM 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
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for interest rates. The Advisor also actively allocates the Portfolio's assets
among the broad sectors of the fixed income market including, but not limited
to, U.S. Government and agency securities, corporate securities, private
placements, asset-backed and mortgage-related securities. Specific securities
which the Advisor believes are undervalued are selected for purchase within the
sectors using advanced quantitative tools, analysis of credit risk, the
expertise of a dedicated trading desk, and the judgment of fixed income
portfolio managers and analysts.
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.
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MONEY MARKET INVESTMENTS. The Portfolio may invest in the types of money
market instruments in which The JPM Pierpont Money Market Fund may invest,
subject to the quality requirements of The JPM Pierpont Short Term Bond Fund.
See Quality Information below and Money Market Instruments in the Statement of
Additional Information. Under normal circumstances, the Portfolio will purchase
these securities to invest temporary cash balances or to maintain liquidity to
meet withdrawals. However, the Portfolio may also invest in money market
instruments as a temporary defensive measure taken during, or in anticipation
of, adverse market conditions.
QUALITY INFORMATION. Under normal market circumstances at least 80% of the
Portfolio's total assets will consist of debt securities that are rated at 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 JPM PIERPONT BOND FUND
The JPM 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 JPM 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 JPM 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 JPM Pierpont
Short Term Bond Fund.
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<PAGE>
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. Portfolio transactions are undertaken principally to
accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates, but the Portfolio may also engage in short-term
trading consistent with its objective. See Financial Highlights for historical
portfolio turnover information on the Fund's predecessor. To the extent the
Portfolio engages in short-term trading, it may incur increased transaction
costs. See Taxes below.
CORPORATE BONDS, ETC. The Portfolio may invest in the corporate debt
obligations permitted for The JPM Pierpont Short Term Bond Fund.
GOVERNMENT OBLIGATIONS, ETC. The Portfolio may invest in the government debt
obligations permitted for The JPM Pierpont Short Term Bond Fund.
MONEY MARKET INSTRUMENTS. The Portfolio may invest in the types of money
market instruments in which The JPM Pierpont Money Market Fund may invest,
subject to the quality requirements of The JPM 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 JPM PIERPONT TAX EXEMPT BOND FUND
The JPM 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 JPM 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 JPM 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
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<PAGE>
interest rates. The maturities of the individual securities in the Portfolio may
vary widely, however, as the Advisor adjusts the Portfolio's holdings of
long-term and short-term debt securities to reflect its assessment of
prospective changes in interest rates, which may adversely affect current
income.
The Portfolio intends to manage its portfolio actively in pursuit of its
investment objective. See Financial Highlights for historical portfolio turnover
information on the Fund's predecessor. Portfolio transactions are undertaken
principally to accomplish the Portfolio's objective in relation to expected
movements in the general level of interest rates, but the Portfolio may also
engage in short-term trading consistent with its objective. To the extent the
Portfolio engages in short-term trading, it may incur increased transaction
costs. See Taxes below. The portfolio turnover rate for the Portfolio for the
fiscal year ended August 31, 1996 was 25%.
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 JPM 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 JPM 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 JPM PIERPONT EQUITY FUND
The JPM 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 JPM 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
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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 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 JPM PIERPONT CAPITAL APPRECIATION FUND
The JPM 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 market capitalization size range of the Russell 2500
Index.
The JPM 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
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<PAGE>
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 JPM 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.
THE JPM PIERPONT INTERNATIONAL EQUITY FUND
The JPM 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 JPM 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
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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.
THE JPM PIERPONT EMERGING
MARKETS EQUITY FUND
The JPM 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 JPM 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.
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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.
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 JPM PIERPONT DIVERSIFIED FUND
The JPM 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 JPM 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
invest-
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ment 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 companies or small companies within economic sectors according to
their relative value. The Advisor then buys and sells securities within each
economic sector based on this valuation process to seek to enhance the
Portfolio's return. For foreign equities, the Portfolio's investment process
involves country allocation, stock selection and management of currency
exposure. The Advisor allocates this portion of the Portfolio by under- or
overweighting selected countries in the EAFE Index. Using a dividend discount
model and based on analysts' industry expertise, securities within each country
are ranked within economic sectors according to their relative value and those
which appear the most attractive are selected. Currency exposure is also
actively managed to protect and possibly enhance the market value of the
Portfolio. In addition, the Advisor uses this disciplined portfolio construction
process to seek to reduce the volatility of the large and medium capitalization
equity portion of the Portfolio relative to that of the S&P 500 Index, of the
small company portion of the Portfolio relative to that of the Russell 2000 and
of the foreign equity portion of the Portfolio relative to that of the EAFE
Index.
The Portfolio's equity investments will include common stock of any class or
series or any similar equity interest, such as trust or limited partnership
interests. The Portfolio's equity investments may also include preferred stock,
warrants, rights and 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 JPM 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
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better by Moody's or BBB or better by Standard & Poor's or are unrated and in
Morgan Guaranty's opinion are of comparable quality. The remaining 5% of the
Portfolio's fixed income investments may be debt securities that are rated Ba or
better by Moody's or BB or better by Standard & Poor's or are unrated and in
Morgan Guaranty's opinion are of comparable quality. Securities rated Baa by
Moody's or BBB by Standard & Poor's are considered investment grade, but have
some speculative characteristics. Securities rated Ba by Moody's or BB by
Standard & Poor's are below investment grade and considered to be speculative
with regard to payment of interest and principal. These standards must be
satisfied at the time an investment is made. If the quality of the investment
later declines, the Portfolio may continue to hold the investment. See Appendix
A in the Statement of Additional Information for more detailed information on
these ratings.
FOREIGN INVESTMENTS. The Portfolio may invest in common stocks and
convertible securities of foreign corporations as well as fixed income
securities of foreign government and corporate issuers. However, the Portfolio
does not expect to invest more than 30% of its assets at the time of purchase in
securities of foreign issuers. For further information on foreign investments
and foreign currency exchange transactions, see Additional Investment
Information and Risk Factors.
In addition, the Portfolio may invest in securities on a when-issued or
delayed delivery basis, enter into repurchase and reverse repurchase agreements,
loan its portfolio securities, purchase certain privately placed securities and
money market instruments and enter into forward contracts on foreign currencies.
The Portfolio may use options on securities and indexes of securities, futures
contracts and options on futures contracts for hedging and risk management
purposes. For a discussion of these investments and investment techniques, see
Additional Investment Information and Risk Factors.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
CONVERTIBLE SECURITIES. The Portfolios for The JPM Pierpont Short Term Bond
Fund, The JPM Pierpont Bond Fund, The JPM Pierpont Equity Fund, The JPM Pierpont
Capital Appreciation Fund, The JPM Pierpont International Equity Fund, The JPM
Pierpont Emerging Markets Equity Fund and The JPM 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 JPM Pierpont Equity Fund, The
JPM Pierpont Capital Appreciation Fund, The JPM Pierpont International Equity
Fund, The JPM Pierpont Emerging Markets Equity Fund and The JPM 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
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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 JPM Pierpont Treasury Money
Market Fund only enters into repurchase agreements involving Treasury Securities
and Permitted Agency Securities and under ordinary market conditions does not
expect to enter into repurchase agreements involving more than 5% of its net
assets. The term of these agreements is usually from overnight to one week. A
repurchase agreement may be viewed as a fully collateralized loan of money by
the Portfolio to the seller. The Portfolio always receives securities as
collateral with a market value at least equal to the purchase price plus accrued
interest and this value is maintained during the term of the agreement. If the
seller defaults and the collateral value declines, the Portfolio might incur a
loss. If bankruptcy proceedings are commenced with respect to the seller, the
Portfolio's realization upon the disposition of collateral may be delayed or
limited. Investments in certain repurchase agreements and certain other
investments which may be considered illiquid are limited. See Illiquid
Investments; Privately Placed and other Unregistered Securities below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
each of the Portfolios is permitted to lend its securities in an amount up to
33 1/3% of the value of the Portfolio's net assets. Each of the Portfolios may
lend its securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Portfolio
any income accruing thereon. Loans will be subject to termination by the
Portfolio in the normal settlement time, generally three business days after
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to a
Portfolio and its respective investors. The Portfolios may pay reasonable
finders' and custodial fees in connection with a loan. In addition, the
Portfolios will consider all facts and circumstances, including the
creditworthiness of the borrowing financial institution, and the Portfolios will
not make any loans in excess of one year.
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 JPM Pierpont Money
Market Fund, The JPM Pierpont Short Term Bond Fund, The JPM Pierpont Bond Fund,
The JPM Pierpont Equity Fund, The JPM Pierpont Capital Appreciation Fund and The
JPM Pierpont Diversified Fund may invest in certain foreign securities. The
Portfolios for The JPM Pierpont International Equity Fund and The JPM 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.
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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 JPM 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 JPM 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 JPM Pierpont Equity Fund, The JPM
Pierpont Capital Appreciation Fund, The JPM Pierpont International Equity Fund,
The JPM Pierpont Emerging Markets Equity Fund and The JPM 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 JPM
Pierpont Equity Fund, The JPM Pierpont Capital Appreciation Fund, The JPM
Pierpont International Equity Fund, The JPM Pierpont Emerging Markets Equity
Fund and The JPM Pierpont Diversified Fund buy and sell
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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 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 JPM PIERPONT TAX EXEMPT FUNDS. The Portfolios for
The JPM Pierpont Tax Exempt Money Market Fund and The JPM 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 JPM
Pierpont Money Market Fund, or the expected return, in the case of the Portfolio
for The JPM 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 JPM 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 JPM Pierpont Tax Exempt Bond Fund, other debt securities
which meet the Fund's quality requirements. See Taxes.
PUTS FOR THE JPM PIERPONT TAX EXEMPT FUNDS. The Portfolios for The JPM
Pierpont Tax Exempt Money Market Fund and The JPM Pierpont Tax Exempt Bond Fund
may purchase without limit municipal bonds or notes together with the right to
26
<PAGE>
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 JPM 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 JPM 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 JPM 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 JPM 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 JPM PIERPONT TAX EXEMPT FUNDS.
The Portfolios for The JPM 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 JPM Pierpont Tax Exempt Money
Market Fund may require the disposition of the bond which could be at a loss.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES.
Subject to the limitations described below, each of the Portfolios for The JPM
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 JPM 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 JPM Pierpont Funds is subject to the following
non-fundamental policies. The Portfolio for each of The JPM Pierpont Tax Exempt
Money Market Fund and The JPM 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 JPM 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 JPM 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 JPM Pierpont
Short Term Bond Fund, The JPM Pierpont Bond Fund, The JPM Pierpont Tax Exempt
Bond Fund, The JPM Pierpont Equity Fund, The JPM Pierpont Capital Appreciation
Fund and The JPM Pierpont International Equity Fund is permitted to enter into
the futures and op-
27
<PAGE>
tions transactions described in the Appendix to this Prospectus for hedging
purposes. The Portfolio for each of The JPM Pierpont Emerging Markets Equity
Fund and The JPM 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 JPM Pierpont Equity Fund,
The JPM Pierpont Capital Appreciation Fund, The JPM Pierpont International
Equity Fund, The JPM Pierpont Emerging Markets Equity Fund and The JPM 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 JPM 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 JPM
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 JPM 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-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 JPM 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 JPM 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 Portfo-
28
<PAGE>
lio'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 JPM 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 JPM Pierpont 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 JPM 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 JPM Pierpont Bond Fund is subject to the Industry
Concentration Restriction and the Senior Securities Restriction and may not
borrow money, except from banks for extraordinary or emergency purposes and then
only in amounts up to 30% of the value of the Portfolio's total assets taken at
cost at the time of borrowing and except in connection with reverse repurchase
agreements or purchase securities while borrowings, including reverse repurchase
agreements, exceed 5% of its total assets; or mortgage, pledge or hypothecate
any assets 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 JPM 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 JPM 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 JPM 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.
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<PAGE>
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 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 $197
billion (of which the Advisor advises over $30 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 mak-
30
<PAGE>
ing 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 JPM 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); The JPM
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 JPM Pierpont Treasury Money Market Fund: Robert R.
Johnson, Vice President (since January, 1993, employed by Morgan Guaranty since
prior to 1991) and Daniel B. Mulvey, Vice President (since October, 1996,
employed by Morgan Guaranty since September, 1991); The JPM 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 JPM 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 JPM 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 JPM 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 JPM 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), 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) and Candice Eggerss, Vice
President (since May, 1996, employed by Morgan since May, 1996, previously
employed by Weiss, Peck and Greer from June 1993 to May 1996 and Equitable
Capital Management prior to June 1993); The JPM 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 JPM Pierpont Emerging Markets Equity Fund: Douglas J.
Dooley, Managing Director (since November, 1993, employed by Morgan Guaranty
since prior to 1991), Satyen Mehta, Vice President (since November, 1993,
employed by Morgan Guaranty since prior to 1991) and Alejandro J. Baez-Sacasa,
Vice President (since April, 1995, employed by Morgan since prior to 1991); and
The JPM 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).
31
<PAGE>
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 JPM Pierpont Money Market, The
JPM Pierpont Tax Exempt Money Market, and The JPM 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 JPM Pierpont Short Term Bond Fund, 0.25%;
the Portfolio for The JPM Pierpont Bond and The JPM Pierpont Tax Exempt Bond
Funds, 0.30%; the Portfolio for The JPM Pierpont Equity Fund, 0.40%; the
Portfolios for The JPM Pierpont Capital Appreciation and The JPM Pierpont
International Equity Funds, 0.60%; the Portfolio for The JPM Pierpont Emerging
Markets Equity Fund, 1.00%; and the Portfolio for The JPM Pierpont Diversified
Fund, 0.55%. While the advisory fee for the Portfolio for The JPM 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 JPM 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. 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.
For its services under the Co-Administration Agreements, each of the Funds
and the Portfolio has agreed to pay FDI fees equal to its allocable share of an
annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to each Fund or Portfolio is based on the ratio of its net
assets to the aggregate net assets of the Trust and certain other registered
investment companies subject to similar agreements with FDI.
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, each Fund and
Portfolio has agreed 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
the aggregate net assets of the Portfolios and the other portfolios
(collectively the "Master Portfolios") in which series of the Trust or The JPM
Institutional 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 less the complex-wide fees payable to FDI.
DISTRIBUTOR. 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.
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
securi-
32
<PAGE>
ties 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 JPM Pierpont
Treasury Money
Market Fund........ 0.40% February 28, 1997
<CAPTION>
EXPENSE
FUND CAP DATE
- -------------------- ----------- -------------------
<S> <C> <C>
The JPM Pierpont
Short Term Bond
Fund............... 0.50% February 28, 1997
The JPM Pierpont
Capital
Appreciation Fund.. 0.90% September 30, 1997
The JPM 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.
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>
JPM Pierpont Money 0.15% of average daily
Market, JPM Pierpont net assets up to $2
Treasury Money Market, billion; 0.10%
and JPM Pierpont Tax thereafter
Exempt Money Market
JPM Pierpont Short Term 0.20% of average daily
Bond, net assets
JPM Pierpont Bond, and
JPM Pierpont Tax Exempt
Bond
JPM Pierpont Equity, JPM 0.25% of average daily
Pierpont Capital net assets
Appreciation, JPM
Pierpont International
Equity, JPM Pierpont
Emerging Markets JPM
Pierpont Equity, and JPM
Pierpont 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.
The Funds may be sold to or through Eligible Institutions, including
financial institutions and broker-dealers, that may be paid fees by Morgan or
its affiliates for services provided to their clients that invest in the Funds.
See Eligible Institutions. Organizations that provide recordkeeping or other
services to certain employee benefit or retirement plans that include the Funds
as an investment alternative may also be paid a fee.
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 each Fund and its corresponding Portfolio are the days
the New York Stock Exchange is open.
33
<PAGE>
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 agent for
the customer. All purchase orders must be accepted by the Distributor. Investors
must be customers of Morgan Guaranty or an Eligible Institution or
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 JPM 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 JPM Pierpont Money Market
Fund.............................. $ 25,000
The JPM Pierpont Tax Exempt Money
Market Fund....................... $ 25,000
The JPM Pierpont Treasury Money
Market Fund....................... $ 25,000
The JPM Pierpont Short Term Bond
Fund.............................. $ 100,000
The JPM Pierpont Bond Fund......... $ 100,000
The JPM Pierpont Tax Exempt Bond
Fund.............................. $ 100,000
The JPM Pierpont Equity Fund....... $ 100,000
The JPM Pierpont Capital
Appreciation Fund................. $ 100,000
The JPM Pierpont International
Equity Fund....................... $ 100,000
The JPM Pierpont Emerging Markets
Equity Fund....................... $ 100,000
The JPM Pierpont Diversified Fund.. $ 100,000
</TABLE>
For investors who were shareholders of a JPM Pierpont Fund as of September
29, 1995, the minimum initial investment in any other JPM Pierpont Fund is
$10,000. These minimum investment requirements may be waived for certain
investors, including investors for whom the Advisor is a fiduciary, who maintain
related accounts with the Funds or the Advisor, who make investments for a group
of clients, such as financial advisors, trust companies and investment advisors,
or who maintain retirement accounts with the Funds.
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 JPM PIERPONT MONEY MARKET, TAX EXEMPT MONEY MARKET, AND TREASURY MONEY
MARKET FUNDS. To purchase shares in The JPM Pierpont Money Market Fund, The JPM
Pierpont Tax Exempt Money Market Fund or The JPM 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 JPM
Pierpont Money Market, by 12:00 noon New York time on a business day in the case
of The JPM Pierpont Treasury Money Market Fund, and by 11:00 A.M. New York time
on a business day in the case of The JPM Pierpont Tax Exempt Money Market Fund,
for the purchase to be effective and dividends to be earned on the same day.
None of The JPM Pierpont Money Market Fund, The JPM Pierpont Treasury Money
Market Fund, or The JPM 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 JPM PIERPONT SHORT TERM BOND, BOND AND TAX EXEMPT BOND FUNDS. To purchase
shares in The JPM Pierpont Short Term Bond Fund, The JPM Pierpont Bond Fund and
The JPM 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
34
<PAGE>
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 JPM PIERPONT EQUITY, CAPITAL APPRECIATION, INTERNATIONAL EQUITY, EMERGING
MARKETS EQUITY AND DIVERSIFIED FUNDS. To purchase shares in The JPM Pierpont
Equity Fund, The JPM Pierpont Capital Appreciation Fund, The JPM Pierpont
International Equity Fund, The JPM Pierpont Emerging Markets Equity Fund and The
JPM 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 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. Although there is no sales charge levied directly by any
of the Funds Eligible Institutions may establish their own terms and conditions
for providing their services and may charge investors a transaction-based or
other fee for their services. Such charges may vary among Eligible Institutions
but in all cases will be retained by the Eligible Institution and not remitted
to the Funds or Morgan.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in any of The JPM 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 JPM Pierpont Funds.
THE JPM 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 JPM Pierpont
Money Market Fund, prior to 12:00 noon New York time in the case of The JPM
Pierpont Treasury Money Market Fund, and prior to 11:00 A.M. New York time in
the case of The JPM 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
35
<PAGE>
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 JPM PIERPONT SHORT TERM BOND, BOND AND TAX EXEMPT BOND FUNDS. A
redemption request received by The JPM Pierpont Short Term Bond Fund, The JPM
Pierpont Bond Fund or The JPM 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 JPM PIERPONT EQUITY, CAPITAL APPRECIATION, INTERNATIONAL EQUITY, EMERGING
MARKETS EQUITY AND DIVERSIFIED FUNDS. A redemption request received by The JPM
Pierpont Equity Fund, The JPM Pierpont Capital Appreciation Fund, The JPM
Pierpont International Equity Fund, The JPM Pierpont Emerging Markets Equity
Fund or The JPM 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 JPM 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 JPM 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 JPM Pierpont Funds may not be processed if a redemption request is not
submitted in proper form. To be in proper form, The JPM Pierpont Funds must have
received the shareholder's taxpayer identification number and address. As
discussed under Taxes below, The JPM 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 JPM 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 JPM Pierpont Funds into any
other JPM 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
36
<PAGE>
Funds. See also Additional Information below for an explanation of the telephone
exchange policy of The JPM 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 JPM PIERPONT MONEY MARKET, TAX EXEMPT MONEY MARKET AND TREASURY MONEY
MARKET FUNDS. In the case of The JPM Pierpont Money Market Fund, The JPM
Pierpont Tax Exempt Money Market Fund and The JPM 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 JPM Pierpont Money Market Fund,
The JPM Pierpont Tax Exempt Money Market Fund and The JPM 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 JPM Pierpont Money Market Fund, The JPM Pierpont Tax Exempt Money
Market Fund and The JPM 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 JPM Pierpont
Money Market Fund, The JPM Pierpont Tax Exempt Money Market Fund, and The JPM
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 JPM PIERPONT SHORT TERM BOND, BOND AND TAX EXEMPT BOND FUNDS. Each of The
JPM Pierpont Short Term Bond Fund, The JPM Pierpont Bond Fund and The JPM
Pierpont Tax Exempt Bond Fund intends to distribute substantially all of its net
investment income. The net investment income of each Fund is declared as a
dividend daily immediately prior to the determination of the net asset value of
the Fund on that day and paid monthly. If an investor's shares are redeemed
during a month, accrued but unpaid dividends are paid with the redemption
proceeds. The net investment income of each Fund for dividend purposes consists
of its pro rata share of the net income of the corresponding Portfolio less the
Fund's expenses. Expenses of each Fund and Portfolio, including the fees payable
to Morgan Guaranty, are accrued daily. Shares will accrue dividends as long as
they are issued and outstanding. Shares are issued and outstanding as of the
settlement date of a purchase order to the settlement date of a redemption
order.
Substantially all the realized net capital gains of The JPM Pierpont Short
Term Bond Fund, The JPM Pierpont Bond Fund and The JPM 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 JPM 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 JPM Pierpont Equity, The JPM Pierpont Capital Appreciation and The JPM
Pierpont Diversified Funds and annually for The JPM Pierpont International
Equity and The JPM 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.
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<PAGE>
Dividends and capital gains distributions paid for each of The JPM 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 JPM 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 JPM 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 JPM 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 JPM Pierpont Funds generally compute net asset value as
follows, New York time: The JPM Pierpont Money Market Fund, The JPM Pierpont Tax
Exempt Money Market Fund, The JPM Pierpont Treasury Money Market Fund, The JPM
Pierpont International Equity Fund and The JPM Pierpont Emerging Markets Equity
Fund, 4:00 P.M.; The JPM Pierpont Tax Exempt Bond Fund, The JPM Pierpont Short
Term Bond Fund, The JPM Pierpont Bond, The JPM Pierpont Equity Fund, The JPM
Pierpont Capital Appreciation Fund and The JPM 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 JPM Pierpont New York Total
Return Bond, European Equity, Japan Equity, Asia Growth and International
Opportunities 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.
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. 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 ac-
38
<PAGE>
counts 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 JPM PIERPONT MONEY MARKET FUND; THE JPM PIERPONT TREASURY MONEY MARKET
FUND; THE JPM PIERPONT SHORT TERM BOND FUND; THE JPM PIERPONT BOND FUND; THE JPM
PIERPONT EQUITY FUND; THE JPM PIERPONT CAPITAL APPRECIATION FUND; THE JPM
PIERPONT INTERNATIONAL EQUITY FUND; THE JPM PIERPONT EMERGING MARKETS EQUITY
FUND AND THE JPM 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 JPM
Pierpont Money Market Fund, The JPM Pierpont Treasury Money Market Fund, The JPM
Pierpont Short Term Bond Fund, The JPM Pierpont Bond Fund, The JPM Pierpont
Equity Fund, The JPM Pierpont Capital Appreciation Fund, The JPM Pierpont
International Equity Fund, The JPM Pierpont Emerging Markets Equity Fund and The
JPM Pierpont Diversified Fund, whether such distributions are taken in cash or
reinvested in additional shares. Distributions of this type to corporate
shareholders of The JPM Pierpont Money Market Fund, The JPM Pierpont Treasury
Money Market Fund, The JPM Pierpont Short Term Bond Fund and The JPM Pierpont
Bond Fund are not eligible for the dividends-received deduction; however, The
JPM Pierpont Equity, The JPM Pierpont Capital Appreciation and The JPM 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 JPM Pierpont International Equity
and The JPM 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 JPM Pierpont Money Market Fund and The
JPM Pierpont Treasury Money Market Fund do not expect to realize long-term
capital
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<PAGE>
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 JPM Pierpont Short Term Bond Fund and The JPM 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 JPM Pierpont Equity Fund, The JPM Pierpont
Capital Appreciation Fund, The JPM Pierpont International Equity Fund, The JPM
Pierpont Emerging Markets Equity Fund and The JPM 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 JPM 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 JPM Pierpont International Equity Fund and The JPM 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 JPM PIERPONT TAX EXEMPT MONEY MARKET AND TAX EXEMPT BOND FUNDS. The JPM
Pierpont Tax Exempt Money Market Fund and The JPM 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 JPM Pierpont Tax Exempt Funds.
Interest on certain tax exempt municipal obligations issued after August 7,
1986 is a preference item for purposes of the alternative minimum tax applicable
to individuals and corporations. Under tax regulations to be issued, the portion
of an exempt-interest dividend of a regulated investment company that is
allocable to these obligations will be treated as a preference item for purposes
of the alternative minimum tax.
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.
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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 JPM
Pierpont Money Market Fund, The JPM Pierpont Treasury Money Market Fund, The JPM
Pierpont Bond Fund, The JPM Pierpont Short Term Bond Fund, The JPM Pierpont
Equity Fund, The JPM Pierpont Capital Appreciation Fund, The JPM Pierpont
International Equity Fund, The JPM Pierpont Emerging Markets Equity Fund and The
JPM 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 JPM 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 JPM 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 JPM 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 JPM Pierpont Money Market Fund, The
JPM Pierpont Tax Exempt Money Market Fund, The JPM Pierpont Treasury Money
Market Fund, The JPM Pierpont Short Term Bond Fund, The JPM Pierpont Bond Fund
and The JPM Pierpont Tax Exempt Bond Fund may advertise "yield"; The JPM
Pierpont Money Market Fund, The JPM Pierpont Tax Exempt Money Market Fund and
The JPM Pierpont Treasury Money Market Fund may also advertise "effective
yield"; and The JPM Pierpont Tax Exempt Money Market Fund and The JPM Pierpont
Tax Exempt Bond Fund may also advertise "tax equivalent yield."
In the case of The JPM Pierpont Money Market Fund, The JPM Pierpont Tax
Exempt Money Market Fund and The JPM 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 JPM Pierpont Short Term Bond Fund, The JPM
Pierpont Bond Fund, The JPM Pierpont Tax Exempt Bond Fund and The JPM 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
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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 JPM Pierpont Money Market Fund, The JPM Pierpont Tax Exempt Money Market
Fund and The JPM 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 JPM
Pierpont Tax Exempt Money Market Fund and The JPM 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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<PAGE>
APPENDIX
The Portfolios for each of The JPM 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 JPM Pierpont 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 JPM 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 JPM
Pierpont 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 JPM 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 JPM
Pierpont Emerging Markets Equity and Diversified Funds will not purchase or sell
(write) futures contracts, options on futures contracts or commodity options for
risk management purposes if, as a result, the aggregate initial margin and
options premiums required to establish these positions exceed 5% of the net
asset value of such Portfolio.
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OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a Portfolio
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by
allowing it to expire or by exercising the option. The Portfolio may also close
out a put option position by entering into an offsetting transaction, if a
liquid market exists. If the option is allowed to expire, the Portfolio will
lose the entire premium it paid. If the Portfolio exercises a put option on a
security, it will sell the instrument underlying the option at the strike price.
If the Portfolio exercises an option on an index, settlement is in cash and does
not involve the actual sale of securities. If an option is American style, it
may be exercised on any day up to its expiration date. A European style option
may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the price
of the underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument underlying the option at the option's
strike price. A call buyer typically attempts to participate in potential price
increases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost of
the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When a Portfolio writes a put option,
it takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the instrument underlying the option if the other party to
the option chooses to exercise it. The Portfolio may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a put
option the Portfolio has written, however, the Portfolio must continue to be
prepared to pay the strike price while the option is outstanding, regardless of
price changes, and must continue to post margin as discussed below.
If the price of the underlying instrument rises, a put writer would generally
expect to profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it is likely
that the writer will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the put writer would expect to
suffer a loss. This loss should be less than the loss from purchasing and
holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.
Writing a call option obligates a Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an index
of securities or a futures contract is required to deposit cash or securities or
a letter of credit as margin and to make mark to market payments of variation
margin as the position becomes unprofitable.
OPTIONS ON INDEXES. The Portfolios for The JPM 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
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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.
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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-9612
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<PAGE>
THE JPM PIERPONT FUNDS
THE JPM PIERPONT MONEY MARKET FUND
THE JPM PIERPONT TAX EXEMPT MONEY MARKET FUND
THE JPM PIERPONT TREASURY MONEY MARKET FUND
THE JPM PIERPONT SHORT TERM BOND FUND
THE JPM PIERPONT BOND FUND
THE JPM PIERPONT TAX EXEMPT BOND FUND
THE JPM PIERPONT NEW YORK TOTAL RETURN BOND FUND
THE JPM PIERPONT DIVERSIFIED FUND
THE JPM PIERPONT EQUITY FUND
THE JPM PIERPONT CAPITAL APPRECIATION FUND
THE JPM PIERPONT INTERNATIONAL EQUITY FUND
THE JPM PIERPONT EMERGING MARKETS EQUITY FUND
THE JPM PIERPONT INTERNATIONAL OPPORTUNITIES FUND
THE JPM PIERPONT EUROPEAN EQUITY FUND
THE JPM PIERPONT JAPAN EQUITY FUND
THE JPM PIERPONT ASIA GROWTH FUND
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 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 JPM
PIERPONT FUNDS; (800) 221-7930.
<PAGE>
Table of Contents
Page
----
General................................. 1
Investment Objectives and Policies...... 1
Investment Restrictions................. 29
Trustees and Officers................... 48
Investment Advisor...................... 53
Distributor............................. 57
Co-Administrator........................ 58
Services Agent.......................... 60
Custodian and Transfer Agent............ 63
Shareholder Servicing................... 64
Independent Accountants................. 65
Expenses................................ 66
Purchase of Shares...................... 66
Redemption of Shares.................... 67
Exchange of Shares...................... 67
Dividends and Distributions............. 67
Net Asset Value......................... 68
Performance Data........................ 70
Portfolio Transactions.................. 73
Massachusetts Trust..................... 76
Description of Shares................... 76
Taxes................................... 79
Additional Information.................. 83
Financial Statements.................... 83
Appendix A - Description of Securities
Ratings................................ A-1
Appendix B - Additional Information
Concerning New York Municipal
Obligations............................ B-1
Appendix C - Investing in Japan
and Asian Growth Markets............... C-1
<PAGE>
GENERAL
The JPM Pierpont Funds currently consist of sixteen funds: The JPM Pierpont
Money Market Fund, The JPM Pierpont Treasury Money Market Fund, The JPM Pierpont
Tax Exempt Money Market Fund, The JPM Pierpont Short Term Bond Fund, The JPM
Pierpont Bond Fund, The JPM Pierpont Tax Exempt Bond Fund, The JPM Pierpont New
York Total Return Bond Fund, The JPM Pierpont Equity Fund, The JPM Pierpont
Capital Appreciation Fund, The JPM Pierpont International Equity Fund, The JPM
Pierpont Emerging Markets Equity Fund, The JPM Pierpont International
Opportunities Fund, The JPM Pierpont Diversified Fund, The JPM Pierpont European
Equity Fund, The JPM Pierpont Japan Equity Fund and The JPM Pierpont Asia Growth
Fund (collectively, the "Funds"). Each of the Funds is a series of shares of
beneficial interest of The JPM 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
JPM Pierpont Funds operate through a two-tier master-feeder investment fund
structure. Formerly, The JPM Pierpont Money Market Fund, The JPM Pierpont Tax
Exempt Money Market Fund, The JPM Pierpont Bond Fund, The JPM Pierpont Tax
Exempt Bond Fund, The JPM Pierpont Equity Fund, The JPM Pierpont Capital
Appreciation Fund, and The JPM 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 JPM 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 JPM 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
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(the "Portfolio"), a diversified open-end management investment company having
the same investment objective as the Tax Exempt Money Market Fund.
The Portfolio attempts to achieve its investment objective by maintaining a
dollar-weighted average portfolio maturity of not more than 90 days and by
investing in U.S. dollar-denominated securities described in the Prospectus and
this Statement of Additional Information that meet certain rating criteria,
present minimal credit risks, have effective maturities of not more than
thirteen months and earn interest wholly exempt from federal income tax in the
opinion of bond counsel for the issuer, but it may invest up to 20% of its total
assets in taxable obligations. See "Quality and Diversification Requirements."
Interest on these securities may be subject to state and local taxes. For more
detailed information regarding tax matters, including the applicability of the
alternative minimum tax, see "Taxes."
THE JPM 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 JPM 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 JPM 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.
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Fixed Income Portfolio (the "Portfolio"), a diversified open-end management
investment company having the same investment objective as the Bond Fund.
The Portfolio attempts to achieve its investment objective by investing in
high grade corporate and government debt obligations and related securities of
domestic and foreign issuers described in the Prospectus and this Statement of
Additional Information.
INVESTMENT PROCESS FOR THE U.S. FIXED INCOME PORTFOLIO
Duration/yield curve management: Morgan's duration decision begins with an
analysis of real yields, which its research indicates are generally a reliable
indicator of longer term interest rate trends. Other factors Morgan studies in
regard to interest rates include economic growth and inflation, capital flows
and monetary policy. Based on this analysis, Morgan forms a view of the most
likely changes in the level and shape of the yield curve -- as well as the
timing of those changes -- and sets the Portfolio's duration and maturity
structure accordingly. Morgan typically limits the overall duration of the
Portfolio to a range between one year shorter and one year longer than that of
the Salomon Brothers Broad Investment Grade Bond Index, the benchmark index.
Sector allocations: Sector allocations are driven by Morgan's fundamental
and quantitative analysis of the relative valuation of a broad array of fixed
income sectors. Specifically, Morgan utilizes market and credit analysis to
assess whether the current risk-adjusted yield spreads of various sectors are
likely to widen or narrow. Morgan then overweights (underweights) those sectors
its analysis indicates offer the most (least) relative value, basing the speed
and magnitude of these shifts on valuation considerations.
Security selection: Securities are selected by the portfolio manager, with
substantial input from Morgan's fixed income analysts and traders. Using
quantitative analysis as well as traditional valuation methods, Morgan's applied
research analysts aim to optimize security selection within the bounds of the
Portfolio's investment objective. In addition, credit analysts -- supported by
Morgan's equity analysts -- assess the creditworthiness of issuers and
counterparties. A dedicated trading desk contributes to security selection by
tracking new issuance, monitoring dealer inventories, and identifying
attractively priced bonds. The traders also handle all transactions for the
Portfolio.
THE JPM 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 JPM PIERPONT NEW YORK TOTAL RETURN BOND FUND (the "New York Total
Return Bond Fund") is designed to be an economical and convenient means of
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investing in a portfolio consisting primarily of debt obligations that are
exempt from federal and New York State income taxes. The New York Total Return
Bond Fund's investment objective is to provide a high after tax total return for
New York residents consistent with moderate risk of capital. Total return will
consist of income plus capital gains and losses. The Fund attempts to achieve
its objective by investing all of its investable assets in The New York Total
Return Bond Portfolio (the "Portfolio"), a non-diversified open-end management
investment company having the same investment objective as the Fund.
The Portfolio attempts to achieve its investment objective by investing
primarily in municipal securities issued by New York State and its political
subdivisions and by agencies, authorities and instrumentalities of New York and
its political subdivisions. These securities earn income exempt from federal
and New York State and local income taxes but, in certain circumstances, may be
subject to alternative minimum tax. In addition, the Portfolio may invest in
municipal securities issued by states other than New York, by territories and
possessions of the United States and by the District of Columbia and their
political subdivisions, agencies and instrumentalities. These securities earn
income exempt from federal income taxes but, in certain circumstances, may be
subject to alternative minimum tax. In order to seek to enhance the Portfolio's
after tax return, the Portfolio may also invest in securities which earn income
subject to New York and/or federal income taxes. These securities include U.S.
government securities, corporate securities and municipal securities issued on a
taxable basis.
THE JPM 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 JPM 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.
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In normal circumstances, at least 65% of the Portfolio's net assets will be
invested in equity securities consisting of common stocks and other securities
with equity characteristics comprised of preferred stock, warrants, rights,
convertible securities, trust certifications, limited partnership interests and
equity participations (collectively, "Equity Securities"). The Portfolio's
primary equity investments are the common stock of large and medium sized U.S.
corporations and, to a limited extent, similar securities of foreign
corporations.
INVESTMENT PROCESS FOR THE 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 JPM 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.
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INVESTMENT PROCESS FOR THE U.S. SMALL COMPANY PORTFOLIO
Fundamental research: Morgan's 20 domestic equity analysts -- each an
industry specialist with an average of 13 years of experience -- continuously
monitor the small cap stocks in their respective sectors with the aim of
identifying companies that exhibit superior financial strength and operating
returns. Meetings with management and on-site visits play a key role in shaping
their assessments. Their research goal is to forecast normalized, long-term
earnings and dividends for the most attractive small cap companies among those
they monitor -- a universe that generally contains a total of 300-350 names.
Because Morgan's analysts follow both the larger and smaller companies in their
industries -- in essence, covering their industries from top to bottom -- they
are able to bring broad perspective to the research they do on both.
Systematic valuation: The analysts' forecasts are converted into comparable
expected returns by Morgan's dividend discount model, which calculates those
returns by comparing a company's current stock price with the "fair value" price
forecasted by its estimated long-term earnings power. Within each industry,
companies are ranked by their expected returns and grouped into quintiles: those
with the highest expected returns (Quintile 1) are deemed the most undervalued
relative to their long-term earnings power, while those with the lowest expected
returns (Quintile 5) are deemed the most overvalued.
Disciplined portfolio construction: A diversified portfolio is constructed
using disciplined buy and sell rules. Purchases are concentrated among the
stocks in the top two quintiles of the rankings; the specific names selected
reflect the portfolio manager's judgment concerning the soundness of the
underlying forecasts, the likelihood that the perceived misevaluation will soon
be corrected, and the magnitude of the risks versus the rewards. Once a stock
falls into the third quintile -- because its price has risen or its fundamentals
have deteriorated -- it generally becomes a candidate for sale. The portfolio
manager seeks to hold sector weightings close to those of the Russell 2500
Index, the Portfolio's benchmark, reflecting Morgan's belief that its research
has the potential to add value at the individual stock level, but not at the
sector level. Sector neutrality is also seen as a way to help to protect the
portfolio from macroeconomic risks, and -- together with diversification --
represents an important element of Morgan's investment strategy.
THE JPM 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
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the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of those
deviations. Countries with high (low) rankings are overweighted (underweighted)
in comparisons to the EAFE Index to reflect the above-average (below-average)
attractiveness of their stock markets. In determining weightings, Morgan
analyzes a variety of qualitative factors as well -- including the liquidity,
earnings momentum and interest rate climate of the market at hand. These
qualitative assessments can change the magnitude but not the direction of the
country allocations called for by the risk premium forecast. Morgan places
limits on the total size of the Portfolio's country over- and under-weightings
relative to the EAFE Index.
Stock selection: Morgan's 44 international equity analysts, each an
industry and country specialist, forecast normalized earnings and dividend
payouts for roughly 1,000 non-U.S. companies -- taking a long-term perspective
rather than the short time frame common to consensus estimates. These forecasts
are converted into comparable expected returns by a dividend discount model, and
then companies are ranked from most to least attractive by industry and country.
A diversified portfolio is constructed using disciplined buy and sell rules. The
portfolio manager's objective is to concentrate the purchases in the stocks
deemed most undervalued, and to keep sector weightings close to those of the
EAFE Index, the Fund's benchmark. Once a stock falls into the bottom half of
the rankings, it generally becomes a candidate for sale. Where available,
warrants and convertibles may be purchased instead of common stock if they are
deemed a more attractive means of investing in an undervalued company.
Currency management: Currency is actively managed, in conjunction with
country and stock allocation, with the goal of protecting and possibly enhancing
the Fund's return. Morgan's currency decisions are supported by a proprietary
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 JPM 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.
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INVESTMENT PROCESS FOR THE EMERGING MARKETS EQUITY PORTFOLIO
Country allocation: Morgan's country allocation decision begins with a
forecast of the expected return of each market in the Portfolio's universe.
These expected returns are calculated using a proprietary valuation method that
is forward looking in nature rather than based on historical data. Morgan then
evaluates these expected returns from two different perspectives: first, it
identifies those countries that have high real expected returns relative to
their own history and other nations in their universe. Second, it identifies
those countries that it expects will provide high returns relative to their
currency risk. Countries that rank highly on one or both of these scores are
overweighted relative to the Fund's benchmark, the MSCI Emerging Markets Free
Index, while those that rank poorly are underweighted. To help contain risk,
Morgan places limits on the total size of the Portfolio's country over- and
under-weightings.
Stock selection: Morgan's 12 emerging market equity analysts -- each an
industry specialist -- monitor a universe of approximately 900 companies in
these countries, developing forecasts of earnings and cash flows for the most
attractive among them. Companies are ranked from most to least attractive based
on this research, and then a diversified portfolio is constructed using
disciplined buy and sell rules. The portfolio manager's objective is to
concentrate the Portfolio's holdings in the stocks deemed most undervalued, and
to keep sector weightings relatively close to those of the index. Stocks are
generally held until they fall into the bottom half of Morgan's rankings.
THE JPM PIERPONT INTERNATIONAL OPPORTUNITIES FUND (the "International
Opportunities Fund") is designed for long-term investors who want to invest in
an actively managed portfolio of common stocks and other equity securities of
non-U.S. companies, including companies located in emerging markets. The
International Opportunities Fund's investment objective is to provide a high
total return from a portfolio of equity securities of foreign corporations in
developed and to a lesser extent, developing markets. The Fund attempts to
achieve its investment objective by investing all of its investable assets in
The International Opportunities Portfolio (the "Portfolio"), a diversified open-
end management investment company having the same investment objective as the
International Opportunities Fund.
The Portfolio invests primarily in common stocks and other equity
securities of non-U.S. issuers in developed and developing countries. Under
normal circumstances, the Portfolio expects to invest at least 65% of its total
assets in such securities. The Portfolio does not intend to invest in U.S.
securities (other than money market instruments), except temporarily, when
extraordinary circumstances prevailing at the same time in a significant number
of foreign countries render investments in such countries inadvisable.
INVESTMENT PROCESS FOR THE INTERNATIONAL OPPORTUNITIES PORTFOLIO
Country allocation (developed countries): Morgan's country allocation
decision for securities issued in developed countries begins with a forecast of
equity risk premiums, which provide a valuation signal by measuring the relative
attractiveness of stocks versus bonds. Using a proprietary approach, Morgan
calculates this risk premium for each of the developed countries in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of those
deviations. Countries with high (low) rankings are emphasized (deemphasized) to
reflect the above-average (below-average) attractiveness of their stock markets.
In determining these weightings, Morgan analyzes a variety of qualitative
factors as well -- including the liquidity, earnings momentum and interest rate
climate of the market at hand. These qualitative assessments can change the
magnitude but not the direction of the country allocations called for by the
risk premium forecast.
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Country allocation (emerging countries): Morgan's country allocation
decision for emerging markets securities begins with a forecast of the expected
return of each emerging market in the Portfolio's universe. These expected
returns are calculated using a proprietary valuation method that is forward
looking in nature rather than based on historical data. Morgan then evaluates
these expected returns from two different perspectives: first, it identifies
those countries that have high real expected returns relative to their own
history and other nations in their universe. Second, it identifies those
countries that it expects will provide high returns relative to their currency
risk. Countries that rank highly on one or both of these scores are
overweighted, while those that rank poorly are underweighted.
Stock selection: Morgan's 44 international equity analysts and 12 emerging
market equity analysts, each an industry and country specialist, forecast
normalized earnings, dividend payouts and cash flows for roughly 1,000 non-U.S.
companies -- taking a long-term perspective rather than the short time frame
common to consensus estimates. These forecasts are converted into comparable
expected returns by a dividend discount model, and then companies are ranked
from most to least attractive by industry and country. A diversified portfolio
is constructed using disciplined buy and sell rules. The portfolio manager's
objective is to concentrate the Portfolio's purchases in the stocks deemed most
undervalued. Stocks generally become a candidate for sale when they fall into
the bottom half of Morgan's rankings. Where available, warrants and
convertibles may be purchased instead of common stock if they are deemed a more
attractive means of investing in an undervalued company.
Currency management: Morgan actively manages the currency exposure of the
Portfolio's investments in developed countries in conjunction with country and
stock allocation, with the goal of protecting and possibly enhancing the Fund's
return. Morgan's currency decisions are supported by a proprietary tactical
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 JPM 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
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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 falls into the bottom third of the rankings -- because its price has risen
or its fundamentals have deteriorated -- it generally becomes a candidate for
sale.
THE JPM 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
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returns, the Portfolio also trades among these vehicles -- a strategy that seeks
to capitalize on the inefficiencies that pervade the Japanese equity market. If
the Portfolio invests in a warrant, it will set aside cash in an amount
approximately equal to the difference in the price of the warrant and the market
value of the underlying common stock. The cash is invested in money market
instruments.
Disciplined portfolio construction: The Portfolio is constructed using
disciplined buy and sell rules. The portfolio manager's objective is to
concentrate purchases in the top 20% of the rankings; the specific companies
selected reflect the portfolio manager's judgment concerning the liquidity of an
issue, the soundness of the underlying forecasts, and the magnitude of the risks
versus the rewards. Once a stock falls into the third quintile -- because its
price has risen or its fundamentals have deteriorated -- it generally becomes a
candidate for sale. The portfolio manager strives to hold sector weightings
close to those of the benchmark in an effort to contain risk.
THE JPM 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 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
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portfolio manager's objective is to concentrate purchases in the top 20% of the
rankings, and to keep sector weightings close to those of the benchmark. Once a
stock falls into the third quintile -- because its price has risen or its
fundamentals have deteriorated -- it generally becomes a candidate for sale.
Where available, warrants and convertibles are purchased when they appear to
have the potential to add value over common stock.
The following discussion supplements the information regarding the
investment objective of each of the Funds and the policies to be employed to
achieve this objective by their corresponding Portfolios as set forth above and
in the Prospectus. The investment objective of each Fund and its corresponding
Portfolio is identical. Accordingly, references below to a Fund also include
the Fund's corresponding Portfolio; similarly, references to a Portfolio also
include the corresponding Fund that invests in the Portfolio unless the context
requires otherwise.
MONEY MARKET INSTRUMENTS
As discussed in the Prospectus, each Fund may invest in money market
instruments to the extent consistent with its investment objective and policies.
A description of the various types of money market instruments that may be
purchased by the Funds appears below. Also see "Quality and Diversification
Requirements."
U.S. TREASURY SECURITIES. Each of the Funds may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all
of which are backed as to principal and interest payments by the full faith and
credit of the United States.
ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. Each of the Funds may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities, 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, International Opportunities, Diversified, European Equity, Japan Equity
and Asia Growth Funds, in another currency. See "Foreign Investments."
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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, International Opportunities,
European Equity, Japan Equity or Asia Growth Funds. See "Foreign Investments."
The Funds will not invest in obligations for which the Advisor, or any of its
affiliated persons, is the ultimate obligor or accepting bank. Each of the
Funds, other than the Tax Exempt Money Market, Treasury Money Market, Tax Exempt
Bond and New York Total Return Bond Funds, may also invest in obligations of
international banking institutions designated or supported by national
governments to promote economic reconstruction, development or trade between
nations (e.g., the European Investment Bank, the Inter-American Development
Bank, or the World Bank).
COMMERCIAL PAPER. Each of the Funds (except the Treasury Money Market
Fund) may invest in commercial paper, including master demand obligations.
Master demand obligations are obligations that provide for a periodic adjustment
in the 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
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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
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
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appears in the Prospectus and below. See "Quality and Diversification
Requirements."
MUNICIPAL BONDS. Municipal bonds are debt obligations issued by the
states, territories and possessions of the United States and the District of
Columbia, by their political subdivisions and by duly constituted authorities
and corporations. For example, states, territories, possessions and
municipalities may issue municipal bonds to raise funds for various public
purposes such as airports, housing, hospitals, mass transportation, schools,
water and sewer works. They may also issue municipal bonds to refund
outstanding obligations and to meet general operating expenses. Public
authorities issue municipal bonds to obtain funding for privately operated
facilities, such as housing and pollution control facilities, for industrial
facilities or for water supply, gas, electricity or waste disposal facilities.
Municipal bonds may be general obligation or revenue bonds. General
obligation bonds are secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
payable from revenues derived from particular facilities, from the proceeds of a
special excise tax or from other specific revenue sources. They are not
generally payable from the general taxing power of a municipality.
MUNICIPAL NOTES. Municipal notes are subdivided into three categories of
short-term obligations: municipal notes, municipal commercial paper and
municipal demand obligations.
Municipal notes are short-term obligations with a maturity at the time of
issuance ranging from six months to five years. The principal types of
municipal notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes, grant anticipation notes and project notes. Notes sold in
anticipation of collection of taxes, a bond sale, or receipt of other revenues
are usually general obligations of the issuing municipality or agency.
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.
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Master demand obligations are tax exempt municipal obligations that provide
for a periodic adjustment in the interest rate paid and permit daily changes in
the amount borrowed. The interest on such obligations is, in the opinion of
counsel for the borrower, excluded from gross income for federal income tax
purposes. For a description of the attributes of master demand obligations, see
"Money Market Instruments" above. Although there is no secondary market for
master demand obligations, such obligations are considered by each Fund to be
liquid because they are payable upon demand. The Funds have no specific
percentage limitations on investments in master demand obligations.
The Tax Exempt Money Market Fund may purchase securities of the type
described above if they have effective maturities within thirteen months. As
required by regulation of the Securities and Exchange Commission (the "SEC"),
this means that on the date of acquisition the final stated maturity (or if
called for redemption, the redemption date) must be within thirteen months or
the maturity must be deemed to be no more than thirteen months because of a
maturity shortening mechanism, such as a variable interest rate, coupled with a
conditional or unconditional right to resell the investment to the issuer or a
third party. See "Variable Rate Demand Notes" and "Puts." A substantial
portion of the Tax Exempt Money Market Fund's portfolio is subject to maturity
shortening mechanisms consisting of variable interest rates coupled with
unconditional rights to resell the securities to the issuers either directly or
by drawing on a domestic or foreign bank letter of credit or other credit
support arrangement. See "Foreign Investments."
PUTS. The Tax Exempt Money Market, Tax Exempt Bond and New York Total
Return Bond Funds may purchase without limit municipal bonds or notes together
with the right to resell the bonds or notes to the seller at an agreed price or
yield within a specified period prior to the maturity date of the bonds or
notes. Such a right to resell is commonly known as a "put." The aggregate
price for bonds or notes with puts may be higher than the price for bonds or
notes without puts. Consistent with each Fund's investment objective and
subject to the supervision of the Trustees, the purpose of this practice is to
permit each Fund to be fully invested in tax exempt securities while preserving
the necessary liquidity to purchase securities on a when-issued basis, to meet
unusually large redemptions, and to purchase at a later date securities other
than those subject to the put. The principal risk of puts is that the writer of
the put may default on its obligation to repurchase. The Advisor will monitor
each writer's ability to meet its obligations under puts.
Puts may be exercised prior to the expiration date in order to fund
obligations to purchase other securities or to meet redemption requests. These
obligations may arise during periods in which proceeds from sales of Fund shares
and from recent sales of portfolio securities are insufficient to meet
obligations or when the funds available are otherwise allocated for investment.
In addition, puts may be exercised prior to the expiration date in order to take
advantage of alternative investment opportunities or in the event the Advisor
revises its evaluation of the creditworthiness of the issuer of the underlying
security. In determining whether to exercise puts prior to their expiration
date 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
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notes with maturities of 60 days or more that are subject to puts separate from
the underlying securities, the puts and the underlying securities would be
valued at fair value as determined in accordance with procedures established by
the Board of Trustees. The Board of Trustees would, in connection with the
determination of the value of a put, consider, among other factors, the
creditworthiness of the writer of the put, the duration of the put, the dates on
which or the periods during which the put may be exercised and the applicable
rules and regulations of the SEC. Prior to investing in such securities, the
Tax Exempt Bond and New York Total Return Bond Funds, if deemed necessary based
upon the advice of counsel, will apply to the SEC for an exemptive order, which
may not be granted, relating to the valuation of such securities.
Since the value of the put is partly dependent on the ability of the put
writer to meet its obligation to repurchase, each Fund's policy is to enter into
put transactions only with municipal securities dealers who are approved by the
Advisor. Each dealer will be approved on its own merits, and it is each Fund's
general policy to enter into put transactions only with those dealers which are
determined to present minimal credit risks. In connection with such
determination, the Trustees will review regularly the Advisor's list of approved
dealers, taking into consideration, among other things, the ratings, if
available, of their equity and debt securities, their reputation in the
municipal securities markets, their net worth, their efficiency in consummating
transactions and any collateral arrangements, such as letters of credit,
securing the puts written by them. Commercial bank dealers normally will be
members of the Federal Reserve System, and other dealers will be members of the
National Association of Securities Dealers, Inc. or members of a national
securities exchange. In the case of the Tax Exempt Bond and New York Total
Return Bond Funds, other put writers will have outstanding debt rated Aa or
better by Moody's Investors Service, Inc. ("Moody's") or AA or better by
Standard & Poor's Ratings Group ("Standard & Poor's"), or will be of comparable
quality in the Advisor's opinion or such put writers' obligations will be
collateralized and of comparable quality in the Advisor's opinion. The Trustees
have directed the Advisor not to enter into put transactions with any dealer
which in the judgment of the Advisor becomes more than a minimal credit risk.
In the event that a dealer should default on its obligation to repurchase an
underlying security, the Funds are unable to predict whether all or any portion
of any loss sustained could subsequently be recovered from such dealer.
The Trust has been advised by counsel that the Funds will be considered the
owner of the securities subject to the puts so that the interest on the
securities is tax exempt income to the Funds. Such advice of counsel is based
on certain assumptions concerning the terms of the puts and the attendant
circumstances.
EQUITY INVESTMENTS
As discussed in the Prospectus, the Portfolios for the Equity, Capital
Appreciation, International Equity, Emerging Markets Equity, International
Opportunities, European Equity, Japan Equity and Asia Growth Funds and the
equity portion of the Diversified Fund (collectively, the "Equity Portfolios")
invest primarily in Equity Securities. The Equity Securities in which the
Equity Portfolios invest include those listed on any domestic or foreign
securities exchange or traded in the over-the-counter (OTC) market as well as
certain restricted or unlisted securities. A discussion of the various types of
equity investments which may be purchased by these Portfolios appears in the
Prospectus and below. See "Quality and Diversification Requirements."
EQUITY SECURITIES. The Equity Securities in which the Equity Portfolios
may invest may or may not pay dividends and may or may not carry voting rights.
Common stock occupies the most junior position in a company's capital structure.
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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, International Opportunities, Diversified, European
Equity, Japan Equity and Asia Growth Funds may invest in common stock warrants
that entitle the holder to buy common stock from the issuer of the warrant at a
specific price (the strike price) for a specific period of time. The market
price of warrants may be substantially lower than the current market price of
the underlying common stock, yet warrants are subject to similar price
fluctuations. As a result, warrants may be more volatile investments than the
underlying common stock.
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, International
Opportunities, 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, International Opportunities, Diversified,
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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 International Equity, Emerging Markets Equity, International
Opportunities and Asia Growth Funds may also invest in countries with emerging
economies or securities markets. Political and economic structures in many of
such countries may be undergoing significant evolution and rapid development,
and such countries may lack the social, political and economic stability
characteristic of more developed countries. Certain of such countries may have
in the past failed to recognize private property rights and have at times
nationalized or expropriated the assets of private companies. As a result, the
risks described above, including the risks of nationalization or expropriation
of assets, may be heightened. In addition, unanticipated political or social
developments may affect the values of a Fund's investments in those countries
and the availability to such Fund of additional investments in those countries.
The small size and inexperience of the securities markets in certain of such
countries and the limited volume of trading in securities in those countries may
make a Fund's investments in such countries illiquid and more volatile than
investments in more developed countries, and such Fund may be required to
establish special custodial or other arrangements before making certain
investments in those countries. There may be little financial or accounting
information available with respect to issuers located in certain of such
countries, and it may be difficult as a result to assess the value or prospects
of an investment in such issuers.
For a description of the risks associated with investing in foreign
securities, see "Additional Investment Information and Risk Factors" in the
Prospectus. To the extent that the Tax Exempt Money Market, Tax Exempt Bond and
New York Total Return Bond Funds invest in municipal bonds and notes backed by
credit support arrangements with foreign financial institutions, the risks
associated with investing in foreign securities may be relevant to these Funds.
INVESTING IN JAPAN. Investing in Japanese securities may involve the risks
associated with investing in foreign securities generally. In addition, because
the Japan Equity, International Equity, and International Opportunities
Portfolios invest in 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 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, International Equity and International
Opportunities 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
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of its trading partners. In particular, Japan's trade relations with the United
States have recently been the subject of discussion and negotiation between the
two nations. The United States has imposed certain measures designed to address
trade issues in specific industries. These measures and similar measures in the
future may adversely affect the performance of the Japan Equity, International
Equity and International Opportunities Portfolios.
Japan's economy has typically exhibited low inflation and low interest
rates. There can be no assurance that low inflation and low interest rates will
continue, and it is likely that a reversal of such factors would adversely
affect the Japanese economy. Moreover, the Japanese economy may differ,
favorably or unfavorably, from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position.
Japan has a parliamentary form of government. In 1993 a coalition
government was formed which, for the first time since 1955, did not include the
Liberal Democratic Party. Since mid-1993, there have been several changes in
leadership in Japan. What, if any, effect the current political situation will
have on prospective regulatory reforms of the economy in Japan cannot be
predicted. Recent and future developments in Japan and neighboring Asian
countries may lead to changes in policy that might adversely affect these
Portfolios.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each of the Portfolios may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income securities no interest accrues to a Portfolio until settlement
takes place. At the time a Portfolio makes the commitment to purchase
securities on a when-issued or delayed delivery basis, it will record the
transaction, reflect the value each day of such securities in determining its
net asset value and, if applicable, calculate the maturity for the purposes of
average maturity from that date. At the time of settlement a when-issued
security may be valued at less than the purchase price. To facilitate such
acquisitions, each Portfolio will maintain with the Custodian a segregated
account with liquid assets, consisting of cash, U.S. Government securities or
other appropriate securities, in an amount at least equal to such commitments.
On delivery dates for such transactions, each Portfolio will meet its
obligations from maturities or sales of the securities held in the segregated
account and/or from cash flow. If a Portfolio chooses to dispose of the right
to acquire a when-issued security prior to its acquisition, it could, as with
the disposition of any other portfolio obligation, incur a gain or loss due to
market fluctuation. It is the current policy of each Portfolio not to enter
into when-issued commitments exceeding in the aggregate 15% 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
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company will be owned by a Fund, provided however, that a Fund may invest all of
its investable assets in an open-end investment company that has the same
investment objective as the Fund (its corresponding Portfolio). As a
shareholder of another investment company, a Fund or Portfolio would bear, along
with other shareholders, its PRO RATA portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that a Fund or Portfolio bears directly in
connection with its own operations.
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 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,
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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 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 (and
the other Funds) will comply with the diversification requirements imposed by
the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as
a regulated investment company. See "Taxes."
With respect to the Tax Exempt Money Market and Tax Exempt Bond Funds, for
purposes of diversification and concentration under the 1940 Act, identification
of the issuer of municipal bonds or notes depends on the terms and conditions of
the obligation. With respect to the New York Total Return Bond Fund, for
purposes of diversification under the Code and concentration under the 1940 Act,
identification of the issuer of municipal bonds or notes also depends on the
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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." The Portfolio may also purchase unrated securities
that are of comparable quality to the rated securities described above.
Additionally, if the issuer of a particular security has issued other securities
of comparable priority and security and which have been rated in accordance with
(ii) above, that security will be deemed to have the same rating as such other
rated securities.
In addition, the Board of Trustees has adopted procedures which (i) require
the Board of Trustees to approve or ratify purchases by the Portfolio of
securities (other than U.S. Government securities) that are rated by only one
NRSRO or that are unrated; (ii) require the Portfolio to maintain a
dollar-weighted average portfolio maturity of not more than 90 days and to
invest only in securities with a remaining maturity of not more than thirteen
months; and (iii) require the Portfolio, in the event of certain downgradings of
or defaults on portfolio holdings, to dispose of the holding, subject in certain
circumstances to a finding by the Trustees that disposing of the holding would
not be in the Portfolio's best interest.
TAX EXEMPT MONEY MARKET FUND. In order to attain the Tax Exempt Money
Market Fund's objective of maintaining a stable net asset value, the Portfolio
for the Tax Exempt Money Market Fund will limit its investments to securities
that present minimal credit risks and securities (other than New York State
municipal notes) that are rated within the highest rating assigned to short-term
debt securities (or, in the case of New York State municipal notes, within one
of the two highest ratings assigned to short-term debt securities) by at least
two NRSROs or by the only NRSRO that has rated the security. Securities which
originally had a maturity of over one year are subject to more complicated, but
generally similar rating requirements. The Portfolio may also purchase unrated
securities that are of comparable quality to the rated securities described
above. Additionally, if the issuer of a particular security has issued other
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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
any commercial paper, bank obligation or repurchase agreement, the issuer must
have outstanding debt rated A or higher by Moody's or Standard & Poor's, the
issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are
available, the investment must be of comparable quality in the Advisor's
opinion.
TAX EXEMPT BOND FUND. The Tax Exempt Bond Fund invests principally in a
diversified portfolio of "high grade" and "investment grade" tax exempt
securities. On the date of investment (i) municipal bonds must be rated within
the three highest ratings of Moody's, currently Aaa, Aa and A, or of Standard &
Poor's, currently AAA, AA, and A, (ii) municipal notes must be rated MIG-1 by
Moody's or SP-1 by Standard & Poor's (or, in the case of New York State
municipal notes, MIG-1 or MIG-2 by Moody's or SP-1 or SP-2 by Standard & Poor's)
and (iii) municipal commercial paper must be rated Prime-1 by Moody's or A-1 by
Standard & Poor's or, if not rated by either Moody's or Standard & Poor's,
issued by an issuer either (a) having an outstanding debt issue rated A or
higher by Moody's or Standard & Poor's or (b) having comparable quality in the
opinion of the Advisor. The Fund may invest in other tax exempt securities
which are not rated if, in the opinion of the Advisor, such securities are of
comparable quality to the rated securities discussed above. In addition, at the
time the Fund invests in any commercial paper, bank obligation or repurchase
agreement, the issuer must have outstanding debt rated A or higher by Moody's or
Standard & Poor's, the issuer's parent corporation, if any, must have
outstanding commercial paper rated
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Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are
available, the investment must be of comparable quality in the Advisor's
opinion.
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, INTERNATIONAL OPPORTUNITIES, DIVERSIFIED, EUROPEAN EQUITY, JAPAN EQUITY
AND ASIA GROWTH FUNDS. The Equity, Capital Appreciation, International Equity,
Emerging Markets Equity, International Opportunities, Diversified, European
Equity, Japan Equity and Asia Growth Funds may invest in convertible debt
securities, for which there are no specific quality requirements. In addition,
at the time a Fund invests in any commercial paper, bank obligation or
repurchase agreement, the issuer must have outstanding debt rated A or higher by
Moody's or Standard & Poor's, the issuer's parent corporation, if any, must have
outstanding commercial paper rated Prime-1 by Moody's or A-1 by Standard &
Poor's, or if no such ratings are available, the investment must be of
comparable quality in the Advisor's opinion. At the time a Fund invests in any
other short-term debt securities, they must be rated A or higher by Moody's or
Standard & Poor's, or if unrated, the investment must be of comparable quality
in the Advisor's opinion.
In determining suitability of investment in a particular unrated security,
the Advisor takes into consideration asset and debt service coverage, the
purpose of the financing, history of the issuer, existence of other rated
securities of the issuer, and other relevant conditions, such as comparability
to other issuers.
OPTIONS AND FUTURES TRANSACTIONS
EXCHANGE TRADED AND OTC OPTIONS. All options purchased or sold by the
Portfolios will be traded on a securities exchange or will be purchased or sold
by securities dealers (OTC options) that meet creditworthiness standards
approved by the Portfolio's Board of Trustees. While exchange-traded options
are obligations of the Options Clearing Corporation, in the case of OTC options,
a Portfolio relies on the dealer from which it purchased the option to perform
if the option is exercised. Thus, when a Portfolio purchases an OTC option, it
relies on the dealer from which it purchased the option to make or take delivery
of the underlying securities. Failure by the dealer to do so would result in
the loss of the premium paid by the Portfolio as well as loss of the expected
benefit of the transaction.
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Provided that a Portfolio has arrangements with certain qualified dealers
who agree that the Portfolio may repurchase any option it writes for a maximum
price to be calculated by a predetermined formula, a Portfolio may treat the
underlying securities used to cover written OTC options as liquid. In these
cases, the OTC option itself would only be considered illiquid to the extent
that the maximum repurchase price under the formula exceeds the intrinsic value
of the option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolios permitted to
enter into futures and options transactions may purchase or sell (write) futures
contracts and purchase put and call options, including put and call options on
futures contracts. In addition, the Portfolios for the Emerging Markets Equity,
International Opportunities, 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
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.
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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 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, International Opportunities, European Equity, Japan Equity and
Asia Growth Funds may employ non-hedging risk management techniques. Examples
of risk management strategies include synthetically altering the duration of a
portfolio or the mix of securities in a portfolio. For example, if the Advisor
wishes to extend maturities in a fixed income portfolio in order to take
advantage of an anticipated decline in interest rates, but does not wish to
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purchase the underlying long term securities, it might cause the Portfolio to
purchase futures contracts on long term debt securities. Similarly, if the
Advisor wishes to decrease fixed income securities or purchase equities, it
could cause the Portfolio to sell futures contracts on debt securities and
purchase futures contracts on a stock index. Such non-hedging risk management
techniques are not speculative, but because they involve leverage include, as do
all leveraged transactions, the possibility of losses as well as gains that are
greater than if these techniques involved the purchase and sale of the
securities themselves rather than their synthetic derivatives.
SPECIAL FACTORS AFFECTING THE NEW YORK TOTAL RETURN BOND FUND. The New York
Total Return Bond Fund intends to invest a high proportion of its assets in
municipal obligations of the State of New York and its political subdivisions,
municipalities, agencies, instrumentalities and public authorities. Payment of
interest and preservation of principal is dependent upon the continuing ability
of New York issuers and/or obligors of state, municipal and public authority
debt obligations to meet their obligations thereunder.
The fiscal stability of New York State is related, at least in part, to the
fiscal stability of its localities and authorities. Various State agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by the State through lease-purchase arrangements, other
contractual arrangements or moral obligation provisions. While debt service is
normally paid out of revenues generated by projects of such State agencies,
authorities and localities, the State has had to provide special assistance in
the past, in some cases of a recurring nature, to enable such agencies,
authorities and localities to meet their financial obligations and, in some
cases, to prevent or cure defaults. To the extent State agencies and local
governments require State assistance to meet their financial obligations, the
ability of the State to meet its own obligations as they become due or to obtain
additional financing could be adversely affected.
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
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." 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%.
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THE TAX EXEMPT BOND PORTFOLIO (TAX EXEMPT BOND FUND) -- For the fiscal year
ended August 31, 1995: 47%. For the fiscal year ended August 31, 1996: 25%.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO (NEW YORK TOTAL RETURN BOND FUND) --
For the 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).
The estimated annual portfolio turnover rate for each of the European
Equity, Japan Equity, Asia Growth and International Opportunities 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
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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
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;
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9. Acquire securities of other investment companies, except as permitted by the
1940 Act;
10. Act as an underwriter of securities; or
11. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule, order or
interpretation thereunder.
The TAX EXEMPT MONEY MARKET FUND and its corresponding PORTFOLIO may not:
1. Borrow money, except from banks for temporary, extraordinary or emergency
purposes and then only in amounts up to 10% of the value of the Fund's total
assets, taken at cost at the time of such borrowing; or mortgage, pledge or
hypothecate any assets except in connection with any such borrowing in amounts
up to 10% of the value of the Fund's net assets at the time of such borrowing.
The Fund will not purchase securities while borrowings exceed 5% of the Fund's
total assets, provided, however, that the Fund may increase its interest in an
open-end management investment company with the same investment objective and
restrictions as the Fund's while such borrowings are outstanding. This
borrowing provision, for example, facilitates the orderly sale of portfolio
securities in the event of abnormally heavy redemption requests or in the event
of redemption requests during periods of tight market supply. This provision is
not for leveraging purposes;
2. Invest more than 25% of its total assets in securities of governmental units
located in any one state, territory, or possession of the United States. The
Fund may invest more then 25% of its total assets in industrial development and
pollution control obligations whether or not the users of facilities financed by
such obligations are in the same industry;(1)
3. Purchase industrial revenue bonds if, as a result of such purchase, more than
5% of total Fund assets would be invested in industrial revenue bonds where
payment of principal and interest are the responsibility of companies with fewer
than three years of operating history;
4. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer, provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. Each state and each
political subdivision, agency or instrumentality of such state and each
multi-state agency of which such state 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;
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1. Pursuant to an interpretation of the staff of the SEC, the Fund may not
invest more than 25% of its assets in industrial development bonds in projects
of similar type or in the same state. The Fund shall comply with this
interpretation until such time as it may be modified by the staff of the SEC.
2. For purposes of interpretation of Investment Restriction No. 4
"guaranteed by another entity" includes credit substitutions, such as letters of
credit or insurance, unless the Advisor determines that the security meets the
Fund's credit standards without regard to the credit substitution.
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<PAGE>
5. Make loans, except through the purchase or holding of debt obligations,
repurchase agreements, or loans of portfolio securities in accordance with the
Fund's investment objective and policies (see "Investment Objectives and
Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof
except to the extent that securities subject to a demand obligation, stand-by
commitments and puts may be purchased (see "Investment Objectives and
Policies"); real estate; commodities; commodity contracts; or interests in oil,
gas, or mineral exploration or development programs. However, the Fund may
purchase municipal bonds, notes or commercial paper secured by interests in real
estate;
7. Purchase securities on margin, make short sales of securities, or maintain a
short position, provided that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued securities or of securities
for delayed delivery;
8. Acquire securities of other investment companies, except as permitted by the
1940 Act;
9. Act as an underwriter of securities; or
10. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule, order or
interpretation thereunder.
The 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
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
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<PAGE>
value of the Fund's or the Portfolio's total assets; provided, however, that the
Fund may invest all or part of its assets in an open-end management investment
company with the same investment objective and restrictions as the Fund. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities and repurchase agreements
related thereto;
5. Make loans, except through purchasing or holding debt obligations, repurchase
agreements, or loans of portfolio securities in accordance with the Fund's or
the Portfolio's investment objective and policies (see "Investment Objectives
and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, or commodity contracts or interests in oil, gas, or
mineral exploration or development programs;
7. Purchase securities on margin, make short sales of securities, or maintain a
short position, provided that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued securities or of securities
for delivery at a future date;
8. Acquire securities of other investment companies, except as permitted by the
1940 Act or in connection with a merger, consolidation, reorganization,
acquisition of assets or an offer of exchange; provided, however, that nothing
in this investment restriction shall prevent the Trust from investing all or
part of the Fund's assets in an open-end management investment company with the
same investment objective and restrictions as the Fund;
9. Act as an underwriter of securities; or
10. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule, order or
interpretation thereunder.
The SHORT TERM BOND FUND and its corresponding PORTFOLIO may not:
1. Purchase securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase the value of its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;
2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. This limitation shall not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of the Fund's total
assets;
3. Purchase the securities of an issuer if, immediately after such purchase, the
Fund owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that the Fund may invest all or part of its investable assets
in an open-end management investment company with the same investment objective
and restrictions as the Fund's. This limitation shall not apply to permitted
investments of up to 25% of the Fund's total assets;
33
<PAGE>
4. Borrow money (not including reverse repurchase agreements), except from banks
for temporary or extraordinary or emergency purposes and then only in amounts up
to 30% of the value of the Fund's or the Portfolio's total assets, taken at cost
at the time of such borrowing (and provided that such borrowings and reverse
repurchase agreements do not exceed in the aggregate one-third of the market
value of the Fund's and the Portfolio's total assets less liabilities other than
the obligations represented by the bank borrowings and reverse repurchase
agreements). The Fund will not mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts not to exceed 30% of
the value of the Fund's or the Portfolio's net assets at the time of such
borrowing. The Fund or the Portfolio will not purchase securities while
borrowings exceed 5% of the Fund's total assets; provided, however, that the
Fund may increase its interest in an open-end management investment company with
the same investment objective and restrictions as the Fund's while such
borrowings are outstanding. 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,
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
34
<PAGE>
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;
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,
35
<PAGE>
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
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
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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.
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.
36
<PAGE>
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 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
37
<PAGE>
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
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
38
<PAGE>
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
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
39
<PAGE>
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
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
40
<PAGE>
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;
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
41
<PAGE>
10. Issue any senior security, except as appropriate to evidence indebtedness
which the Fund is permitted to incur pursuant to Investment Restriction No. 1.
The Fund's arrangements in connection with its hedging activities as described
in "Additional Investment Information" in the Prospectus shall not be considered
senior securities for purposes hereof.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act, or any SEC or SEC staff
interpretations thereof, are amended or modified, each of the EMERGING MARKETS
EQUITY, EUROPEAN EQUITY AND ASIA GROWTH FUNDS and its corresponding PORTFOLIO
may not:
1. Purchase any security if, as a result, more than 25% of the value of the
Fund's total assets would be invested in securities of issuers having their
principal business activities in the same industry. This limitation shall not
apply to obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities;
2. Borrow money, except that the Fund may (i) borrow money from banks for
temporary or emergency purposes (not for leveraging purposes) and (ii) enter
into reverse repurchase agreements for any purpose; provided that (i) and (ii)
in total do not exceed 33 1/3% of the value of the Fund's total assets
(including the amount borrowed) less liabilities (other than borrowings). If at
any time any borrowings come to exceed 33 1/3% of the value of the Fund's total
assets, the Fund will reduce its borrowings within three business days to the
extent necessary to comply with the 33 1/3% limitation;
3. With respect to 75% of its total assets, purchase any security if, as a
result, (a) more than 5% of the value of the Fund's total assets would be
invested in securities or other obligations of any one issuer; or (b) the Fund
would hold more than 10% of the outstanding voting securities of that issuer.
This limitation shall not apply to Government securities (as defined in the 1940
Act);
4. Make loans to other persons, except through the purchase of debt obligations,
loans of portfolio securities, and participation in repurchase agreements;
5. Purchase or sell physical commodities or contracts thereon, unless acquired
as a result of the ownership of securities or instruments, but the Fund may
purchase or sell futures contracts or options (including options on futures
contracts, but excluding options or futures contracts on physical commodities)
and may enter into foreign currency forward contracts;
6. Purchase or sell real estate, but the Fund may purchase or sell securities
that are secured by real estate or issued by companies (including real estate
investment trusts) that invest or deal in real estate;
7. Underwrite securities of other issuers, except to the extent the Fund, in
disposing of portfolio securities, may be deemed an underwriter within the
meaning of the 1933 Act;
8. Issue senior securities, except as permitted under the 1940 Act or any rule,
order or interpretation thereunder; and
9. Notwithstanding any other investment restriction of the Fund, the Fund may
invest all of its investable assets in an open-end management investment company
having the same investment objective and restrictions as the Fund.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC staff
interpretations thereof are amended or modified, the JAPAN EQUITY FUND and its
corresponding PORTFOLIO may not:
42
<PAGE>
1. Purchase any security if, as a result, more than 25% of the value of the
Fund's total assets would be invested in securities of issuers having their
principal business activities in the same industry. This limitation shall not
apply to obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities. 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.
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 INTERNATIONAL OPPORTUNITIES
FUND and its corresponding Portfolio may not:
1. Purchase any security if, as a result, more than 25% its total assets would
be invested in securities of issuers in any single industry. This limitation
shall not apply to securities issued or guaranteed as to principal or interest
by the U.S. Government, its agencies or instrumentalities.
2. Issue senior securities. For purposes of this restriction, borrowing money
in accordance with paragraph 3 below, making loans in accordance with
paragraph 7 below, the issuance of shares of beneficial interest in multiple
classes or series, the purchase or sale of options, futures contracts, forward
commitments, swaps and transactions in repurchase agreements are not deemed to
be senior securities.
3. Borrow money, except in amounts not to exceed one third of the Fund's total
assets (including the amount borrowed) (i) from banks for temporary or short-
term
43
<PAGE>
purposes or for the clearance of transactions, (ii) in connection with the
redemption of Fund shares or to finance failed settlements of portfolio trades
without immediately liquidating portfolio securities or other assets, (iii) in
order to fulfill commitments or plans to purchase additional securities pending
the anticipated sale of other portfolio securities or assets and (iv) pursuant
to reverse repurchase agreements entered into by the Fund.
4. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Fund may be deemed
to be an underwriter under the 1933 Act.
5. Purchase or sell real estate except that the Fund may (i) acquire or lease
office space for its own use, (ii) invest in securities of issuers that invest
in real estate or interests therein, (iii) invest in securities that are secured
by real estate or interests therein, (iv) purchase and sell mortgage-related
securities and (v) hold and sell real estate acquired by the Fund as a result of
the ownership of securities.
6. Purchase or sell commodities or commodity contracts, except the Fund may
purchase and sell financial futures contracts, options on financial futures
contracts and warrants and may enter into swap and forward commitment
transactions.
7. Make loans, except that the Fund (1) may lend portfolio securities with a
value not exceeding one-third of the Fund's total assets, (2) enter into
repurchase agreements, and (3) purchase all or a portion of an issue of debt
securities (including privately issued debt securities), bank loan participation
interests, bank certificates of deposit, bankers' acceptances, debentures or
other securities, whether or not the purchase is made upon the original issuance
of the securities.
8. With respect to 75% of its total assets, purchase securities of an issuer
(other than the U.S. Government, its agencies, instrumentalities or authorities
or repurchase agreements collateralized by U.S. Government securities), if:
a. such purchase would cause more than 5% of the Fund's total assets
to be invested in the securities of such issuer; or
b. such purchase would cause the Fund to hold more than 10% of the
outstanding voting securities of such issuer.
(Although permitted to do so by restriction #3 above, the Funds have no
current intention to engage in borrowing for financial leverage.)
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - MONEY MARKET FUND. The
investment restriction described below is not a fundamental policy of the Money
Market Fund or its corresponding Portfolio and may be changed by their
respective Trustees. This non-fundamental investment policy requires that the
Money Market Fund and its corresponding Portfolio may not:
(i) enter into reverse repurchase agreements or borrow money, except from banks
for extraordinary or emergency purposes, if such obligations exceed in the
aggregate one-third of the market value of the Fund's total assets, less
liabilities other than obligations created by reverse repurchase agreements and
borrowings.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - TAX EXEMPT MONEY MARKET FUND AND
TREASURY MONEY MARKET FUND. The investment restriction described below is not a
fundamental policy of these Funds or their corresponding Portfolios and may be
changed by their respective Trustees. This non-fundamental investment policy
requires that each such Fund may not:
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<PAGE>
(i) acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 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:
(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,
45
<PAGE>
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;
(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
46
<PAGE>
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
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.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - INTERNATIONAL OPPORTUNITIES
FUND. The investment restrictions described below are not fundamental policies
of the
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<PAGE>
Fund and its corresponding Portfolio and may be changed by the Trustees. These
non-fundamental investment policies require that the Fund may not:
(i) Acquire securities of other investment companies, except as permitted by
the 1940 Act or any rule, order or interpretation thereunder, or in connection
with a merger, consolidation, reorganization, acquisition of assets or an offer
of exchange;
(ii) Acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over seven
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, except to the extent permitted by the 1940 Act.
Transactions in futures contracts and options shall not constitute selling
securities short;
(iv) Purchase securities on margin, but the Fund may obtain such short term
credits as may be necessary for the clearance of transactions;
ALL FUNDS. There will be no violation of any investment restriction if
that restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, Morgan may classify issuers by industry in accordance with
classifications set forth in the DIRECTORY OF COMPANIES FILING ANNUAL REPORTS
WITH THE SECURITIES AND EXCHANGE COMMISSION or other sources. In the absence of
such classification or if Morgan determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, Morgan
may classify an issuer accordingly. For instance, personal credit finance
companies and business credit finance companies are deemed to be separate
industries and wholly owned finance companies are considered to be in the
industry of their parents if their activities are primarily related to financing
the activities of their parents.
TRUSTEES AND OFFICERS
TRUSTEES
The Trustees of the Trust, who are also the Trustees of each of the
Portfolios, their business addresses, principal occupations during the past five
years and dates of birth are set forth below.
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
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<PAGE>
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 currently paid an annual fee of $65,000 (adjusted as of
April 1, 1995) for serving as Trustee of the Trust, each of the Master
Portfolios (as defined below), The JPM Institutional Funds and JPM Series Trust
and is reimbursed for expenses incurred in connection with service as a Trustee.
The compensation paid to the Trustees for the calendar year ended 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, Trustee $18,791 None None $62,500
William G. Burns, Trustee $18,791 None None $62,500
Arthur C. Eschenlauer, Trustee $18,791 None None $62,500
Matthew Healey, Trustee(*), $18,791 None None $62,500
Chairman and Chief Executive
Officer
Michael P. Mallardi, Trustee $18,791 None None $62,500
</TABLE>
(*) During 1995, Pierpont Group, Inc. paid Mr. Healey, in his role as Chairman
of Pierpont Group, Inc., compensation in the amount of $140,000, contributed
$21,000 to a defined contribution plan on his behalf and paid $20,000 in
insurance premiums for his benefit.
(**) Includes the Portfolios, The Non-U.S. Fixed Income Portfolio and The
Disciplined Equity Portfolio (collectively the "Master Portfolios").
As of the date of this Statement of Additional Information there were 17
investment companies (the Trust, The JPM Institutional Funds, the 14 investment
companies comprising the Master Portfolios and JPM Series Trust) in the fund
complex.
The Trustees, in addition to reviewing actions of the Trust's and the
Portfolios' various service providers, decide upon matters of general policy.
Each of the Portfolios and the Trust has entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities over the affairs of the Portfolios and the Trust.
Pierpont Group, Inc. was organized in July 1989 to provide services for The
Pierpont Family of Funds, and the Trustees are the equal and sole shareholders
of Pierpont Group, Inc. The Trust and the Portfolios have agreed to pay
Pierpont
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<PAGE>
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, 1994:
$175,737. For the fiscal year ended August 31, 1995: $101,846. For the fiscal
year ended August 31, 1996: $53,896.
THE TAX EXEMPT MONEY MARKET PORTFOLIO -- For the fiscal year ended August 31,
1994: $79,046. For the fiscal year ended August 31, 1995: $110,325. For the
fiscal year ended August 31, 1996: $62,310.
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, 1994: $80,810. For
the fiscal year ended August 31, 1995: $35,144. For the fiscal year ended
August 31, 1996: $20,062.
THE TAX EXEMPT BOND PORTFOLIO -- For the fiscal year ended August 31, 1994:
$35,243. For the fiscal year ended August 31, 1995: $38,804. For the fiscal
year ended August 31, 1996: $24,602.
NEW YORK TOTAL RETURN BOND FUND -- For the period April 11, 1994 (commencement
of operations) through March 31, 1995: $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.
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<PAGE>
THE U.S. SMALL COMPANY PORTFOLIO -- For the period July 19, 1993 (commencement
of operations) through May 31, 1994: $33,435. For the fiscal year ended May
31, 1995: $62,256. 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.
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. KEELEY; Vice President and Assistant Secretary. Counsel, FDI
and Premier Mutual Fund Services, Inc. ("Premier Mutual") and an officer of RCM
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<PAGE>
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. Keeley was
enrolled at Fordham University School of Law and received her JD in May 1995.
Prior to September 1992, Ms. Keeley was an assistant at the National Association
for Public Interest Law. Address: 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.
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
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<PAGE>
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.
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 $197 billion (of which the Advisor advises over $30 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
53
<PAGE>
the same as the markets' current valuations of these companies. This provides
the basis for ranking the attractiveness of the companies in an industry
according to five distinct quintiles or rankings. This ranking is one of the
factors considered in determining the stocks purchased and sold in each sector.
The Advisor's fixed income investment process is based on analysis of real
rates, sector diversification and quantitative and credit analysis.
The investment advisory services the Advisor provides to the Portfolios are
not exclusive under the terms of the Advisory Agreements. The Advisor is free
to and does render similar investment advisory services to others. The Advisor
serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolios. Such accounts are supervised by officers and employees of
the Advisor who may also be acting in similar capacities for the Portfolios.
See "Portfolio Transactions."
Sector weightings are generally similar to a 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 International
Opportunities Portfolio--EAFE and MSCI Emerging Markets Free Indexes; 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
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<PAGE>
Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of each Portfolio's average daily net assets shown below.
MONEY MARKET: 0.20% of net assets up to $1 billion and 0.10% of net assets in
excess of $1 billion
TAX EXEMPT MONEY MARKET: 0.20% of net assets up to $1 billion and 0.10% of net
assets in excess of $1 billion
TREASURY MONEY MARKET: 0.20% of net assets up to $1 billion and 0.10% of net
assets in excess of $1 billion
SHORT TERM BOND: 0.25%
U.S. FIXED INCOME: 0.30%
TAX EXEMPT BOND: 0.30%
NEW YORK TOTAL RETURN BOND: 0.30%
SELECTED U.S. EQUITY: 0.40%
U.S. SMALL COMPANY: 0.60%
NON-U.S. EQUITY: 0.60%
DIVERSIFIED: 0.55%
EMERGING MARKETS EQUITY: 1.00%
INTERNATIONAL OPPORTUNITIES: 0.60%
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.
Bond: Oct. 1993 - net amount paid: $149,804; amount waived: $25,312.
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
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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
fiscal year ended August 31, 1994: $2,021,476. For the fiscal year ended
August 31, 1995: $2,150,291. For the fiscal year ended August 31, 1996:
$2,154,248.
THE TREASURY MONEY MARKET PORTFOLIO (Treasury Money Market Fund) -- For the
period January 4, 1993 (commencement of operations) through October 31, 1993:
$93,370. For the fiscal year ended October 31, 1994: $339,521. For the fiscal
year ended October 31, 1995: $492,941.
THE SHORT TERM BOND PORTFOLIO (Short Term Bond Fund) -- For the period July 8,
1993 (commencement of operations) through October 31, 1993: $10,427. For the
fiscal year ended October 31, 1994: $113,379. For the fiscal year ended October
31, 1995: $146,335.
THE U.S. FIXED INCOME PORTFOLIO (Bond Fund) -- For the period July 12, 1993
(commencement of operations) through October 31, 1993: $119,488. For the fiscal
year ended October 31, 1994: $699,081. For the fiscal year ended October 31,
1995: $1,339,147.
THE TAX EXEMPT BOND PORTFOLIO (Tax Exempt Bond Fund) -- For the fiscal year
ended August 31, 1994: $1,383,986. For the fiscal year ended August 31, 1995:
$1,178,720. For the fiscal year ended August 31, 1996: $1,354,145.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO (New York Total Return Bond Fund) --
For the period April 11, 1994 (commencement of operations) through March 31,
1995: $120,281. For the fiscal year ended March 31, 1996: $246,966.
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).
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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
"Distributor" below. Each of the Investment Advisory Agreements will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit banks
such as the Advisor from engaging in the business of underwriting or
distributing securities, and the Board of Governors of the Federal Reserve
System has issued an interpretation to the effect that under these laws a bank
holding company registered under the federal Bank Holding Company Act or certain
subsidiaries thereof may not sponsor, organize, or control a registered open-end
investment company continuously engaged in the issuance of its shares, such as
the Trust. The interpretation does not prohibit a holding company or a
subsidiary thereof from acting as investment advisor and custodian to such an
investment company. The Advisor believes that it may perform the services for
the Portfolios contemplated by the Advisory Agreements without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. State laws
on this issue may differ from the interpretation of relevant federal law, and
banks and financial institutions may be required to register as dealers pursuant
to state securities laws. However, it is possible that future changes in either
federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as further judicial or administrative
decisions and interpretations of present and future statutes and regulations,
might prevent the Advisor from continuing to perform such services for the
Portfolios.
If the Advisor were prohibited from acting as investment advisor to any
Portfolio, it is expected that the Trustees of the Portfolio would recommend to
investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Under separate agreements, Morgan also provides certain financial, fund
accounting and administrative services to the Trust and the Portfolios and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.
DISTRIBUTOR
FDI serves as the Trust's exclusive Distributor and holds itself available
to receive purchase orders for each of the Fund's shares. In that capacity, FDI
has been granted the right, as agent of the Trust, to solicit and accept orders
for the purchase of each of the Fund's shares in accordance with the terms of
the Distribution Agreement between the Trust and FDI. Under the terms of the
Distribution Agreement between FDI and the Trust, FDI receives no compensation
in its capacity as the Trust's distributor.
The Distribution Agreement shall continue in effect with respect to each of
the Funds for a period of two years after execution only if it is approved at
least annually thereafter (i) by a vote of the holders of a majority of the
Fund's outstanding shares or by its Trustees and (ii) by a vote of a majority of
the Trustees of the Trust who are not "interested persons" (as defined by the
1940 Act) of the parties to the Distribution Agreement, cast in person at a
meeting called for the purpose of voting on such approval (see "Trustees and
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<PAGE>
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.
CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolios dated
August 1, 1996, FDI also serves as the Trust's and the Portfolios'
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust or the Portfolios, as applicable, on not more than 60
days' written notice nor less than 30 days' written notice to the other party.
The Co-Administrator may subcontract for the performance of its obligations,
provided, however, that unless the Trust or the Portfolios, as applicable,
expressly agrees in writing, the Co-Administrator shall be fully responsible for
the acts and omissions of any subcontractor as it would for its own acts or
omissions. See "Services Agent" below.
For its services under the Co-Administration Agreements, each Fund and
Portfolio has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to each Fund or Portfolio is based on the ratio of its net assets to
the aggregate net assets of the Trust, The JPM Institutional Funds, the Master
Portfolios and JPM Series Trust.
The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to FDI for the fiscal periods indicated.
See "Expenses" in the Prospectus and below for applicable expense limitations.
THE TAX EXEMPT MONEY MARKET PORTFOLIO -- For the period August 1, 1996 through
August 31, 1996: $2,284.
TAX EXEMPT MONEY MARKET FUND -- For the period August 1, 1996 through August 31,
1996: $3,298.
THE TAX EXEMPT BOND PORTFOLIO -- For the period August 1, 1996 through August
31, 1996: $920.
TAX EXEMPT BOND FUND -- For the period August 1, 1996 through August 31, 1996:
$1,169.
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.
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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 fiscal year ended August 31,
1994: $62,565. For the fiscal year ended August 31, 1995: $72,729. For the
period September 1, 1995 through July 31, 1996: $110,848.
TAX EXEMPT MONEY MARKET FUND -- For the fiscal year ended August 31, 1994:
$306,768. For the fiscal year ended August 31, 1995: $290,271. For the period
September 1, 1995 through July 31, 1996: $157,587.
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 fiscal year ended August 31, 1994:
$28,345. For the fiscal year ended August 31, 1995: $28,290. For the period
September 1, 1996 through July 31, 1996: $43,154.
TAX EXEMPT BOND FUND -- For the fiscal year ended August 31, 1994: $137,890.
For the fiscal year ended August 31, 1995: $97,520. For the period September 1,
1996 through July 31, 1996: $57,864.
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.
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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).
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
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which Morgan is responsible for certain administrative and related services
provided to each Fund and its corresponding Portfolio. The Services Agreements
may be terminated at any time, without penalty, by the Trustees or Morgan, in
each case on not more than 60 days' nor less than 30 days' written notice to the
other party.
Under the amended Services Agreements, each of the Funds and the Portfolios
has agreed to pay Morgan fees equal to its allocable share of an annual complex-
wide charge. This charge is calculated daily based on the aggregate net assets
of the Master Portfolios and JPM Series Trust in accordance with the following
annual schedule: 0.09% on the first $7 billion of their aggregate average daily
net assets and 0.04% of their average daily net assets in excess of $7 billion,
less the complex-wide fees payable to FDI. The portion of this charge payable
by each Fund and Portfolio is determined by the proportionate share that its net
assets bear to the total net assets of the Trust, The JPM Institutional Funds,
the Master Portfolios, the other investors in the Master Portfolios for which
Morgan provides similar services and JPM Series Trust.
Under Administrative Services Agreements in effect from December 29, 1995
through July 31, 1996, with Morgan, 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.
Fee arrangements for administrative services prior to August 1, 1996 did not
pertain to the International Opportunities Fund or its corresponding Portfolio.
The table below sets forth for each Fund listed and its corresponding Portfolio
the fees paid to Morgan, net of fee waivers and reimbursements, as Services
Agent. See "Expenses" in the Prospectus and below for applicable expense
limitations.
THE MONEY MARKET PORTFOLIO -- For the period July 12, 1993 (commencement of
operations) through November 30, 1993: $193,980. For the fiscal year ended
November 30, 1994: $385,012. For the fiscal year ended November 30, 1995:
$373,077.
MONEY MARKET FUND -- For the period July 12, 1993 (commencement of operations)
through November 30, 1993: $(86,373)*. For the fiscal year ended November 30,
1994: $(92,422)*. For the fiscal year ended November 30, 1995: $(74,259).
THE TAX EXEMPT MONEY MARKET PORTFOLIO -- For the fiscal year ended August 31,
1994: $153,204. For the fiscal year ended August 31, 1995: $169,754. For the
fiscal year ended August 31, 1996: $205,419.
TAX EXEMPT MONEY MARKET FUND -- For the fiscal year ended August 31, 1994:
$(98,653)*. For the fiscal year ended August 31, 1995: $(30,971)*. For the
fiscal year ended August 31, 1996: $173,920.
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)*.
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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 fiscal year ended August 31, 1994:
$210,795. For the fiscal year ended August 31, 1995: $189,892. For the fiscal
year ended August 31, 1996: $80,281.
TAX EXEMPT BOND FUND -- For the fiscal year ended August 31, 1994: $179,891.
For the fiscal year ended August 31, 1995: $168,215. For the fiscal year ended
August 31, 1996: $63,000.
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.
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
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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 AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin Street,
Boston, Massachusetts 02110, serves as the Trust's and each of the Portfolio's
custodian and fund accounting agent and each Fund's transfer and dividend
disbursing agent. Pursuant to the Custodian Contracts, State Street is
responsible for maintaining the books of account and records of portfolio
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
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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, International Opportunities, Diversified,
European Equity, Japan Equity and Asia Growth Funds, 0.25% of average daily net
assets. Morgan acts as shareholder servicing agent for all shareholders.
The table below sets forth for each Fund listed the shareholder servicing
fees paid by each Fund to Morgan, net of fee waivers and reimbursements, for the
fiscal periods indicated following each Fund's reorganization or commencement of
operations. See "Expenses" in the Prospectus and below for applicable expense
limitations.
MONEY MARKET FUND -- For the period July 12, 1993 (commencement of operations)
through November 30, 1993: $1,628,914. For the fiscal year ended November 30,
1994: $3,701,260. For the fiscal year ended November 30, 1995: $3,629,031.
TAX EXEMPT MONEY MARKET FUND -- For the fiscal year ended August 31, 1994:
$2,121,421. For the fiscal year ended August 31, 1995: $2,227,944. For the
fiscal year ended August 31, 1996: $1,680,618.
TREASURY MONEY MARKET FUND -- For the period January 4, 1993 (commencement of
operations) through October 31, 1993: $71,617. For the fiscal year ended
October 31, 1994: $200,453. For the fiscal year ended October 31, 1995:
$273,861.
SHORT TERM BOND FUND -- For the period July 8, 1993 (commencement of operations)
through October 31, 1993: $1,437. For the fiscal year ended October 31, 1994:
$11,275. For the fiscal year ended October 31, 1995: $16,063.
BOND FUND -- For the period July 12, 1993 (commencement of operations) through
October 31, 1993: $53,352. For the fiscal year ended October 31, 1994:
$189,959. For the fiscal year ended October 31, 1995: $222,000.
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TAX EXEMPT BOND FUND -- For the fiscal year ended August 31, 1994: $816,408.
For the fiscal year ended August 31, 1995: $635,645. For the fiscal year ended
August 31, 1996: $702,939.
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
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
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the Funds and the Portfolios, assists in the preparation and/or review of each
of the Fund's and the Portfolio's federal and state income tax returns and
consults with the Funds and the Portfolios as to matters of accounting and
federal and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., Morgan and FDI
under various agreements discussed under "Trustees and Officers," "Investment
Advisor," "Co-Administrator and Distributor," "Services Agent" and "Shareholder
Servicing" above, the Funds and the Portfolios are responsible for usual and
customary expenses associated with their respective operations. Such expenses
include organization expenses, legal fees, accounting expenses, insurance costs,
the compensation and expenses of the Trustees, registration fees under federal
securities laws, and extraordinary expenses applicable to the Funds or the
Portfolios. For the Funds, such expenses also include transfer, registrar and
dividend disbursing costs, the expenses of printing and mailing reports, notices
and proxy statements to Fund shareholders, and 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 certain 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
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.
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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
Money Market, Tax Exempt Money Market, European Equity, Japan Equity, Asia
Growth and International Opportunities Portfolios) have elected to be governed
by Rule 18f-1 under the 1940 Act pursuant to which the Funds and the
corresponding Portfolios are obligated to redeem shares solely in cash up to the
lesser of $250,000 or one percent of the net asset value of the Fund during any
90 day period for any one shareholder. The Trust will redeem Fund shares in
kind only if it has received a redemption in kind from the corresponding
Portfolio and therefore shareholders of the Fund that receive redemptions in
kind will receive securities of the Portfolio. The Portfolios have advised the
Trust that the Portfolios will not redeem in kind except in circumstances in
which a Fund is permitted to redeem in kind.
FURTHER REDEMPTION INFORMATION. The Trust, on behalf of a Fund, and the
Portfolios reserve the right to suspend the right of redemption and to postpone
the date of payment upon redemption as follows: (i) for up to seven days, (ii)
during periods when the New York Stock Exchange is closed for other than
weekends and holidays or when trading on such Exchange is restricted as
determined by the SEC by rule or regulation, (iii) during periods in which an
emergency, as determined by the SEC, exists that causes disposal by the
Portfolio of, or evaluation of the net asset value of, its portfolio securities
to be unreasonable or impracticable, or (iv) for such other periods as the SEC
may permit.
EXCHANGE OF SHARES
An investor may exchange shares from any JPM Pierpont Fund into any other
JPM Pierpont Fund or JPM Institutional Fund, as described under "Exchange of
Shares" in the Prospectus. For complete information, the Prospectus as it
relates to the Fund into which a transfer is being made should be read prior to
the transfer. Requests for exchange are made in the same manner as requests for
redemptions. See "Redemption of Shares." Shares of the Fund to be acquired are
purchased for settlement when the proceeds from redemption become available. In
the case of investors in certain states, state securities laws may restrict the
availability of the exchange privilege. The Trust reserves the right to
discontinue, alter or limit the exchange privilege at any time.
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DIVIDENDS AND DISTRIBUTIONS
Each Fund declares and pays dividends and distributions as described under
"Dividends and Distributions" in the Prospectus.
Net investment income of the Money Market, Tax Exempt Money Market and
Treasury Money Market Funds consists of accrued interest or discount and
amortized premium, less the accrued expenses of the Fund applicable to that
dividend period including the fees payable to Morgan. See "Net Asset Value."
Determination of the net income for Money Market, Tax Exempt Money Market,
Treasury Money Market, Short Term Bond, Bond, Tax Exempt Bond and New York Total
Return Bond Funds is made at the times described in the Prospectus; in addition,
net investment income for days other than business days is determined at the
time net asset value is determined on the prior business day.
NET ASSET VALUE
Each of the Funds computes its net asset value once daily on Monday through
Friday as described under "Net Asset Value" in the Prospectus. The net asset
value will not be computed on the day the following legal holidays are observed:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day. On days when U.S. trading
markets close early in observance of these holidays, the Funds and the
Portfolios would expect to close for purchases and redemptions at the same time.
The days on which net asset value is determined are the Funds' business days.
The net asset value of each Fund is equal to the value of the Fund's
investment in its corresponding Portfolio (which is equal to the Fund's pro rata
share of the total investment of the Fund and of any other investors in the
Portfolio less the Fund's pro rata share of the Portfolio's liabilities) less
the Fund's liabilities. The following is a discussion of the procedures used by
the Portfolios corresponding to each Fund in valuing their assets.
MONEY MARKET, TAX EXEMPT MONEY MARKET AND TREASURY MONEY MARKET FUNDS. In
the case of the Portfolios for the Money Market, Tax Exempt Money Market and
Treasury Money Market Funds, all portfolio securities are valued by the
amortized cost method. The purpose of this method of calculation is to attempt
to maintain a constant net asset value per share of the Fund of $1.00. No
assurances can be given that this goal can be attained. The amortized cost
method of valuation values a security at its cost at the time of purchase and
thereafter assumes a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. If a difference of more than 1/2 of 1% occurs between
valuation based on the amortized cost method and valuation based on market
value, the Trustees will take steps necessary to reduce such deviation, such as
changing the Fund's dividend policy, shortening the average portfolio maturity,
realizing gains or losses, or reducing the number of outstanding Fund shares.
Any reduction of outstanding shares will be effected by having each shareholder
contribute to a Fund's capital the necessary shares on a PRO RATA basis. Each
shareholder will be deemed to have agreed to such contribution in these
circumstances by his investment in the Funds. See "Taxes."
BOND, TAX EXEMPT BOND, NEW YORK TOTAL RETURN BOND, SHORT TERM BOND AND
DIVERSIFIED FUNDS. In the case of the Bond, Tax Exempt Bond, New York Total
Return Bond and Short Term Bond Funds, and the fixed income portion of the
Diversified Fund, portfolio securities with a maturity of 60 days or more,
including securities that are listed on an exchange or traded over the counter,
are valued using prices supplied daily by an independent pricing service or
services that (i) are based on the last sale price on a national securities
exchange or, in the absence of recorded sales, at the readily available closing
bid price on such exchange or at the quoted bid price in the OTC market, if such
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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 Portfolios value municipal securities on the basis of
prices from a pricing service which uses information with respect to
transactions in bonds, quotations from bond dealers, market transactions in
comparable securities and various relationships between securities in
determining values.
Trading in securities in most foreign markets is normally completed before
the close of trading in U.S. markets and may also take place on days on which
the U.S. markets are closed. If events materially affecting the value of
securities occur between the time when the market in which they are traded
closes and the time when a Portfolio's net asset value is calculated, such
securities will be valued at fair value in accordance with procedures
established by and under the general supervision of the Trustees.
EQUITY, CAPITAL APPRECIATION, INTERNATIONAL EQUITY, EMERGING MARKETS
EQUITY, INTERNATIONAL OPPORTUNITIES, DIVERSIFIED, EUROPEAN EQUITY, JAPAN EQUITY
AND ASIA GROWTH FUNDS. In the case of the Equity Portfolios, the value of
investments listed on a domestic securities exchange, other than options on
stock indexes, is based on the last sale prices on 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.
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
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which they are traded closes and the time when a Portfolio's net asset value is
calculated, such securities will be valued at fair value in accordance with
procedures established by and under the general supervision of the Trustees.
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of yield,
actual distributions, total return or capital appreciation in reports, sales
literature and advertisements published by the Trust. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See "Additional
Information" in the Prospectus.
YIELD QUOTATIONS. As required by regulations of the SEC, current yield for
the Money Market, Tax Exempt Money Market and Treasury Money Market Funds is
computed by determining the net change exclusive of capital changes in the value
of a hypothetical pre-existing account having a balance of one share at the
beginning of a seven-day calendar period, dividing the net change in account
value of the account at the beginning of the period, and multiplying the return
over the seven-day period by 365/7. For purposes of the calculation, net change
in account value reflects the value of additional shares purchased with
dividends from the original share and dividends declared on both the original
share and any such additional shares, but does not reflect realized gains or
losses or unrealized appreciation or depreciation. Effective yield for the
Money Market, Tax Exempt Money Market and Treasury Money Market Funds is
computed by annualizing the seven-day return with all dividends reinvested in
additional Fund shares. In the case of the Tax Exempt Money Market Fund, the
tax equivalent yield is computed by first computing the yield as discussed
above. Then the portion of the yield attributable to securities the income of
which was exempt for federal income tax purposes is determined. This portion of
the yield is then divided by one minus the stated assumed federal income tax
rate for individuals and then added to the portion of the yield that is not
attributable to securities, the income of which was not tax exempt.
As required by regulations of the SEC, the annualized yield for the Bond,
Tax Exempt Bond, New York Total Return Bond and Short Term Bond Funds is
computed by dividing each Fund's net investment income per share earned during a
30-day period by the net asset value on the last day of the period. The average
daily number of shares outstanding during the period that are eligible to
receive dividends is used in determining the net investment income per share.
Income is computed by totaling the interest earned on all debt obligations
during the period and subtracting from that amount the total of all recurring
expenses incurred during the period. The 30-day yield is then annualized on a
bond-equivalent basis assuming semi-annual reinvestment and compounding of net
investment income, as described under "Additional Information" in the
Prospectus.
Historical performance for periods prior to the establishment of the Money
Market, Tax Exempt Money Market, Bond, and Tax Exempt Bond Funds will be that of
the respective predecessor free-standing fund and will be presented in
accordance with applicable SEC staff interpretations.
Below is set forth historical yield information for the Funds or their
predecessors for the periods indicated:
MONEY MARKET FUND (5/31/96): 7-day current yield: 4.94%; 7-day effective yield:
5.06%.
TAX EXEMPT MONEY MARKET FUND (8/31/96): 7-day current yield: 3.10%; 7-day tax
equivalent yield at 39% tax rate: 5.08%; 7-day effective yield: 3.15%.
TREASURY MONEY MARKET FUND (4/30/96): 7-day current yield: 4.77%; 7-day
effective yield: 4.88%.
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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 (8/31/96): 30-day yield: 4.52%; 30-day tax equivalent yield
at 39% tax rate: 7.41%.
NEW YORK TOTAL RETURN BOND FUND (9/30/96): 30-day yield: 4.23%; 30-day tax
equivalent yield at 39% tax rate: 6.93%.
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, International Opportunities, Diversified, European
Equity, Japan Equity and Asia Growth Funds for a period is computed by assuming
a hypothetical initial payment of $1,000. It is then assumed that all of the
dividends and distributions by the Fund over the period are reinvested. It is
then assumed that at the end of the period, the entire amount is redeemed. The
annualized total return is then calculated by determining the annual rate
required for the initial payment to grow to the amount which would have been
received upon redemption.
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. Historical performance information
for any period or portion thereof prior to the establishment of the Diversified,
European Equity, Japan Equity or Asia Growth Fund will be that of its
corresponding predecessor JPM Institutional fund, if the JPM Institutional fund
commenced operations before the corresponding JPM Pierpont Fund. The applicable
financial information in the registration statement for The JPM Institutional
Funds (Registration Nos. 33-54642 and 811-7342) is incorporated herein by
reference.
Below is set forth historical return information for the Funds or their
predecessors for the periods indicated:
MONEY MARKET FUND (5/31/96): Average annual total return, 1 year: 5.54%; average
annual total return, 5 years: 4.33%; average annual total return, 10 years:
5.88%; aggregate total return, 1 year: 5.54%; aggregate total return, 5 years:
23.61%; aggregate total return, 10 years: 76.99%.
TAX EXEMPT MONEY MARKET FUND (8/31/96): Average annual total return, 1 year:
3.23%; Average annual total return, 5 years: 2.83%; average annual total return,
10 years: 3.91%; aggregate total return, 1 year: 3.23%; aggregate total return,
5 years: 14.99%; aggregate total return, 10 years: 46.74%.
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%.
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TAX EXEMPT BOND FUND (8/31/96): Average annual total return, 1 year: 4.01%;
average annual total return, 5 years: 6.41%; average annual total return,
10 years: 6.59%; aggregate total return, 1 year: 4.01%; aggregate total return,
5 years: 36.46%; aggregate total return, 10 years: 89.23%.
NEW YORK TOTAL RETURN BOND FUND (9/30/96): Average annual total return, 1 year:
; average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 5.88%; aggregate total return,
1 year: 4.41%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 15.31%.
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%.
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,
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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.
The predecessor JPM Institutional Diversified, European Equity, Japan Equity and
Asia Growth funds commenced operations on July 8, 1993, February 29, 1996,
February 29, 1996 and February 29, 1996, respectively.
GENERAL. A Fund's performance will vary from time to time depending upon
market conditions, the composition of its corresponding Portfolio, and its
operating expenses. Consequently, any given performance quotation should not be
considered representative of a Fund's performance for any specified period in
the future. In addition, because performance will fluctuate, it may not provide
a basis for comparing an investment in a Fund with certain bank deposits or
other investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Funds' shares, including appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.
In order to illustrate the benefits of balanced investing across asset
classes over longer periods of time, the Diversified Fund may use performance
data that will be based on the return of, as appropriate, the S&P 500 Index, the
Salomon Brothers Broad Investment Grade Bond Index, the Frank Russell 2000 and
2500 Indexes, and the EAFE Index. The quoted performance will illustrate what
results could have been achieved had the Fund invested specified percentages of
the Fund's assets in classes of securities that would have produced a return
equal to the relevant index over the time period at issue.
From time to time, the Funds may quote performance in terms of yield,
actual distributions, total return, or capital appreciation in reports, sales
literature, and advertisements published by the Funds. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See "Additional
Information" in the Prospectus.
PORTFOLIO TRANSACTIONS
The Advisor places orders for all Portfolios for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of all the Portfolios. See "Investment Objectives and Policies."
Fixed income and debt securities and municipal bonds and notes are
generally traded at a net price with dealers acting as principal for their own
accounts without a stated commission. The price of the security usually
includes profit to the dealers. In underwritten offerings, securities are
purchased at a fixed price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
On occasion, certain securities may be purchased directly from an issuer, in
which case no commissions or discounts are paid.
MONEY MARKET, TAX EXEMPT MONEY MARKET, TREASURY MONEY MARKET, BOND, SHORT
TERM BOND, TAX EXEMPT BOND AND NEW YORK TOTAL RETURN BOND FUNDS. Portfolio
transactions for the Portfolios corresponding to the Money Market, Tax Exempt
Money Market, Treasury Money Market, Bond, Short Term Bond, Tax Exempt Bond and
New York Total Return Bond Funds will be undertaken principally to accomplish a
Portfolio's objective in relation to expected movements in the general level of
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
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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, INTERNATIONAL OPPORTUNITIES, DIVERSIFIED, EUROPEAN EQUITY, JAPAN EQUITY
AND ASIA GROWTH FUNDS. In connection with portfolio transactions for the Equity
Portfolios, the overriding objective is to obtain the best possible execution of
purchase and sale orders.
In selecting a broker, the Advisor considers a number of factors including:
the price per unit of the security; the broker's reliability for prompt,
accurate confirmations and on-time delivery of securities; the firm's financial
condition; as well as the commissions charged. A broker may be paid a brokerage
commission in excess of that which another broker might have charged for
effecting the same transaction if, after considering the foregoing factors, the
Advisor decides that the broker chosen will provide the best possible execution.
The Advisor monitors the reasonableness of the brokerage commissions paid in
light of the execution received. The Trustees of each Portfolio review
regularly the reasonableness of commissions and other transaction costs incurred
by the Portfolios in light of facts and circumstances deemed relevant from time
to time, and, in that connection, will receive reports from the Advisor and
published data concerning transaction costs incurred by institutional investors
generally. Research services provided by brokers to which the Advisor has
allocated brokerage business in the past include economic statistics and
forecasting services, industry and company analyses, portfolio strategy
services, quantitative data, and consulting services from economists and
political analysts. Research services furnished by brokers are used for the
benefit of all the Advisor's clients and not solely or necessarily for the
benefit of an individual Portfolio. The Advisor believes that the value of
research services received is not determinable and does not significantly reduce
its expenses. The Portfolios do not reduce their fee to the Advisor by any
amount that might be attributable to the value of such services.
The Portfolios or their predecessors corresponding to the 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.
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EMERGING MARKETS EQUITY FUND (October): 1995: $1,475,147; 1994: $1,262,905;
1993: N/A.
EUROPEAN EQUITY FUND (December): 1995: $143,417.
JAPAN EQUITY FUND (December): 1995: $0.
ASIA GROWTH FUND (December): 1995: $27,322.
The increases in brokerage commissions reflected above were due to
increased portfolio activity and an increase in net investments by investors in
a Portfolio or its predecessor.
Subject to the overriding objective of obtaining the best possible
execution of orders, the Advisor may allocate a portion of a Portfolio's
brokerage transactions to affiliates of the Advisor. In order for affiliates of
the Advisor to effect any portfolio transactions for a Portfolio, the
commissions, fees or other remuneration received by such affiliates must be
reasonable and fair compared to the commissions, fees, or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. Furthermore, the Trustees of each Portfolio,
including a majority of the Trustees who are not "interested persons," have
adopted procedures which are reasonably designed to provide that any
commissions, fees, or other remuneration paid to such affiliates are consistent
with the foregoing standard.
Portfolio securities will not be purchased from or through or sold to or
through the Co-Administrator, the Distributor or the Advisor or any other
"affiliated person" (as defined in the 1940 Act) of the Co-Administrator,
Distributor or Advisor when such entities are acting as principals, except to
the extent permitted by law. In addition, the Portfolios will not purchase
securities during the existence of any underwriting group relating thereto of
which the Advisor or an affiliate of the Advisor is a member, except to the
extent permitted by law.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of a Portfolio as well as other customers
including other Portfolios, the Advisor to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for a Portfolio with those to be sold or purchased for
other customers in order to obtain best execution, including lower brokerage
commissions if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction will be
made by the Advisor in the manner it considers to be most equitable and
consistent with its fiduciary obligations to a Portfolio. In some instances,
this procedure might adversely affect a Portfolio.
If a Portfolio that writes options effects a closing purchase transaction
with respect to an option written by it, normally such transaction will be
executed by the same broker-dealer who executed the sale of the option. The
writing of options by a Portfolio will be subject to limitations established by
each of the exchanges governing the maximum number of options in each class
which may be written by a single investor or group of investors acting in
concert, regardless of whether the options are written on the same or different
exchanges or are held or written in one or more accounts or through one or more
brokers. The number of options which a Portfolio may write may be affected by
options 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.
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MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a "Massachusetts
business trust" of which each Fund is a separate and distinct series. A copy of
the Declaration of Trust for the Trust is on file in the office of the Secretary
of The Commonwealth of Massachusetts. The Declaration of Trust and the By-Laws
of the Trust are designed to make the Trust similar in most respects to a
Massachusetts business corporation. The principal distinction between the two
forms concerns shareholder liability described below.
Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust which is not the case for a corporation. However, the Trust's Declaration
of Trust provides that the shareholders shall not be subject to any personal
liability for the acts or obligations of any Fund and that every written
agreement, obligation, instrument or undertaking made on behalf of any Fund
shall contain a provision to the effect that the shareholders are not personally
liable thereunder.
No personal liability will attach to the shareholders under any undertaking
containing such provision when adequate notice of such provision is given,
except possibly in a few jurisdictions. With respect to all types of claims in
the latter jurisdictions, (i) tort claims, (ii) contract claims where the
provision referred to is omitted from the undertaking, (iii) claims for taxes,
and (iv) certain statutory liabilities in other jurisdictions, a shareholder may
be held personally liable to the extent that claims are not satisfied by the
Fund. However, upon payment of such liability, the shareholder will be entitled
to reimbursement from the general assets of the Fund. The Trustees intend to
conduct the operations of the Trust in such a way so as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the Funds.
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of a Fund is liable to a
Fund or to a shareholder, and that no Trustee, officer, employee, or agent is
liable to any third persons in connection with the affairs of a Fund, except as
such liability may arise from his or its own bad faith, willful misfeasance,
gross negligence or reckless disregard of his or its duties to such third
persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of a
Fund. With the exceptions stated, the Trust's Declaration of Trust provides
that a Trustee, officer, employee, or agent is entitled to be indemnified
against all liability in connection with the affairs of a Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which each Fund represents a separate series of
shares of beneficial interest. See "Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares ($0.001 par value) of one or more series and
classes within any series and to divide or combine the shares (of any series, if
applicable) without changing the proportionate beneficial interest of each
shareholder in a Fund (or in the assets of other series, if applicable). To
date shares of the sixteen 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.
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Upon liquidation of a Fund, holders are entitled to share pro rata in the net
assets of a Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of a Fund have no preemptive or conversion rights
and are fully paid and nonassessable. The rights of redemption and exchange are
described in the Prospectus and elsewhere in this Statement of Additional
Information.
The shareholders of the Trust are entitled to a full vote for each full
share held and to a fractional vote for each fractional share. Subject to the
1940 Act, the Trustees themselves have the power to alter the number and the
terms of office of the Trustees, to lengthen their own terms, or to make their
terms of unlimited duration subject to certain removal procedures, and appoint
their own successors, PROVIDED, HOWEVER, that immediately after such appointment
the requisite majority of the Trustees have been elected by the shareholders of
the Trust. The voting rights of shareholders are not cumulative so that holders
of more than 50% of the shares voting can, if they choose, elect all Trustees
being selected while the shareholders of the remaining shares would be unable to
elect any Trustees. It is the intention of the Trust not to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for
action by shareholder vote as may be required by either the 1940 Act or the
Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in writing
or vote of more than two-thirds of its outstanding shares, to remove a Trustee.
The Trustees will call a meeting of shareholders to vote on removal of a Trustee
upon the written request of the record holders of 10% of the Trust's shares. In
addition, whenever ten or more shareholders of record who have been such for at
least six months preceding the date of application, and who hold in the
aggregate either shares having a net asset value of at least $25,000 or at least
1% of the Trust's outstanding shares, whichever is less, shall apply to the
Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statements
filed, the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing to
sustain any of them. If the SEC shall enter an order refusing to sustain any of
such objections, or if, after the entry of an order sustaining one or more of
such objections, the SEC shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees 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 sixteen series of the Trust. The Trustees have no current intention to
create
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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 November 30, 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
(8.34%);
Treasury Money Market Fund--Morgan as Agent for Kingsley & Co. Fund Omnibus
Account (14.40%), Morgan as Agent for Market Street Trust Co. Omnibus
Account (7.03%), Morgan as Agent for D. Dunner, Inc. (6.36%);
Tax Exempt Money Market Fund--Morgan as Agent for Kingsley & Co. Fund
Omnibus Account (8.01%);
Short Term Bond Fund--Morgan as Agent for Towermark Corporation (31.62%);
E. Chang as Trustee of the E. Chao Chang Revocable Trust (19.52%), Midwest
Disposal of Delaware, LLC (5.81%);
Bond Fund--Boston & Co. (6.61%), B. Spitzer (5.40%);
New York Total Return Bond Fund--M. Barron (7.59%), Morgan as Agent for J.
Simon (5.56%);
Capital Appreciation--Forest Laboratories, Inc. (6.17%);
Emerging Markets Equity Fund--Morgan as Agent for Three M Operating
Subsidiaries, Ltd. (6.65%);
European Equity Fund--Morgan as Agent for The American Hospital of Paris
(39.73%), Morgan as Agent for E. Boulot and E. Boulot (19.92%), Morgan as
Agent for D.J. Fermo and L. Fermo (15.20%), L.R. Smith and M.S. Smith
(10.21%), R.A. McGimpsey and L.V. McGimpsey (6.84%);
Japan Equity Fund--Johol & Co. (33.05%), R.A. McGimpsey and L.V. McGimpsey
(19.12%), Morgan as Agent for The American Hospital of Paris (18.63%),
J. Lewis (9.09%), S.J. Grover and L.G. Grover (5.86%); and
Asia Growth Fund--R.A. McGimpsey and L.V. McGimpsey (45.35%), Morgan as
Agent for R. James and A. James (23.35%), Charles Schwab & Co, Inc.
(6.75%).
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The address of each owner listed above is c/o Morgan, 522 Fifth Avenue, New
York, New York 10036. As of the date of this Statement of Additional
Information, the officers and Trustees as a group owned less than 1% of the
shares of each Fund.
TAXES
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, a Fund must, among
other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to loans of stock and securities, gains from the
sale or other disposition of stock, securities or foreign currency and other
income (including but not limited to gains from options, futures, and forward
contracts) derived with respect to its business of investing in such stock,
securities or foreign currency; (b) derive less than 30% of its gross income
from the sale or other disposition of stock, securities, options, futures or
forward contracts (other than options, futures or forward contracts on foreign
currencies) held less than three months, or foreign currencies (or options,
futures or forward contracts on foreign currencies), but only if such currencies
(or options, futures or forward contracts on foreign currencies) are not
directly related to a Fund's principal business of investing in stocks or
securities (or options and futures with respect to stocks or securities); and
(c) diversify its holdings so that, at the end of each quarter of its taxable
year, (i) at least 50% of the value of the Fund's total assets is represented by
cash, cash items, U.S. Government securities, securities of other regulated
investment companies, and other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the Fund's total assets, and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its total assets is invested in the securities of any one issuer
(other than U.S. Government securities or securities of other regulated
investment companies). As a regulated investment company, a Fund (as opposed to
its shareholders) will not be subject to federal income taxes on the net
investment income and capital gain that it distributes to its shareholders,
provided that at least 90% of its net investment income and realized net
short-term capital gain in excess of net long-term capital loss for the taxable
year is distributed in accordance with the Code's timing requirements.
Under the Code, a Fund will be subject to a 4% excise tax on a portion of
its undistributed taxable income and capital gains if it fails to meet certain
distribution requirements by the end of the calendar year. Each Fund intends to
make distributions in a timely manner and accordingly does not expect to be
subject to the excise tax.
For federal income tax purposes, dividends that are declared by a Fund in
October, November or December as of a record date in such month and actually
paid in January of the following year will be treated as if they were paid on
December 31 of the year declared. Therefore, such dividends will be taxable to
a shareholder in the year declared rather than the year paid.
The Tax Exempt Money Market, Tax Exempt Bond and New York Total Return Bond
Funds intend to qualify to pay exempt-interest dividends to their respective
shareholders by having, at the close of each quarter of their respective taxable
years, at least 50% of the value of their respective total assets consist of tax
exempt securities. An exempt-interest dividend is that part of dividend
distributions made by the Funds which is properly designated as consisting of
interest received by the Funds on tax exempt securities. Shareholders will not
incur any federal income tax on the amount of exempt-interest dividends received
by them from the Funds, other than the alternative minimum tax under certain
circumstances. In view of each 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
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capital gains and may invest limited amounts in taxable securities under
certain circumstances. See "Investment Objective(s) and Policies" in the
Prospectus.
Distributions of net investment income, certain foreign currency gains, and
realized net short-term capital gain in excess of net long-term capital loss
(other than exempt interest dividends) are generally taxable to shareholders of
the Funds as ordinary income whether such distributions are taken in cash or
reinvested in additional shares. The Equity, Capital Appreciation and
Diversified Funds expect that a portion of these distributions to corporate
shareholders will be eligible for the dividends-received deduction, subject to
applicable limitations under the Code. Distributions to corporate shareholders
of the 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, International Opportunities, European Equity, Japan
Equity and Asia Growth Funds are not eligible for the dividends received
deduction. Distributions of net long-term capital gain (i.e., net long-term
capital gain in excess of net short-term capital loss) are taxable to
shareholders of a Fund as long-term capital gain, regardless of whether such
distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. See "Taxes"
in the Prospectus for a discussion of the federal income tax treatment of any
gain or loss realized on the redemption or exchange of a Fund's shares.
Additionally, any loss realized on a redemption or exchange of shares of a Fund
will be disallowed to the extent the shares disposed of are replaced within a
period of 61 days beginning 30 days before such disposition, such as pursuant to
reinvestment of a dividend in shares of the Fund.
To maintain a constant $1.00 per share net asset value, the Trustees of the
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 a put is acquired or a call option is
written thereon or the straddle rules described below are otherwise applicable.
Other gains or losses on the sale of securities will be short-term capital gains
or losses. Gains and losses on the sale, lapse or other termination of options
on securities will be treated as gains and losses from the sale of securities.
Except as described below, if an option written by a Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio will realize a short-term capital
gain or loss, depending on whether the premium income is greater or less than
the amount paid by the Portfolio in the closing transaction. If securities are
purchased by a Portfolio pursuant to the exercise of a put option written by it,
the Portfolio will subtract the premium received from its cost basis in the
securities purchased.
Under the Code, gains or losses attributable to disposition of foreign
currency or to certain foreign currency contracts, or to fluctuations in
exchange rates between the time a Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time a
Portfolio actually collects such income or pays such liabilities, are generally
treated as ordinary income or ordinary loss. Similarly, gains or losses on the
disposition of debt securities held by a Portfolio, if any, denominated in
foreign currency, to the extent attributable to fluctuations in exchange rates
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between the acquisition and disposition dates are also treated as ordinary
income or loss.
Forward currency contracts, options and futures contracts entered into by a
Portfolio may create "straddles" for U.S. federal income tax purposes and this
may affect the character and timing of gains or losses realized by the Portfolio
on forward currency contracts, options and futures contracts or on the
underlying securities. Certain straddles treated as short sales for tax
purposes may also result in the loss of the holding period of underlying
securities for purposes of the 30% of gross income test described above, and
therefore, a Portfolio's ability to enter into forward currency contracts,
options and futures contracts may be limited.
Certain options, futures and foreign currency contracts held by a Portfolio
at the end of each taxable year will be required to be "marked to market" for
federal income tax purposes -- i.e., treated as having been sold at market
value. For options and futures contracts, 60% of any gain or loss recognized on
these deemed sales and on actual dispositions will be treated as long-term
capital gain or loss, and the remainder will be treated as short-term capital
gain or loss regardless of how long the Portfolio has held such options or
futures. However, gain or loss recognized on certain foreign currency contracts
will be treated as ordinary income or loss.
The Equity Portfolios may invest in Equity Securities of foreign issuers.
If a Portfolio purchases shares in certain foreign corporations (referred to as
passive foreign investment companies ("PFICs") under the Code), the 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 a portion of such income may have to be distributed as a taxable dividend
by the Fund to its shareholders. In addition, certain interest charges may be
imposed on a Fund or its shareholders in respect of deemed unpaid taxes arising
from such distributions or gains. Alternatively, a Fund may in some cases be
permitted to include each year in its income and distribute to shareholders a
pro rata portion of the foreign investment fund's income, whether or not
distributed to the Fund.
Pursuant to proposed regulations, open-end regulated investment companies
such as the 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 gain in excess of net long-term loss to a shareholder
who, as to the United States, is a nonresident alien individual, fiduciary of a
foreign trust or estate, foreign corporation or foreign partnership (a "foreign
shareholder") will be subject to U.S. withholding tax at the rate of 30% (or
lower treaty rate) unless the dividends are effectively connected with a U.S.
trade or business of the shareholder, in which case the dividends will be
subject to tax on a net income basis at the graduated rates applicable to U.S.
individuals or domestic corporations. Distributions treated as long term capital
gains to foreign shareholders will not be subject to U.S. tax unless the
distributions are effectively connected with the shareholder's trade or business
in the United States or, in the case of a shareholder who is a nonresident alien
individual, the shareholder was present in the United States for more than 182
days during the taxable year and certain other conditions are met.
In the case of a foreign shareholder who is a nonresident alien individual
or foreign entity, a Fund may be required to withhold U.S. federal income tax as
"backup withholding" at the rate of 31% from distributions treated as long-term
capital gains and from the proceeds of redemptions, exchanges or other
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dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by gift
of shares of a Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of the Fund held by such a shareholder at his or her death will be includible in
his or her gross estate for U.S. federal estate tax purposes.
FOREIGN TAXES. It is expected that the Equity, Capital Appreciation,
International Equity, Emerging Markets Equity, International Opportunities,
Diversified, European Equity, Japan Equity and Asia Growth Funds may be subject
to foreign withholding taxes on other foreign taxes with respect to income
(possibly including, in some cases, capital gains) received from sources within
foreign countries. In the case of the International Equity, Emerging Markets
Equity, International Opportunities, European Equity, Japan Equity and Asia
Growth Funds, so long as more than 50% in value of the total assets of the Fund
(including its share of the assets of the corresponding Portfolio) at the close
of any taxable year consists of stock or securities of foreign corporations, the
Fund may elect to treat any foreign income taxes deemed paid by it as paid
directly by its shareholders. These Funds will make such an election only if
they deem it to be in the best interest of their respective shareholders. The
Funds will notify their respective shareholders in writing each year if they
make the election and of the amount of foreign income taxes, if any, to be
treated as paid by the shareholders. If a Fund makes the election, each
shareholder will be required to include in his income (in addition to the
dividends and distributions he receives) his proportionate share of the amount
of foreign income taxes deemed paid by the Fund and will be entitled to claim
either a credit (subject to the limitations discussed below) or, if he itemizes
deductions, a deduction for his share of the foreign income taxes in computing
federal income tax liability. (No deduction will be permitted in computing an
individual's alternative minimum tax liability.) A shareholder who is a
nonresident alien individual or a foreign corporation may be subject to U.S.
withholding tax on the income resulting from the election described in this
paragraph, but may not be able to claim a credit or deduction against such U.S.
tax for the foreign taxes treated as having been paid by such shareholder. A
tax-exempt shareholder will not ordinarily benefit from this election.
Shareholders who choose to utilize a credit (rather than a deduction) for
foreign taxes will be subject to the limitation that the credit may not exceed
the shareholder's U.S. tax (determined without regard to the availability of the
credit) attributable to his or her total foreign source taxable income. For
this purpose, the portion of dividends and distributions paid by each of the
International 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, if
the election is made, shareholders may nevertheless be unable to claim a credit
for the full amount of their proportionate shares of the foreign income taxes
paid by the International Equity, Emerging Markets Equity, International
Opportunities, European Equity, Japan Equity and Asia Growth Funds.
STATE AND LOCAL TAXES. Each Fund may be subject to state or local taxes in
jurisdictions in which the Fund is deemed to be doing business. In addition, the
treatment of a Fund and its shareholders in those states which have income tax
laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
OTHER TAXATION. The Trust is organized as a Massachusetts business trust
and, under current law, neither the Trust nor any Fund is liable for any income
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or franchise tax in The Commonwealth of Massachusetts, provided that each Fund
continues to qualify as a regulated investment company under Subchapter M of the
Code. The Portfolios are organized as New York trusts. The Portfolios are not
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. 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 (except for the International
Opportunities Fund) are incorporated herein by reference from the Funds' 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
substantial fund balances in each year as described below.
1994-95 FISCAL YEAR
New York State ended its 1994-95 fiscal year with the General Fund in
balance. The closing fund balance of $158 million reflects $157 million in the
Tax Stabilization Reserve Fund and $1 million in the Contingency Reserve Fund
("CRF"). The CRF was established in State Fiscal year 1993-94, funded partly
with surplus moneys, to assist the State in financing the 1994-95 fiscal year
costs of extraordinary litigation known or anticipated at that time; the opening
fund balance in State fiscal year 1994-95 was $265 million. The $241 million
change in the fund balance reflects the use of $264 million in the CRF as
planned, as well as the required deposit of $23 million to the Tax Stabilization
Reserve Fund. In addition, $278 million was on deposit in the tax refund reserve
account, $250 million of which was deposited at the end of the State's 1994-95
fiscal year to continue the process of restructuring the State's cash flow as
part of the LGAC program.
Compared to the State Financial Plan for 1994-95 as formulated on June 16,
1994, reported receipts fell short of original projections by $1.163 billion,
primarily in the categories of personal income and business taxes. Of this
amount, the personal income tax accounts for $800 million, reflecting weak
estimated tax collections and lower withholding due to reduced wage and salary
growth, more severe reductions in brokerage industry bonuses than projected
earlier, and deferral of capital gains realizations in anticipation of potential
federal tax changes. Business taxes fell short by $373 million, primarily
reflecting lower payments from banks as substantial overpayments of 1993
liability depressed net collections in the 1994-95 fiscal year. These shortfalls
were offset by better performance in the remaining taxes, particularly the user
taxes and fees, which exceeded projections by $210 million. Of this amount
$227 million was attributable to certain restatements for accounting treatment
purposes pertaining to the CRF and LGAC; these restatements had no impact on
balance in the General Fund.
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Disbursements were also reduced from original projections by $848 million.
After adjusting for the net impact of restatements relating to the CRF and LGAC
which raised disbursements by $38 million, the variance is $886 million. Well
over two-thirds of this variance is in the category of grants to local
governments, primarily reflecting the conservative nature of the original
estimates of projected costs for social services and other programs. Lower
education costs are attributable to the availability of $110 million in
additional lottery proceeds and the use of LGAC bond proceeds.
The spending reductions also reflect $188 million in actions initiated in
January 1995 by the Governor to reduce spending to avert a potential gap in the
1994-95 State Financial Plan. These actions included savings from a hiring
freeze, halting the development of certain services, and the suspension of
non-essential capital projects. These actions, together with $71 million in
other measures comprised the Governor's $259 million gap-closing plan, submitted
to the legislature in connection with the 1995-96 executive budget.
1993-94 FISCAL YEAR
The State ended its 1993-94 fiscal year with a balance of $1.140 billion in
the tax refund reserve account, $265 million in the CRF and $134 million in its
Tax Stabilization Reserve Fund. These fund balances were primarily the result of
an improving national economy, State employment growth, tax collections that
exceeded earlier projections and disbursements that were below expectations.
Deposits to the personal income tax refund reserve have the effect of reducing
reported personal income tax receipts in the fiscal year when made and
withdrawals from such reserve increase receipts in the fiscal year when made.
The balance in the tax refund reserve account was used to pay taxpayer refunds.
Of the $1.140 billion deposited in the tax refund reserve account,
$1.026 billion was available for budgetary planning purposes in the 1994-95
fiscal year. The remaining $114 million was redeposited in the tax refund
reserve account at the end of the State's 1994-95 fiscal year to continue the
process of restructuring the State's cash flow as part of the LGAC program. The
balance in the CRF was reserved to meet the cost of litigation facing the State
in its 1994-95 fiscal year.
Before the deposit of $1.140 billion in the tax refund reserve account,
General Fund receipts in 1993-94 exceeded those originally projected when the
State Financial Plan for that year was formulated on April 16, 1993 by
$1.002 billion. Greater-than-expected receipts in the personal income tax, the
bank tax, the corporation franchise tax and the estate tax accounted for most of
this variance, and more than offset weaker-than-projected collections from the
sales and use tax and miscellaneous receipts. Collections from individual taxes
were affected by various factors including changes in federal business laws,
sustained profitability of banks, strong performance of securities firms, and
higher-than-expected consumption of tobacco products following price cuts.
The higher receipts resulted, in part, because the New York economy
performed better than forecasted. Employment growth started in the first quarter
of the State's 1993-94 fiscal year, and, although this lagged behind the
national economic recovery, the growth in New York began earlier than
forecasted. The New York economy exhibited signs of strength in the service
sector, in construction, and in trade. Long Island and the Mid-Hudson Valley
continued to lag behind the rest of the State in economic growth. The State
Division of the Budget believes that approximately 100,000 jobs were added
during the 1993-94 fiscal year.
Disbursements and transfers from the General Fund were $303 million below
the level projected in April 1993, an amount that would have been $423 million
had the State not accelerated the payment of Medicaid billings, which in the
April 1993 State Financial Plan were planned to be deferred into the 1994-95
fiscal year. Compared to the estimates included in the State Financial Plan
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formulated in April 1993, lower disbursements resulted from lower spending for
Medicaid, capital projects, and debt service (due to refundings) and
$114 million used to restructure the State's cash flow as part of the LGAC
program. Disbursements were higher than expected for general support for public
schools, the State share of income maintenance, overtime for prison guards, and
highway snow and ice removal. The State also made the first of six required
payments to the State of Delaware related to the settlement of Delaware's
litigation against the State regarding the disposition of abandoned property
receipts.
During the 1993-94 fiscal year, the State also established and funded the
CRF as a way to assist the State in financing the cost of litigation affecting
the State. The CRF was initially funded with a transfer of $100 million
attributable to the positive margin recorded in the 1992-93 fiscal year. In
addition, the State augmented this initial deposit with $132 million in debt
service savings attributable to the refinancing of State and public authority
bonds during 1993-94. A year-end transfer of $36 million was also made to the
CRF, which, after a disbursement for authorized fund purposes, brought the CRF
balance at the end of 1993-94 to $265 million. This amount was $165 million
higher than the amount originally targeted for this reserve fund.
1992-93 FISCAL YEAR
The State ended its 1992-93 fiscal year with a balance of $671 million in
the tax refund reserve account and $67 million in the Tax Stabilization Reserve
Fund.
The State's 1992-93 fiscal year was characterized by performance that was
better than projected for the national and regional economies. National gross
domestic product, State personal income, and State employment and unemployment
performed better than originally projected in April 1992. This favorable
economic performance, particularly at year end, combined with a tax-induced
acceleration of income into 1992, was the primary cause of the General Fund
surplus. Personal income tax collections were more than $700 million higher than
originally projected (before reflecting the tax refund reserve account
transaction), primarily in the withholding and estimated payment components of
the tax.
There were large, but mainly offsetting, variances in other categories of
receipts. Significantly higher-than-projected business tax collections and the
receipt of unbudgeted payments from the Medical Malpractice Insurance
Association ("MMIA") and the New York Racing Association approximately offset
the loss of an anticipated $200 million federal reimbursement, the loss of
certain budgeted hospital differential revenue as a result of unfavorable court
decisions, and shortfalls in certain miscellaneous revenues.
Disbursements and transfers to other funds were $45 million above
projections in April 1992, although this includes a $150 million payment to
health insurers (financed with a receipt from the MMIA made pursuant to
legislation passed in January 1993). All other disbursements were $105 million
lower than projected. This reduction primarily reflected lower costs in
virtually all categories of spending, including Medicaid, local health programs,
agency operations, fringe benefits, capital projects and debt service as
partially offset by higher-than-anticipated costs for education programs.
CERTAIN LITIGATION
The legal proceedings noted below involve State finances, State programs
and miscellaneous tort, real property and contract claims in which the State is
a defendant and the monetary damages sought are substantial. These proceedings
could affect adversely the financial condition of the State in the 1995-96
fiscal year or thereafter. The State will describe newly initiated proceedings.
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Among the more significant of these cases are those that involve: (i) the
validity of agreements and treaties by which various Indian tribes transferred
to New York title to certain land in New York; (ii) certain aspects of New
York's Medicaid rates and regulations, including reimbursements to providers of
mandatory and optional Medicaid services, and the eligibility for and nature of
home care services; (iii) challenges to provisions of Section 2807-C of the
Public Health Law, which impose a 13% surcharge on inpatient hospital bills paid
by commercial insurers and employee welfare benefit plans and portions of
Chapter 55 of the laws of 1992, which require hospitals to impose and remit to
the State an 11% surcharge on hospital bills paid by commercial insurers and
which require health maintenance organizations to remit to the State a surcharge
of up to 9%; (iv) two cases challenge provisions of Section 2807-c of the Public
Health Law, which impose a 13 percent surcharge on inpatient hospital bills paid
by commercial insurers and employee welfare benefit plans, and portions of
Chapter 55 of the Laws of 1992 which require hospitals to impose and remit to
the State an 11 percent surcharge on hospital bills paid by commercial insurers
and which require health maintenance organizations to remit to the State a
surcharge of up to 9 percent--in The Travelers Insurance Company v. Cuomo, et
al., commenced June 2, 1992, and The Health Insurance Association of America, et
al. v. Chassin, a al., commenced July 20, 1992, both in the United States
District Court for the Southern District of New York and consolidated,
plaintiffs allege that the surcharges are preempted by federal law (by decision
dated April 26, 1995, the United States Supreme Court upheld the surcharges as
not preempted by federal law); (v) challenges to the practice of reimbursing
certain Office of Mental Health patient care expenses from the client's Social
Security benefits; and (vi) alleged responsibility of New York officials to
assist in remedying racial segregation in the City of Yonkers. In addition,
aspects of petroleum business taxes are the subject of administrative claims and
litigation.
THE CITY OF NEW YORK
The fiscal health of the State of New York is closely related to the fiscal
health of its localities, particularly the City, which has required and
continues to require significant financial assistance from New York. The City's
independently audited operating results for each of its 1981 through 1993 fiscal
years showed a General Fund surplus reported in accordance with GAAP. In
addition, the City's financial statements for the 1995 fiscal year received an
unqualified opinion from the City's independent auditors, the eleventh
consecutive year the City received such an opinion.
As required by the Office of the State Deputy Comptroller for the City of
New York (the "OSDC"), the 1997-1998 Financial Plan reflects a program of
proposed actions by the City to close the gaps between projected revenues and
expenditures of $1.4 billion, $2.2 billion and 2.9 billion for the 1998, 1999
and 2000 fiscal years, respectively. These actions, a substantial number of
which are not specified in detail, include additional agency spending
reductions, reduction in entitlements, government procurement initiatives,
revenue initiatives and the availability of the general reserve.
The OSDC and the State Financial Control Board continue their respective
budgetary oversight activities.
In response to the City's fiscal crisis in 1975, the State took action
to assist the City in returning to fiscal stability. Among those actions, the
State established the Municipal Assistance Corporation for the City of New York
(the "MAC") to provide financing assistance to the City; the New York State
Financial Control Board (the "Control Board") to oversee the City's financial
affairs; the Office of the State Deputy Comptroller for the City of New York to
assist the Control Board in exercising its powers and responsibilities; and a
"Control Period" from 1975 to 1986 during which the City was subject to certain
statutorily-prescribed fiscal-monitoring arrangements. Although the Control
Board terminated the Control Period in 1986 when certain statutory conditions
were met,
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thus suspending certain Control Board powers, the Control Board, MAC and OSDC
continue to exercise various fiscal-monitoring functions over the City, and upon
the occurrence or "substantial likelihood and imminence" of the occurrence of
certain events, including, but not limited to a City operating budget deficit of
more than $100 million, the Control Board is required by law to reimpose a
Control Period. Currently, the City and its Covered Organizations (I.E., those
which receive or may receive monies from the City directly, indirectly or
contingently) operate under a four-year financial plan which the City prepares
annually and periodically updates.
The staffs of the OSDC and the Control Board issue periodic reports on
the City's financial plans, as modified, analyzing forecasts of revenues and
expenditures, cash flow, and debt service requirements, as well as compliance
with the financial plan, as modified, by the City and its Covered Organizations.
OSDC staff reports issued during the mid-1980's noted that the City's budgets
benefitted from a rapid rise in the City's economy, which boosted the City's
collection of property, business and income taxes. These resources were used to
increase the City's work force and the scope of discretionary and mandated City
services. Subsequent OSDC staff reports examined the 1987 stock market crash and
the 1989-92 recession, which affected the New York City region more severely
than the nation, and attributed an erosion of City revenues and increasing
strain on City expenditures to that recession. According to a recent OSDC staff
report, the City's economy is now slowly recovering, but the scope of that
recovery is uncertain and unlikely, in the foreseeable future, to match the
expansion of the mid-1980's. Also, staff reports of OSDC and the Control Board
have indicated that the City's recent balanced budgets have been accomplished,
in part, through the use of non-recurring resources, tax increases and
additional State assistance; that the City has not yet brought its long-term
expenditures in line with recurring revenues; and that the City is therefore
likely to continue to face future projected budget gaps requiring the City to
increase revenues and/or reduce expenditures. According to the most recent staff
reports of OSDC and the Control Board, during the four-year period covered by
the current financial plan, the City is relying on obtaining substantial
resources from initiatives needing approval and cooperation of its municipal
labor unions, Covered Organizations, and City Council, as well as the State and
federal governments, among others.
The City requires significant amounts of financing for seasonal and
capital purposes. The City's capital financing program projects long-term
financing requirements of approximately $16.1 billion for the City's fiscal
years 1997 through 2000. The major capital requirements include expenditures
for the City's water supply and sewage disposal systems, roads, bridges, mass
transit, schools, hospitals and housing.
OTHER LOCALITIES
In addition to the City, certain localities, including the City of
Yonkers, could have financial problems leading to requests for additional State
assistance during the State's 1995-96 fiscal year and thereafter.
Municipalities and school districts have engaged in substantial short-term and
long-term borrowings.
From time to time, federal expenditure reductions could reduce, or in
some cases, eliminate, federal funding of some local programs, and, accordingly,
might impose substantial increased expenditure requirements on affected
localities. If the State, the City or any of the public authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within the State could be adversely affected. Localities also face
anticipated and potential problems resulting from certain pending litigation,
judicial decisions and long-range economic trends. Long-range potential problems
of declining urban population, increasing expenditures and other economic trends
could adversely affect localities and require increasing State assistance in the
future.
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AUTHORITIES
The fiscal stability of the State is related, in part, to the fiscal
stability of its public authorities. Public authorities are not subject to the
constitutional restrictions on the incurrence of debt which apply to the State
itself and may issue bonds and notes within the amounts, and as otherwise
restricted by, their legislative authorization. As of September 30, 1994, there
were 18 public authorities that had aggregate outstanding debt of $70.3 billion.
Some authorities also receive moneys from State appropriations to pay for the
operating costs of certain of their programs.
The Metropolitan Transit Authority (the "MTA"), which receives the
bulk of the appropriated moneys from the State, oversees the operation of the
City's bus and subway system by its affiliates, the New York City Transit
Authority and Manhattan and Bronx Surface Transit Operating Authority
(collectively, the "TA"). The MTA has depended and will continue to depend upon
federal, state and local government support to operate the transit system
because fare revenues are insufficient.
Over the past several years, the State has enacted several taxes
(including a surcharge on the profits of banks, insurance corporations and
general business corporations doing business in the 12-county region served by
the MTA and a special one-quarter of one percent regional sales and use tax)
that provide additional revenues for mass transit purposes, including assistance
to the MTA. In addition, a one-quarter of one percent regional mortgages
recording tax paid on certain mortgages creates an additional source of
recurring revenues for the MTA. Further, in 1993, the State dedicated a portion
of the State petroleum business tax to assist the MTA. For the 1995-96 State
fiscal year, total State assistance to the MTA is estimated at approximately
$1.1 billion.
In 1993, State legislation authorized the funding of a five-year
$9.56 billion MTA capital plan for the five-year period, 1992 through 1996 (the
"1992-96 Capital Program"). The MTA has received approval of the 1992-96 Capital
Program based on this legislation from the 1992-96 Capital Program Review Board,
as State law requires. This is the third five-year plan since the legislature
authorized procedures for the adoption, approval and amendment of a five-year
plan in 1981 for a capital program designed to upgrade the performance of the
MTA's transportation systems and to supplement, replace and rehabilitate
facilities and equipment. The MTA, the Triborough Bridge and Tunnel Authority,
and the TA are collectively authorized to issue an aggregate of $3.1 billion of
bonds (net of certain statutory exclusions) to finance a portion of the 1992-96
Capital Program. The 1992-96 Capital Program is expected to be financed in
significant part through dedication of State petroleum business taxes referred
to above.
There can be no assurance that all the necessary governmental actions
for the Capital Program will be taken, that funding sources currently identified
will not be decreased or eliminated, or that the 1992-96 Capital Program, or
parts thereof, will not be delayed or reduced. Furthermore, the power of the MTA
to issue certain bonds expected to be supported by the appropriation of State
petroleum business taxes is currently the subject of a court challenge. If the
Capital Program is delayed or reduced, ridership and fare revenues may decline,
which could, among other things, impair the MTA's ability to meet its operating
expenses without additional State assistance.
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APPENDIX C
INVESTING IN JAPAN AND ASIAN GROWTH MARKETS
JAPAN AND ITS SECURITIES MARKETS
The Japan Equity Portfolio will be subject to general economic and
political conditions in Japan. These include future political and economic
developments, the possible imposition of, or changes in, exchange controls or
other Japanese governmental laws or restrictions applicable to such investments,
diplomatic developments, political or social unrest and natural disasters.
Japan is largely dependent upon foreign economies for raw materials.
For instance, almost all of its oil is imported, the majority from the Middle
East. Oil prices therefore have a major impact on the domestic economy, as is
evidenced by the current account deficits triggered by the two oil crises of the
1970s. While Japan is working to reduce its dependence on foreign materials,
its lack of natural resources poses a significant obstacle to this effort.
GEOLOGICAL FACTORS. The islands of Japan lie in the western Pacific
Ocean, off the eastern coast of the continent of Asia. Japan has in the past
experienced earthquakes and tidal waves of varying degrees of severity, and the
risks of such phenomena, and damage resulting therefrom, continue to exist.
ASIAN GROWTH MARKETS
The Asia Growth Portfolio will be subject to certain risks and special
considerations, including those set forth below, which are not typically
associated with investing in securities of U.S. companies. In particular,
securities markets in Asian growth markets have been subject to substantial
price volatility, often without warning. This potential for sudden market
declines should be weighed and balanced against the potential for rapid growth
in Asian growth markets. Further, certain securities that the Portfolio may
purchase, and investment techniques in which the Portfolio may engage, involve
risks, including those set forth below.
INVESTMENT AND REPATRIATION RESTRICTIONS
Foreign investment in the securities markets of several Asian growth
markets is restricted or controlled to varying degrees. These restrictions may
limit investment in certain of the Asian growth markets and may increase
expenses of the Portfolio. For example, certain countries may require
governmental approval prior to investments by foreign persons in a particular
company or industry sector or limit investment by foreign persons to only a
specific class of securities of a company which may have less advantageous terms
(including price) than securities of the company available for purchase by
nationals. Certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. In addition,
the repatriation of both investment income and capital from several of the Asian
growth markets is subject to restrictions such as the need for certain
government consents. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of the operation of the Portfolio. For example, Taiwan imposes a
waiting period on the repatriation of investment capital for certain foreign
investors. Although these restrictions may in the future make it undesirable to
invest in the countries to which they apply, the Advisor does not believe that
any current repatriation restrictions would preclude the Portfolio from
effectively managing its assets.
If, because of restrictions on repatriation or conversion, the
Portfolio were unable to distribute substantially all of its net investment
income and long-term capital gains within applicable time periods, the Portfolio
could be subject to U.S. federal income and excise taxes which would not
otherwise be incurred and may cease to qualify for the favorable tax treatment
afforded to
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regulated investment companies under the Code, in which case it would become
subject to U.S. federal income tax on all of its income and gains.
Generally, there are restrictions on foreign investment in certain
Asian growth markets, although these restrictions vary in form and content. In
India, Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand, the
Portfolio may be limited by government regulation or a company's charter to a
maximum percentage of equity ownership in any one company.
The Advisor has applied for approval from Indian governmental
authorities to invest in India on behalf of the Portfolio as a foreign
institutional investor (an "FII"). Under the guidelines that apply currently
for FIIs, no FII (or members of an affiliated group investing through one or
more FIIs) may hold more than 5% of the total issued capital of any Indian
company. In addition, all non-resident portfolio investments, including those
of all FIIs and their clients, may not exceed 24% of the issued share capital of
any Indian company; however, the 24% limit does not apply to investments by FIIs
through authorized offshore funds and offshore equity issues. Further, at least
70% of the total investments made by an FII pursuant to its FII authorization
must be in equity and equity related instruments such as convertible debentures
and tradeable warrants. Under a recently adopted policy, FIIs may purchase new
issues of equity securities directly from an Indian company, subject to certain
conditions. The procedures for such direct subscription by FIIs of such equity
securities are unclear and it is likely that a further limit, in addition to the
24% limit referred to above, may be imposed. The guidelines that apply for FIIs
are relatively recent and thus experience as to their application has been
limited. At present, FII authorizations are granted for five years and may be
renewed with the approval of India governmental authorities.
Korea generally prohibits foreign investment in Won-denominated debt
securities and Sri Lanka prohibits foreign investment in government debt
securities. In the Philippines, the Portfolio may generally invest in "B"
shares of Philippine issuers engaged in partly nationalized business activities,
which shares are made available to foreigners, and the market prices, liquidity
and rights of which may vary from shares owned by nationals. Similarly, in the
People's Republic of China (the "PRC"), the Portfolio may only invest in "B"
shares of securities traded on The Shanghai Securities Exchange and The Shenzhen
Stock Exchange, currently the two officially recognized securities exchanges in
the PRC. "B" shares traded on The Shanghai Securities Exchange are settled in
U.S. dollars and those traded on The Shenzhen Stock Exchange are generally
settled in Hong Kong dollars.
In Hong Kong, Korea, the Philippines, Taiwan and Thailand, there are
restrictions on the percentage of permitted foreign investment in shares of
certain companies, mainly those in highly regulated industries, although in
Taiwan there are limitations on foreign ownership of shares of any listed
company. In addition, Korea also prohibits foreign investment in specified
telecommunications companies and the Philippines prohibits foreign investment in
mass media companies and companies providing certain professional services.
MARKET CHARACTERISTICS
DIFFERENCES BETWEEN THE U.S. AND ASIAN SECURITIES MARKETS. The
securities markets of Asian growth markets have substantially less volume than
the New York Stock Exchange, and equity and debt securities of most companies in
Asian growth markets are less liquid and more volatile than equity and debt
securities of U.S. companies of comparable size. Some of the stock exchanges in
Asian growth markets, such as those in the PRC, are in the earliest stages of
their development. Many companies traded on securities markets in Asian growth
markets are smaller, newer and less seasoned than companies whose securities are
traded on securities markets in the United States. Investments in smaller
companies involve greater risk than is customarily associated with investing in
larger
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companies. Smaller companies may have limited product lines, markets or
financial or managerial resources and may be more susceptible to losses and
risks of bankruptcy. Additionally, market making and arbitrage activities are
generally less extensive in such markets, which may contribute to increased
volatility and reduced liquidity of such markets. Accordingly, each of these
markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. To the extent that any Asian
growth market experiences rapid increases in its money supply and investment in
equity securities for speculative purposes, the equity securities traded in any
such country may trade at price-earnings multiples higher than those of
comparable companies trading on securities markets in the United States, which
may not be sustainable. Securities markets in Asian growth markets may also be
subject to substantial governmental control, which may cause sudden or prolonged
disruptions in market prices unrelated to supply and demand considerations.
This may also be true of currency markets.
Brokerage commissions and other transaction costs on securities
exchanges in Asian growth markets are generally higher than in the United
States. In addition, security settlements may in some instance be subject to
delays and related administrative uncertainties, including risk of loss
associated with the credit of local brokers.
GOVERNMENT SUPERVISION OF ASIAN SECURITIES MARKETS; LEGAL SYSTEMS.
There is less government supervision and regulation of foreign securities
exchanges, listed companies and brokers in Asian growth markets than exists in
the United States. Less information, therefore, may be available to the Fund
than in respect of investments in the United States. Further, in certain Asian
growth markets, less information may be available to the Fund than to local
market participants. Brokers in Asian growth markets may not be as well
capitalized as those in the United States, so that they are more susceptible to
financial failure in times of market, political, or economic stress. In
addition, existing laws and regulations are often inconsistently applied. As
legal systems in some of the Asian growth markets develop, foreign investors may
be adversely affected by new laws and regulations, changes to existing laws and
regulations and preemption of local laws and regulations by national laws. In
circumstances where adequate laws exist, it may not be possible to obtain swift
and equitable enforcement of the law. Currently a mixture of legal and
structural restrictions affect the securities markets of certain Asian growth
markets.
Korea, in an attempt to avoid market manipulation, requires
institutional investors to deposit in their broker's account a percentage of the
amount to be invested prior to execution of a purchase order. That deposit
requirement will expose the Fund to the broker's credit risk. These examples
demonstrate that legal and structural developments can be expected to affect the
Portfolio, potentially affecting liquidity of positions held by the Portfolio,
in unexpected and significant ways from time to time.
FINANCIAL INFORMATION AND STANDARDS. Issuers in Asian growth markets
generally are subject to accounting, auditing and financial standards and
requirements that differ, in some cases significantly, from those applicable to
U.S. issuers. In particular, the assets and profits appearing on the financial
statements of an Asian growth market issuer may not reflect its financial
position or results of operations in accordance with U.S. generally accepted
accounting principles. In addition, for an issuer that keeps accounting records
in local currency, inflation accounting rules may require, for both tax and
accounting purposes, that certain assets and liabilities be restated on the
issuer's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits. Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the real condition of
those issuers and securities markets. Moreover, substantially less information
may be publicly
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available about issuers in Asian growth markets than is available about U.S.
issuers.
SOCIAL, POLITICAL AND ECONOMIC FACTORS
Asian growth markets may be subject to a greater degree of social,
political and economic instability than is the case in the United States and
Western European countries. Such instability may result from, among other
things, the following: (i) authoritarian governments or military involvement in
political and economic decision-making, and changes in government through
extra-constitutional means; (ii) popular unrest associated with demand for
improved political, economic and social conditions; (iii) internal insurgencies,
(iv) war or hostile relations with neighboring countries; and (v) ethnic,
religious and racial disaffection. Such social, political and economic
instability could significantly disrupt the principal financial markets in which
the Portfolio invests and adversely affect the value of the Portfolio's assets.
In addition, there may be the possibility of asset expropriations or future
confiscatory levels of taxation affecting the Portfolio.
Few Asian growth markets have western-style or fully democratic
governments. Some governments in the region are authoritarian and influenced by
security forces. During the course of the last 25 years, governments in the
region have been installed or removed as a result of military coups, while
others have periodically demonstrated repressive police state characteristics.
Disparities of wealth, among other factors, have also led to social unrest in
some Asian growth markets, accompanied, in certain cases, by violence and labor
unrest. Ethnic, religious and racial disaffection, as evidenced in India,
Pakistan and Sri Lanka, have created social, economic and political problems.
Several Asian growth markets have or in the past have had hostile
relationships with neighboring nations or have experienced internal insurgency.
Thailand has experienced border conflicts with Laos and Cambodia, and India is
engaged in border disputes with several of its neighbors, including the PRC and
Pakistan. Tension between the Tamil and Sinhalese communities in Sri Lanka has
resulted in periodic outbreaks of violence. An uneasy truce exists between
North Korea and South Korea, and the recurrence of hostilities remains possible.
Reunification of North Korea and South Korea could have a detrimental effect on
the economy of South Korea. Also, the PRC continues to claim sovereignty over
Taiwan. The PRC is acknowledged to possess nuclear weapons capability; North
Korea is alleged to possess or be in the process of developing such a
capability.
The economies of most Asian growth markets are heavily dependent upon
international trade and are accordingly affected by protective barriers and the
economic conditions of their trading partners, principally, the United States,
Japan, the PRC and the European Community. The enactment by the United States
or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of the Asian growth markets. In addition, the
economies of some Asian growth markets, Indonesia and Malaysia, for example, are
vulnerable to weakness in world prices for their commodity exports, including
crude oil.
Governments in certain Asian growth markets participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could have a significant
adverse effect on market prices of securities and payment of dividends.
The PRC has only recently permitted private economic activities and
the PRC government has exercised and continues to exercise substantial control
over virtually every sector of the PRC economy through regulation and state
ownership. Continued economic growth and development in the PRC, as well as
opportunities for foreign investment, and prospects of private sector
enterprises, in the PRC,
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will depend in many respects on the implementation of the PRC's current program
of economic reform, which cannot be assured.
In Hong Kong, British proposals to extend limited democracy have
caused a political rift with the PRC, which is scheduled to assume sovereignty
over the colony in 1997. Although the PRC has committed by treaty to preserve
the economic and social freedoms enjoyed in Hong Kong for 50 years after
regaining control of Hong Kong, the continuation of the current form of the
economic system in Hong Kong after the reversion will depend on the actions of
the government of the PRC. In addition, such reversion has increased
sensitivity in Hong Kong to political developments and statements by public
figures in the PRC. Business confidence in Hong Kong, therefore, can be
significantly affected by such developments and statements, which in turn can
affect markets and business performance.
With respect to investments in Taiwan, it should be noted that Taiwan
lacks formal diplomatic relations with many nations, although it conducts trade
and financial relations with most major economic powers. Both the government of
the PRC and the government of the Republic of China in Taiwan claim sovereignty
over all of China. Although relations between Taiwan and the PRC are currently
peaceful, renewed frictions or hostility could interrupt operations of Taiwanese
companies in which the Portfolio invests and create uncertainty that could
adversely affect the value and marketability of its Taiwan investments.
With regard to India, agriculture occupies a more prominent position
in the Indian economy than in the United States, and the Indian economy
therefore is more susceptible to adverse changes in weather. The government of
India has exercised and continues to exercise significant influence over many
aspects of the economy, and the number of public sector enterprises in India is
substantial. Accordingly government actions in the future could have a
significant effect on the Indian economy which could affect private sector
companies, market conditions and prices and yields of securities held by the
Portfolio. Religious and ethnic unrest persists in India. The long standing
grievances between the Hindu and Muslim populations resulted in communal
violence during 1993 in the aftermath of the destruction of a mosque in Ayodhya
by radical elements of the Hindu population. The Indian government is also
confronted by separatist movements in several states and the long standing
border dispute with Pakistan over the State of Jammu and Kashmir, a majority of
whose population is Muslim, remains unsolved. In addition, Indian stock
exchanges have in the past been subject to repeated closure including for ten
days in December 1993 due to a broker's strike, and there can be no assurance
that this will not recur.
THINLY TRADED MARKETS
Compared to securities traded in the United States, all securities of
Asian growth market issuers may generally be considered to be thinly traded.
Even relatively widely held securities in such countries may not be able to
absorb trades of a size customarily transacted by institutional investors,
without price disruptions. Accordingly, the Portfolio's ability to reposition
itself will be more constrained than would be the case for a typical equity
mutual fund.
SETTLEMENT PROCEDURES AND DELAYS
Settlement procedures in Asian growth markets are less developed and
reliable than those in the United States and in other developed markets, and the
Portfolio may experience settlement delays or other material difficulties. This
problem is particularly severe in India where settlement is through physical
delivery and, where currently, a severe shortage of vault capacity exists among
custodial banks, although efforts are being undertaken to alleviate the
shortage. In addition, significant delays are common in registering transfers
of securities, and the Portfolio may be unable to sell such securities until the
registration process is completed and may experience delays in receipt of
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dividends and other entitlement. The recent and anticipated inflow of funds
into the Indian securities market has placed added strains on the settlement
system and transfer process. In addition, the Portfolio may be subject to
significant limitations in the future on the volume of trading during any
particular period, imposed by its sub-custodian in India or otherwise as a
result of such physical or other operational constraints.
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PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
The following financial statements are included in Part A:
Financial Highlights: The JPM Pierpont Money Market Fund, The JPM Pierpont
Tax Exempt Money Market Fund, The JPM Pierpont Treasury Money Market Fund, The
JPM Pierpont Short Term Bond Fund, The JPM Pierpont Bond Fund, The JPM
Pierpont Tax Exempt Bond Fund, The JPM Pierpont Equity Fund, The JPM Pierpont
Capital Appreciation Fund, The JPM Pierpont International Equity Fund, The JPM
Pierpont Diversified Fund, The JPM Pierpont Emerging Markets Equity Fund, The
JPM Pierpont New York Total Return Bond Fund, The JPM Pierpont European Equity
Fund, The JPM Pierpont Japan Equity Fund and The JPM Pierpont Asia Growth
Fund
The following financial statements are incorporated by reference into Part B:
The JPM 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
Notes to Financial Statements November 30, 1995
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 JPM Pierpont Tax Exempt Money Market Fund
Statement of Assets and Liabilities at August 31, 1996
Statement of Operations for the fiscal year ended August 31, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements August 31, 1996
The Tax Exempt Money Market Portfolio
Schedule of Investments at August 31, 1996
Statement of Assets and Liabilities at August 31, 1996
Statement of Operations for the fiscal year ended August 31, 1996
Statement of Changes in Net Assets
Supplementary Data
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Notes to Financial Statements August 31, 1996
The JPM 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 JPM 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)
The JPM 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)
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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 JPM Pierpont Tax Exempt Bond Fund
Statement of Assets and Liabilities at August 31, 1996
Statement of Operations for the fiscal year ended August 31, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements August 31, 1996
The Tax Exempt Bond Portfolio
Schedule of Investments at August 31, 1996
Statement of Assets and Liabilities at August 31, 1996
Statement of Operations for the fiscal year ended August 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements August 31, 1996
The JPM 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
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 JPM 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, 1996
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The JPM 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)
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 JPM 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 JPM 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)
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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 JPM 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
Financial Highlights
Notes to Financial Statements March 31, 1996
Schedule of Investments at September 30, 1996 (unaudited)
Statement of Assets and Liabilities at September 30, 1996 (unaudited)
Statement of Operations for the six months ended September 30, 1996
(unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements September 30, 1996 (unaudited)
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
Schedule of Investments at September 30, 1996 (unaudited)
Statement of Assets and Liabilities at September 30, 1996 (unaudited)
Statement of Operations for the six months ended September 30, 1996
(unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements September 30, 1996 (unaudited)
The JPM 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 JPM 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)
C-5
<PAGE>
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 JPM 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)
Financial Highlights (unaudited)
Notes to Financial Statements June 30, 1996 (unaudited)
The Asia Growth Portfolio
Schedule of Investments at December 31, 1995
Statement of Assets and Liabilities at December 31, 1995
Statement of Operations for the period April 4, 1995 (commencement of
operations) through December 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements December 31, 1995
Schedule of Investments at June 30, 1996 (unaudited)
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the six months ended June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements June 30, 1996 (unaudited)
(b) Exhibits
Exhibit Number
1. Declaration of Trust, as amended, was filed as Exhibit No. 1 to
Post-Effective Amendment No. 26 to the Registration Statement filed on
September 27, 1996 (Accession Number 0000912057-96-021331).
1(a). Amendment No. 5 to Declaration of Trust; Amendment and Fifth Amended
and Restated Establishment and Designation of Series of Shares of
Beneficial Interest.*
2. Restated By-Laws of Registrant.*
6. Distribution Agreement between Registrant and Funds Distributor, Inc.
("FDI").*
8. Custodian Contract between Registrant and State Street Bank and Trust
Company ("State Street").*
9(a). Co-Administration Agreement between Registrant and FDI.*
C-6
<PAGE>
9(b). Restated Shareholder Servicing Agreement between Registrant and Morgan
Guaranty Trust Company of New York ("Morgan Guaranty").*
9(c). Transfer Agency and Service Agreement between Registrant and State
Street.*
9(d). Restated Administrative Services Agreement between Registrant and
Morgan Guaranty.*
9(e). Fund Services Agreement, as amended, between Registrant and Pierpont
Group, Inc.*
10. Opinion and consent of Sullivan & Cromwell.*
11. Consents of independent accountants.*
13. Purchase agreements with respect to Registrant's initial shares.*
16. Schedule for computation of performance quotations.*
17. Financial Data Schedules.*
18. Powers of Attorney.*
_________________________
* Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Shares of Beneficial Interest ($0.001 par value).
Title of Class: Number of Record Holders as of November 30, 1996.
The JPM Pierpont Money Market Fund: 4646
The JPM Pierpont Tax Exempt Money Market Fund: 2264
The JPM Pierpont Treasury Money Market Fund: 452
The JPM Pierpont Short Term Bond Fund: 125
The JPM Pierpont Bond Fund: 746
The JPM Pierpont Tax Exempt Bond Fund: 1231
The JPM Pierpont New York Total Return Bond Fund: 183
The JPM Pierpont Diversified Fund: 462
The JPM Pierpont Equity Fund: 2156
The JPM Pierpont Capital Appreciation Fund: 1852
The JPM Pierpont International Equity Fund: 2059
The JPM Pierpont Emerging Markets Equity Fund: 1651
The JPM Pierpont European Equity Fund: 31
The JPM Pierpont Asia Growth Fund: 37
The JPM Pierpont Japan Equity Fund: 33
The JPM Pierpont International Opportunities Fund: 0
The JPM Pierpont Global Strategic Income Fund: 0
The JPM Pierpont Latin American Equity Fund: 0
The JPM Pierpont Emerging Markets Debt Fund: 0
The JPM Pierpont Small Company Growth Fund: 0
ITEM 27. INDEMNIFICATION.
Reference is made to Section 5.3 of Registrant's Declaration of Trust and
Section 5 of Registrant's Distribution Agreement.
C-7
<PAGE>
Registrant, its Trustees and officers are insured against certain expenses in
connection with the defense of claims, demands, actions, suits, or
proceedings, and certain liabilities that might be imposed as a result of such
actions, suits or proceedings.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to directors, trustees,
officers and controlling persons of the Registrant and the principal
underwriter pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1933 Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, trustee, officer, or controlling person of the
Registrant and the principal underwriter in connection with the successful
defense of any action, suite or proceeding) is asserted against the Registrant
by such director, trustee, officer or controlling person or principal
underwriter in connection with the shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Not Applicable.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) 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, Inc.
H.T. Insight Funds, Inc. d/b/a Harris Insight Funds
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 Money Market Fund
Waterhouse Investors Cash Management Funds, Inc.
The JPM Institutional Funds
JPM Series Trust
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.
C-8
<PAGE>
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
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 fund accountant,
custodian, transfer agent and dividend disbursing agent).
FUNDS DISTRIBUTOR, INC.: 60 State Street, Boston, Massachusetts 02109 (records
relating to its functions as distributor and co-administrator).
ITEM 31. MANAGEMENT SERVICES.
Not Applicable.
ITEM 32. UNDERTAKINGS.
(a) If the information called for by Item 5A of Form N-1A is contained in
the latest annual report to shareholders, the Registrant shall furnish
each person to whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders upon request and
without charge.
C-9
<PAGE>
(b) The Registrant undertakes to comply with Section 16(c) of the 1940 Act
as though such provisions of the 1940 Act were applicable to the
Registrant, except that the request referred to in the third full
paragraph thereof may only be made by shareholders who hold in the
aggregate at least 10% of the outstanding shares of the Registrant,
regardless of the net asset value of shares held by such requesting
shareholders.
(c) The Registrant undertakes to file a Post-Effective Amendment on behalf
of The JPM Pierpont International Opportunities Fund, The JPM Pierpont
Global Strategic Income Fund, The JPM Pierpont Latin American
Equity Fund, The JPM Pierpont Emerging Markets Debt Fund and The JPM
Pierpont Small Company Growth Fund, using financial statements which
need not be certified, within four to six months from the commencement
of public investment operations of such funds.
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 26th day of December, 1996.
THE JPM PIERPONT FUNDS
By /s/ Christopher J. Kelley
-----------------------
Christopher J. Kelley
Vice President and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities
indicated on December 26, 1996.
Richard W. Ingram*
- ------------------------------
Richard W. Ingram
President and Treasurer (Principal Financial and Accounting Officer)
Matthew Healey*
- -----------------------------
Matthew Healey
Trustee, Chairman and Chief Executive Officer (Principal Executive Officer)
Frederick S. Addy*
- ------------------------------
Frederick S. Addy
Trustee
William G. Burns*
- ------------------------------
William G. Burns
Trustee
Arthur C. Eschenlauer*
- ------------------------------
Arthur C. Eschenlauer
Trustee
Michael P. Mallardi*
- ------------------------------
Michael P. Mallardi
Trustee
*By /s/ Christopher J. Kelley
----------------------------
Christopher J. Kelley
as attorney-in-fact pursuant to a power of attorney filed
herewith.
C-11
<PAGE>
SIGNATURES
Each Portfolio has duly caused this registration statement on Form N-1A
("Registration Statement") of The JPM 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
26th day of December, 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/ Christopher J. Kelley
----------------------------
Christopher J. Kelley
Vice President and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, the Trust's
Registration Statement has been signed below by the following persons in the
capacities indicated on December 26, 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
*By /s/ Christopher J. Kelley
----------------------------
Christopher J. Kelley
as attorney-in-fact pursuant to a power of attorney filed
herewith.
C-12
<PAGE>
SIGNATURES
Each Portfolio has duly caused this registration statement on Form N-1A
("Registration Statement") of The JPM 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, on the 26th day of
December, 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 December 26, 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 filed
herewith.
C-13
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ------------- ----------------------
EX-99.B1a Amendment No. 5 to Declaration of Trust; Fifth Amended and
Restated Establishment and Designation of Series of Shares
of Beneficial Interest
EX-99.B2 Restated By-Laws of Registrant
EX-99.B6 Distribution Agreement between Registrant and Funds
Distributor, Inc.
EX-99.B8 Custodian Contract between Registrant and State Street Bank
and Trust Company
EX-99.B9a Co-Administration Agreement between Registrant and Funds
Distributor, Inc.
EX-99.B9b Restated Shareholder Servicing Agreement between Registrant
and Morgan Guaranty Trust Company of New York
EX-99.B9c Transfer Agency and Service Agreement between Registrant and
State Street Bank and Trust Company
EX-99.B9d Restated Administrative Services Agreement between
Registrant and Morgan Guaranty Trust Company of New York
EX-99.B9e Fund Services Agreement, as amended, between Registrant and
Pierpont Group, Inc.
EX-99.B10 Opinion and consent of Sullivan & Cromwell
EX-99.B11 Consents of independent accountants
EX-99.B13 Purchase agreements with respect to Registrant's initial
shares
EX-99.B16 Schedule for computation of performance quotations
EX-99.B18 Powers of Attorney
EX-27.1
to EX-27.15 Financial Data Schedules
C-14
JPM10D Appendix I
THE JPM PIERPONT FUNDS
(formerly The Pierpont Funds)
AMENDMENT NO. 5 TO DECLARATION OF TRUST
Amendment and
Fifth Amended and Restated Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.001 per share)
Dated as of October 10, 1996
Pursuant to Sections 6.9 and 9.3 of the Declaration of Trust, dated as of
November 4, 1992, as amended (the "Declaration of Trust"), of The Pierpont Funds
(the "Trust"), the Trustees of the Trust hereby (i) change the name of the Trust
from The Pierpont Funds to "The JPM Pierpont Funds", (ii) abolish the
establishment and designation of the series of Shares (as defined in the
Declaration of Trust) of The Pierpont Emerging Markets Fixed Income Fund, and
(iii) amend and restate the Fourth Amended and Restated Establishment and
Designation of Series appended to the Declaration of Trust to (a) change the
names of the seventeen existing series of Shares and (b) designate six
additional series of Shares, such additional series of Shares together with the
existing series of Shares totalling twenty-three series of Shares (each a "Fund"
and collectively the "Funds") of the Trust.
1. The Funds shall be renamed and redesignated or designated as
follows:
The JPM Pierpont Treasury Money Market Fund
The JPM Pierpont Money Market Fund
The JPM Pierpont Tax Exempt Money Market Fund
The JPM Pierpont Bond Fund
The JPM Pierpont Tax Exempt Bond Fund
The JPM Pierpont Equity Fund
The JPM Pierpont Capital Appreciation Fund
The JPM Pierpont International Equity Fund
The JPM Pierpont Short Term Bond Fund
The JPM Pierpont U.S. Stock Fund
The JPM Pierpont Diversified Fund
The JPM Pierpont International Bond Fund
The JPM Pierpont Emerging Markets Equity Fund
The JPM Pierpont New York Total Return Bond Fund
The JPM Pierpont Asia Growth Fund
The JPM Pierpont Japan Equity Fund
The JPM Pierpont European Equity Fund
The JPM Pierpont Disciplined Equity Fund
The JPM Pierpont Global Strategic Income Fund
The JPM Pierpont International Opportunities Fund
The JPM Pierpont Small Company Growth Fund
The JPM Pierpont Emerging Markets Debt Fund
The JPM Pierpont Latin American 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 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
<PAGE>
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, previously, now or hereafter created, or
otherwise to change the special and relative rights of any Fund or any such
other series of Shares.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of the
10th day of October, 1996. 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/ F.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
JPM10D
JPM345A
AMENDED AND RESTATED BY-LAWS
OF
EACH MASTER TRUST LISTED ON SCHEDULE I
AND
EACH FEEDER TRUST LISTED ON SCHEDULE II
AND
EACH STAND ALONE TRUST LISTED ON SCHEDULE III
ARTICLE I
DEFINITIONS
Each Trust listed on Schedule I is referred to in these By-Laws as a
"Master Trust". Each Trust listed on Schedule II is referred to in these
By-Laws as a "Feeder Trust". Each Trust listed on Schedule III is referred to
in these By-Laws as a "Stand Alone Trust".
In the case of each Trust, unless otherwise specified, capitalized
terms have the respective meanings given them in the Declaration of Trust of
such Trust dated as of the date set forth in Schedule I, II or III, as amended
from time to time. In the case of each Feeder Trust and each Stand Alone
Trust, the term "Holder" has the meaning given the term "Shareholder" in the
respective Declarations of Trust.
ARTICLE II
OFFICES
Section 1. Principal Office. In the case of each Master Trust, the
principal office of the Trust shall be in such place as the Trustees may
determine from time to time, provided that the principal office shall be
outside the United States of America if the Trustees determine that the Trust
is intended to be operated so that it is not engaged in United States trade or
business for United States federal income tax purposes. In the case of each
Feeder Trust and each Stand Alone Trust, until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk.
Section 2. Other Offices. The Trust may have offices in such other
places without as well as within the state of its organization and the United
States of America as the Trustees may from time to time determine.
ARTICLE III
HOLDERS
Section 1. Meetings of Holders. Meetings of Holders may be called at
any time by a majority of the Trustees and shall be called by any Trustee upon
written request of Holders holding, in the aggregate, not less than 10% of the
Interests in the case of each Master Trust or 10% of the voting securities
entitled to vote thereat in the case of each Feeder Trust and each Stand Alone
Trust, such request specifying the purpose or purposes for which such meeting
is to be called.
Any such meeting shall be held within or without the state of
organization of the Trust and within, or, if applicable, in the case of a
Master Trust only without, the United States of America on such day
<PAGE>
and at such time as
the Trustees shall designate. Holders of one third of the Interests in the
case of each Master Trust or one third of the voting securities entitled to
vote thereat in the case of each Feeder Trust and each Stand Alone Trust,
present in person or by proxy, shall constitute a quorum for the transaction
of any business, except as may otherwise be required by the 1940 Act, other
applicable law, the Declaration or these By-Laws. If a quorum is present at a
meeting, an affirmative vote of the Holders present in person or by proxy,
holding more than 50% of the total Interests in the case of each Master Trust,
or 50% of the voting securities entitled to vote thereat in the case of each
Feeder Trust and each Stand Alone Trust, present, either in person or by
proxy, at such meeting constitutes the action of the Holders, unless a greater
number of affirmative votes is required by the 1940 Act, other applicable law,
the Declaration or these By-Laws.
All or any one or more Holders may participate in a meeting of
Holders by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each
other, and participation in a meeting by means of such communications
equipment shall constitute presence in person at such meeting.
In the case of The Series Portfolio or any Feeder Trust or any Stand
Alone Trust, whenever a matter is required to be voted by Holders of the Trust
in the aggregate under Section 9.1 and Section 9.2 of the Declaration of The
Series Portfolio or Section 6.8 and Section 6.9 and Section 6.9(g) of the
Declaration of the Feeder Trust and the Stand Alone Trust, the Trust may
either hold a meeting of Holders of all series, as defined in Section 1.2 of
the Declaration of The Series Portfolio or Section 6.9 of the Declaration of
the Feeder Trust and the Stand Alone Trust, to vote on such matter, or hold
separate meetings of Holders of each of the individual series to vote on such
matter, provided that (i) such separate meetings shall be held within one year
of each other, (ii) a quorum consisting of the Holders of one third of the
voting securities of the individual series entitled to vote shall be present
at each such separate meeting except as may otherwise be required by the 1940
Act, other applicable law, the Declaration or these By-Laws and (iii) a quorum
consisting of the Holders of one third of all voting securities of the Trust
entitled to vote, except as may otherwise be required by the 1940 Act, other
applicable law, the Declaration or these By-Laws, shall be present in the
aggregate at such separate meetings, and the votes of Holders at all such
separate meetings shall be aggregated in order to determine if sufficient
votes have been cast for such matter to be voted.
Section 2. Notice of Meetings. Notice of each meeting of Holders,
stating the time, place and purpose of the meeting, shall be given by the
Trustees by mail to each Holder, at its registered address, mailed at least 10
days and not more than 60 days before the meeting. Notice of any meeting may
be waived in writing by any Holder either before or after such meeting. The
attendance of a Holder at a meeting shall constitute a waiver of notice of
such meeting except in the situation in which a Holder attends a meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting was not lawfully called or convened. At any meeting,
any business properly before the meeting may be considered whether or not
stated in the notice of the meeting. Any adjourned meeting may be held as
adjourned without further notice.
In the case of The Series Portfolio and each Feeder Trust and each
Stand Alone Trust, where separate meetings are held for Holders of each of the
individual series to vote on a matter required to be voted on by
2
<PAGE>
Holders of the
Trust in the aggregate, as provided in Article III, Section 1 above, notice of
each such separate meeting shall be provided in the manner described above in
this Section 2.
Section 3. Record Date for Meetings. For the purpose of determining
the Holders who are entitled to notice of and to vote at any meeting, the
Trustees may from time to time fix a date, not more than 90 days prior to the
date of any meeting of Holders as a record date for the determination of the
Persons to be treated as Holders for such purpose.
In the case of The Series Portfolio and each Feeder Trust and each
Stand Alone Trust, where separate meetings are held for Holders of each of the
individual series to vote on a matter required to be voted on by Holders of
the Trust in the aggregate, as provided in Article III, Section 1 above, the
record date of each such separate meeting shall be determined in the manner
described above in this Section 3.
Section 4. Voting, Proxies, Inspectors of Election. At any meeting of
Holders, any Holder entitled to vote thereat may vote by proxy, provided that
no proxy shall be voted at any meeting unless it shall have been placed on
file with the Secretary, or with such other officer or agent of the Trust as
the Secretary may direct, for verification prior to the time at which such
vote is to be taken. A proxy may be revoked by a Holder at any time before it
has been exercised by placing on file with the Secretary, or with such other
officer or agent of the Trust as the Secretary may direct, a later dated proxy
or written revocation. Pursuant to a resolution of a majority of the Trustees,
proxies may be solicited in the name of the Trust or of one or more Trustees
or of one or more officers of the Trust. No proxy shall be valid after one
year from the date of its execution, unless a longer period is expressly
stated in the proxy.
In the case of each Master Trust, only Holders on the record date
shall be entitled to vote and each such Holder shall be entitled to a vote
proportionate to its Interest. In the case of each Feeder Trust, (i) only
Holders on the record date shall be entitled to vote, and (ii) each whole
Share shall be entitled to 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.
In the case of each Stand Alone Trust, unless the Trustees determine that each
Share will entitle Holders to one vote per Share, on any matter submitted to a
vote of Holders of Shares of any series or class thereof, if any, each dollar
of net asset value (number of Shares owned times net asset value per Share of
such series or class, as applicable) shall be entitled to one vote on any
matter on which such shares are entitled to vote and each fractional dollar
amount shall be entitled to a proportionate fractional vote, except that
Shares held in the treasury of the Trust shall not be voted. In the case of
each Feeder Trust and each Stand Alone Trust, (i) Shares shall be voted by
individual series or classes thereof, if any, on any matter submitted to a
vote of the Holders of the Trust except as provided in Section 6.9(g) of the
Declaration, and (ii) at any meeting of Holders of the Trust or of any series
or class thereof, if any, a Shareholder Servicing Agent may vote any Shares as
to which such Shareholder Servicing Agent is the agent of record.
The Chairman of the meeting may, and upon the request of the Holders
of 10% of the Interests or Shares, as the case may be, entitled to vote at
such election shall, appoint one or three inspectors of election who shall
first subscribe an oath or affirmation to execute faithfully the duties of
inspectors at such election with strict impartiality and according to the best
of their ability, and shall after
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the election certify the result of the vote taken. No
candidate for Trustee shall be appointed such inspector. If there are three
inspectors of election, the decision, act or certification of a majority is
effective in all respects as the decision, act or certificate of all.
At every meeting of the Holders, all proxies shall be required and
taken in charge of and all ballots shall be required and canvassed by the
Secretary of the meeting, who shall decide all questions touching the
qualification of voters, the validity of the proxies, the acceptance or
rejection of votes and any other questions related to the conduct of the vote
with fairness to all Holders, unless inspectors of election shall have been
appointed, in which event the inspectors of election shall decide all such
questions. On request of the Chairman of the meeting, or of any Holder or his
proxy, the Secretary shall make a report in writing of any question determined
and shall execute a certificate of facts found, unless inspectors of election
shall have been appointed, in which event the inspectors of election shall do
so.
When an Interest is held or Shares are held jointly by several
Persons, any one of them may vote at any meeting in person or by proxy in
respect of such Interest or Shares, but if more than one of them is present at
such meeting in person or by proxy, and such joint owners or their proxies so
present disagree as to any vote to be cast, such vote shall not be received in
respect of such Interest or Shares. A proxy purporting to be executed by or on
behalf of a Holder shall be deemed valid unless challenged at or prior to its
exercise, and the burden of proving invalidity shall rest on the challenger.
Section 5. Holder Action by Written Consent. In the case of each
Master Trust, any action which may be taken by Holders may be taken without a
meeting if Holders of all Interests entitled to vote consent to the action in
writing and the written consents are filed with the records of the meetings of
Holders. In the case of each Feeder Trust and each Stand Alone Trust, any
action which may be taken by Holders may be taken without a meeting if Holders
holding a majority of Shares entitled to vote on the matter (or such larger
proportion thereof as shall be required by law, the Declaration or these
By-Laws for approval of such matter) consent to the action in writing and the
written consents are filed with the records of the meetings of Holders.
Such consents shall be treated for all purposes as a vote taken at a
meeting of Holders. Each such written consent shall be executed by or on
behalf of the Holder delivering such consent and shall bear the date of such
execution. No such written consent shall be effective to take the action
referred to therein unless, within one year of the earliest dated consent,
written consents executed by a sufficient number of Holders to take such
action are filed with the records of the meetings of Holders.
Section 6. Conduct of Meetings. The meetings of the Holders shall be
presided over by the Chairman, or if he is not present, by a Chairman to be
elected at the meeting. The Secretary of the Trust, if present, shall act as
secretary of such meetings, or if he is not present, an Assistant Secretary
shall so act; if neither the Secretary nor any Assistant Secretary is present,
then the meeting shall elect its secretary
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ARTICLE IV
TRUSTEES
Section 1. Place of Meeting, etc. The Trustees may hold their
meetings, have one or more offices, and keep the books of the Trust, inside or
outside the state of organization of the Trust or the United States of
America, at any office of the Trust or at any other place as they may from
time to time determine, or in the case of meetings, as they may from time to
time determine or as shall be specified or fixed in the respective notices or
waivers of notice thereof.
Section 2. Meetings. Meetings of the Trustees shall be held from time
to time upon the call of the Chairman or any two Trustees. The President, the
Secretary or an Assistant Secretary may call meetings only upon the written
direction of the Chairman or two Trustees. The Trustees shall hold an annual
meeting for the election of officers and transaction of other business which
may come before such meeting. Regular meetings of the Trustees may be held
without call or notice at a time and place fixed by resolution of the
Trustees. Notice of any other meeting shall be mailed or otherwise given not
less than 24 hours before the meeting but may be waived in writing by any
Trustee either before or after such meeting. Notice shall be given of any
proposed action to be taken by written consent. Notice of a meeting or
proposed action to be taken by written consent may be given by telegram (which
term shall include a cablegram), by telecopier or delivered personally (which
term shall include by telephone), as well as by mail. The attendance of a
Trustee at a meeting shall constitute a waiver of notice of such meeting
except in the situation in which a Trustee attends a meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting was not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the Trustees need be stated
in the notice or waiver of notice of such meeting.
Section 3. Quorum. A quorum for all meetings of the Trustees shall be
a majority of the Trustees. Unless provided otherwise in the Declaration, the
1940 Act or other applicable law, any action of the Trustees may be taken at a
meeting by vote of a majority of the Trustees present (a quorum being
present). In the absence of a quorum, a majority of the Trustees present may
adjourn the meeting from time to time until a quorum shall be present. Notice
of an adjourned meeting need not be given.
With respect to actions of the Trustees, Trustees who are Interested
Persons of the Trust or otherwise interested in any action to be taken may be
counted for quorum purposes and shall be entitled to vote to the extent
permitted by the 1940 Act.
Section 4. Committees. The Trustees, by the majority vote of all the
Trustees then in office, may appoint from the Trustees committees which shall
in each case consist of such number of Trustees (not less than two) and shall
have and may exercise such powers as the Trustees may determine in the
resolution appointing them. Unless provided otherwise in the Declaration or by
the Trustees, a majority of all the members of any such committee may
determine its actions and fix the time and place of its meetings. With respect
to actions of any committee, Trustees who are Interested Persons of the Trust
or otherwise interested in any action to be taken may be counted for quorum
purposes and shall be entitled to vote to the extent permitted by the 1940
Act. The Trustees shall have power at any time to change the members and
powers of any such committee, to fill vacancies and to discharge any such
committee. Each committee
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shall keep regular minutes of its meetings and cause them to be filed with the
minutes of the proceedings of the Trustees.
Section 5. Telephone Meetings. All or any one or more Trustees may
participate in a meeting of the Trustees or any committee thereof by means of
a conference telephone or similar communications equipment by means of which
all individuals participating in the meeting can hear each other, and
participating in a meeting by means of such communications equipment shall
constitute presence in person at such meeting. Any conference telephone
meeting shall be deemed to have been held at a place designated by the
Trustees at the meeting.
Section 6. Action without a Meeting. Any action required or permitted
to be taken at any meeting of the Trustees or any committee thereof may be
taken without a meeting, if a written consent to such action is signed either
by all the Trustees or all members of such committee then in office or by an
80% majority of the Trustees or an 80% majority of members of such committee,
provided that no action by 80% majority consent shall be effective unless and
until (i) each Trustee or committee member signing such consent shall have
been advised in writing of the following information: the identity of any
Trustee or committee member not signing such consent and the reasons for his
not signing; and (ii) after receiving such information signing Trustees or
committee members who represent an 80% majority then in office indicate in
writing that the consent shall become effective by 80% majority, rather than
unanimous, consent. All such effective written consents shall be filed with
the minutes of the proceedings of the Trustees and treated as a vote for all
purposes.
Section 7. Compensation. The Trustees shall be entitled to receive
such compensation from the Trust for their services as may from time to time
be voted by the Trustees.
Section 8. Chairman. The Trustees may, by a majority vote of all the
Trustees, elect from their own number a Chairman, to serve until his successor
shall have been duly elected and qualified; the Chairman may serve on
committees of the Trustees. The Chairman shall not be an officer of the Trust
solely by virtue of his serving as Chairman. The Chairman shall preside at all
meetings of the Trustees at which he is present, shall serve as the liaison
between the Trustees and the officers of the Trust and between the Trustees
and their staff and shall have such other duties as from time to time may be
assigned to him by the Trustees.
Section 9. Trustees' Staff; Counsel for the Trust and Trustees, etc.
The Trustees may employ or contract with one or more Persons to serve as their
staff and to provide such services related thereto as may be determined from
time to time. The Trustees may employ attorneys as counsel for the Trust
and/or the Trustees and may engage such other experts or consultants as may be
determined from time to time.
ARTICLE V
OFFICERS
Section 1. General Provisions. The Trustees may elect or appoint such
officers or agents as the business of the Trust may require, including without
limitation a Chief Executive Officer, a President, one or more Vice
Presidents, a Treasurer, a Secretary, one or more Assistant Treasurers and one
or more Assistant Secretaries. The Trustees may delegate to any officer or
committee the power to appoint any subordinate officers or agents.
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Section 2. Term of Office and Qualifications. Except as otherwise
provided by law, the Declaration or these ByLaws, each of the principal
executive officer described in Section 4 below, the Treasurer and the
Secretary shall hold office until a successor shall have been duly elected and
qualified, and any other officers shall hold office at the pleasure of the
Trustees. Any two or more offices may be held by the same Person, provided
that at least two different individuals shall serve as officers. Any officer
may be, but does not need be, a Trustee.
Section 3. Removal. The Trustees may remove any officer with or
without cause by a vote of a majority of the Trustees. Any subordinate officer
or agent appointed by any officer or committee may be removed with or without
cause by such appointing officer or committee.
Section 4. Powers and Duties of the Chief Executive Officer;
President. The Chief Executive Officer, if any, shall be the principal
executive officer of the Trust. Subject to the control of the Trustees, the
Chief Executive Officer shall (i) at all times exercise general supervision
and direction over the affairs of the Trust, (ii) have the power to grant,
issue, execute or sign such documents as may be deemed advisable or necessary
in the ordinary course of the Trust's business and (iii) have such other
powers and duties as from time to time may be assigned by the Trustees.
If there is no Chief Executive Officer, the President shall be the
principal executive officer of the Trust and shall have the powers and duties
set forth above in this Section 4. If there is a Chief Executive Officer and a
President, the President shall have such powers and duties as from time to
time may be assigned by the Trustees or the Chief Executive Officer.
Section 5. Powers and Duties of Vice Presidents. In the absence or
disability of the President, any Vice President designated by the Trustees or
the President shall perform all the duties, and may exercise any of the
powers, of the President. Each Vice President shall perform such other duties
as from time to time may be assigned to him by the Trustees or the Chief
Executive Officer.
Section 6. Powers and Duties of the Treasurer. The Treasurer shall be
the principal financial and accounting officer of the Trust. The Treasurer
shall deliver all funds of the Trust which may come into his hands to the
Trust's custodian. The Treasurer shall render a statement of condition of the
finances of the Trust to the Trustees as often as they shall require the same
and shall in general perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Trustees.
Section 7. Powers and Duties of the Secretary. The Secretary shall
keep the minutes of all meetings of the Holders in proper books provided for
that purpose; shall keep the minutes of all meetings of the Trustees; shall
have custody of the seal of the Trust, if any; and shall have charge of the
Holder lists and records unless the same are in the charge of the Transfer
Agent. The Secretary shall attend to the giving and serving of notices by the
Trust in accordance with the provisions of these By-Laws and as required by
law; and subject to these By-Laws, shall in general perform all the duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the Trustees.
Section 8. Powers and Duties of Assistant Treasurers. In the absence
or disability of the Treasurer, any Assistant Treasurer designated by the
Trustees shall perform all the duties, and may exercise
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any of the powers, of the Treasurer. Each Assistant Treasurer shall perform
such other duties as from time to time may be assigned to him by the Trustees.
Section 9. Powers and Duties of Assistant Secretaries. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Trustees shall perform all of the duties, and may exercise any of the powers,
of the Secretary. Each Assistant Secretary shall perform such other duties as
from time to time may be assigned to him by the Trustees.
Section 10. Compensation of Officers. Subject to any applicable law
or provision of the Declaration, any compensation of any officer may be fixed
from time to time by the Trustees. No officer shall be prevented from
receiving any such compensation as such officer by reason of the fact that he
is also a Trustee. If no such compensation is fixed for any officer, such
officer shall not be entitled to receive any compensation from the Trust.
Section 11. Bond and Surety. As provided in the Declaration, any
officer may be required by the Trustees to be bonded for the faithful
performance of his duties in the amount and with such sureties as the Trustees
may determine.
ARTICLE VI
SEAL
The Trustees may adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE VII
FISCAL YEAR
The Trust may have different fiscal years for its separate and
distinct series, if applicable. The fiscal year(s) of the Trust shall be
determined by the Trustees, provided that the Trustees (or the Treasurer
subject to ratification by the Trustees) may from time to time change any
fiscal year.
ARTICLE VIII
CUSTODIAN
Section 1. Appointment and Duties. The Trustees shall at all times
employ one or more banks or trust companies having a capital, surplus and
undivided profits of at least $50,000,000 as custodian with authority as the
Trust's agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in the Declaration, these By-Laws
and the 1940 Act:
(i) to hold the securities owned by the Trust and deliver the same
upon written order; (ii) to receive and receipt for any monies due to
the Trust and deposit the same in its own banking department or
elsewhere as the Trustees may direct; (iii) to disburse such funds
upon orders or vouchers; (iv) if authorized by the Trustees, to keep
the books and accounts of the Trust and furnish clerical and
accounting services; and (v) if authorized by the Trustees, to
compute the net income of
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the
Trust and the net asset value of the Trust or, in the case of each
Feeder Trust and each Stand Alone Trust, Shares; all upon such basis
of compensation as may be agreed upon between the Trustees and the
custodian.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of
the custodian and upon such terms and conditions as may be agreed upon between
the custodian and such sub-custodian and approved by the Trustees. Subject to
the approval of the Trustees, the custodian may enter into arrangements with
securities depositories. All such custodial, sub-custodial and depository
arrangements shall be subject to, and comply with, the provisions of the 1940
Act and the rules and regulations promulgated thereunder.
Section 2. Successor Custodian. The Trust shall upon the resignation
or inability to serve of its custodian or upon change of the custodian:
(i) in case of such resignation or inability to serve, use its best
efforts to obtain a successor custodian; (ii) require that the cash
and securities owned by the Trust be delivered directly to the
successor custodian; and (iii) in the event that no successor
custodian can be found, submit to the Holders before permitting
delivery of the cash and securities owned by the Trust otherwise than
to a successor custodian, the question whether the Trust shall be
liquidated or shall function without a custodian.
ARTICLE IX
INDEMNIFICATION
In the case of each Master Trust, insofar as the conditional
advancing of indemnification monies under Section 5.4 of the Declaration for
actions based upon the 1940 Act may be concerned, such payments will be made
only on the following conditions:
(i) the advances must be limited to amounts used, or to be used, for
the preparation or presentation of a defense to the action, including
costs connected with the preparation of a settlement; (ii) advances
may be made only upon receipt of a written promise by, or on behalf
of, the recipient to repay the amount of the advance which exceeds
the amount to which it is ultimately determined that he is entitled
to receive from the Trust by reason of indemnification; and (iii) (a)
such promise must be secured by a surety bond, other suitable
insurance or an equivalent form of security which assures that any
repayment may be obtained by the Trust without delay or litigation,
which bond, insurance or other form of security must be provided by
the recipient of the advance, or (b) a majority of a quorum of the
Trust's disinterested, nonparty Trustees, or an independent legal
counsel in a written opinion, shall determine, based upon a review of
readily available facts, that the recipient of the advance ultimately
will be found entitled to indemnification.
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ARTICLE X
AMENDMENTS, ADDITIONAL TRUSTS, ETC.
The Trustees shall have the power to alter, amend or repeal
these By-Laws or adopt new By-Laws at any time to the extent such power is not
reserved to the Holders by the 1940 Act, other applicable law or the
Declaration. Action by the Trustees with respect to these By-Laws shall be
taken by an affirmative vote of a majority of the Trustees. The Trustees shall
in no event adopt By-Laws which are in conflict with the Declaration.
One or more additional trusts may be added to Schedule I or Schedule
II by resolution of the trustees of such trust(s), provided that the trustees
of such trust(s) are identical to the Trustees of the Master Trusts, the
Feeder Trusts and the Stand Alone Trusts immediately prior to such addition.
In the case of each Master Trust, the Declaration refers to the
Trustees as Trustees, but not as individuals or personally; and no Trustee,
officer, employee or agent of the Trust 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 Trust. In the case of each Feeder Trust and each Stand Alone
Trust, the Declaration refers to the Trustees not individually, but as
Trustees under the Declaration, and no Trustee, officer, employee or agent of
the Trust shall be subject to any personal liability whatsoever to any Person,
other than the Trust or its Holders, in connection with Trust Property or the
affairs of the Trust, save only that arising from bad faith, willful
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.
JPM345A
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SCHEDULE I
MASTER TRUSTS
State of Date of Date
Organiza- Declara- By-Laws
Trust tion tion Adopted
The Treasury Money Market New York 11/4/92 10/10/96
Portfolio
The Money Market Portfolio New York 1/29/93 10/10/96
The Tax Exempt Money Market New York 1/29/93 10/10/96
Portfolio
The Short Term Bond Portfolio New York 1/29/93 10/10/96
The U.S. Fixed Income Portfolio New York 1/29/93 10/10/96
The Tax Exempt Bond Portfolio New York 1/29/93 10/10/96
The Selected U.S. Equity Portfolio New York 1/29/93 10/10/96
The U.S. Small Company Portfolio New York 1/29/93 10/10/96
The Non-U.S. Equity Portfolio New York 1/29/93 10/10/96
The Diversified Portfolio New York 1/29/93 10/10/96
The Non-U.S. Fixed Income New York 6/13/93 10/10/96
Portfolio
The Emerging Markets Equity New York 6/13/93 10/10/96
Portfolio
The New York Total Return Bond New York 6/13/93 10/10/96
Portfolio
The Series Portfolio New York 6/14/94 10/10/96
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SCHEDULE II
FEEDER TRUSTS
State of Date of Date
Organization Declara- By-Laws
Trust tion Adopted
The JPM Pierpont Funds Massachusetts 11/4/92 10/10/96
The JPM Institutional
Funds Massachusetts 11/4/92 10/10/96
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SCHEDULE III
STAND ALONE TRUSTS
State of Date of Date
Organization Declara- By-Laws
Trust tion Adopted
JPM Series Trust Massachusetts 8/15/96 10/10/96
13
THE PIERPONT FUNDS
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT, made as of this 1st day of August, 1996, between
THE PIERPONT FUNDS, an unincorporated business trust organized under the laws of
the Commonwealth of Massachusetts (the "Trust"), and FUNDS DISTRIBUTOR, INC.,
a Massachusetts corporation (the "Distributor").
WITNESSETH:
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end management investment company;
WHEREAS, the Shares of Beneficial Interest (par value $0.001 per share) of
the Trust (the "Shares") are divided into multiple series (such series together
with any other series which may in the future be established, the "Funds");
WHEREAS, it is in the interest of the Trust to be able to offer Shares of
each Fund for sale continuously and to appoint a broker registered under the
Securities Exchange Act of 1934 and various state broker registration statutes
for the purpose of facilitating such offers and sales;
WHEREAS, the Trust and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of Shares of the Funds; NOW,
THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Trust hereby appoints the
Distributor its exclusive agent in connection with the offering and sale of the
Shares on the terms set forth in this Agreement and the Distributor hereby
accepts such appointment and agrees to act hereunder.
Section 2. Services and Duties of the Distributor.
(a) The Distributor agrees to offer and sell, as agent for the Trust, from
time to time during the term of this Agreement, Shares upon the terms described
in the Prospectus relating to such Shares. As used in this Agreement, the term
"Prospectus" shall mean the prospectus, including any information incorporated
by reference therein, relating to such Shares included as part of the Trust's
Registration Statement, as such prospectus may be amended or supplemented from
time to time, and the term "Registration Statement" shall mean the Registration
Statement most recently filed from time to time by the Trust with the Securities
and Exchange Commission
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and effective under the Securities Act of 1933, as amended (the "1933 Act")
and the 1940 Act, as such Registration Statement may be amended by any
amendments thereto at the time in effect.
(b) The Distributor will hold itself available to receive orders,
satisfactory to the Distributor, for the purchase of Shares and will establish
procedures for the acceptance and transmission of orders on behalf of the Trust,
which procedures shall be reasonably acceptable to the Trust. The Distributor
shall promptly forward to the Trust's custodian funds received in respect of
purchases of Shares. Purchase orders shall be deemed effective at the time and
in the manner set forth in the Prospectus relating to such Shares.
(c) The offering price of the Shares shall be the net asset value per Share
(as defined in or pursuant to the Declaration of Trust of the Trust and
determined as set forth in the Prospectus relating to such Shares) next
determined following receipt of an order. The shall furnish the Distributor,
with all possible promptness, an advice of each computation of net asset value
of Shares of each Fund.
(d) The Distributor shall not be obligated to sell any certain number of
Shares and nothing herein contained shall prevent the Distributor from entering
into like distribution arrangements with other investment companies.
Section 3. Duties of the Trust.
(a) The Trust agrees to sell Shares of each Fund so long as it has Shares
available for sale and to cause the Trust's transfer agent to record on its
books the ownership of (or deliver certificates, if any, for) such Shares
registered in such names and amounts as the Distributor has requested in writing
or other means of data transmission, as promptly as practicable after receipt by
the Trust of the net asset value thereof and written request of the Distributor
therefor.
(b) The Trust shall keep the Distributor fully informed with regard to the
Trust's affairs and shall furnish to the Distributor copies of all information,
financial statements and other papers which may be necessary for use in
connection with the sale of Shares of the Funds, and this shall include one
certified copy, upon request by the Distributor, of all financial statements
prepared for the Trust by independent accountants and such number of copies of
its most current Prospectuses as may be necessary to accompany confirmation of
sales and annual and interim reports and Prospectuses for delivery to existing
shareholders.
(c) The Trust shall take, from time to time, such steps, including payment
of the related filing fee, as may be necessary to register its Shares under the
1933 Act to the end that there will be available for sale such number of Shares
as the Distributor may be expected to sell. The Trust agrees to file from time
to time such amendments, reports and other documents as may be necessary in
order that there may be no untrue statement of a material fact in a Registration
Statement or Prospectuses, or necessary in order that there may be no omission
to state a material fact in the Registration Statement or Prospectuses which
omission would make the statements therein misleading.
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(d) The Trust, through Funds Distributor, Inc. as Co- Administrator, shall
use its best efforts to qualify and maintain the qualification of any
appropriate number of the Shares of each Fund for sale under the securities laws
of such states as the Distributor and the Trust may approve, and, if necessary
or appropriate in connection therewith, to qualify and maintain the
qualification of the Trust as a broker or dealer in such states; provided that
the Trust shall not be required to amend its Declaration of Trust or By-laws to
comply with the laws of any state, to maintain an office in any state, to change
the terms of the offering of the Shares in any state from the terms set forth in
its Registration Statement and Prospectuses, to qualify as a foreign corporation
in any state or to consent to service of process in any state other than with
respect to claims arising out of the offering of the Shares. The Distributor
shall furnish such information and other material relating to its affairs and
activities as may be required by such Co-Administrator in connection with such
qualifications.
Section 4. Expenses. The Trust shall bear all costs and expenses necessary
for the continuous sale of the Shares such as: (i) fees and disbursements of its
counsel and independent accountants; (ii) the preparation, filing and printing
of any registration statements and/or prospectuses required to be filed by and
under the Federal and state securities laws; (iii) the preparation and mailing
of annual and interim reports, prospectuses and proxy materials to shareholders;
and (iv) the qualifications of Shares for sale and of the Trust as a broker or
dealer under the securities laws of such states or other jurisdictions as shall
be selected by the Trust and the Distributor pursuant to Section 3(d) hereof and
the cost and expenses payable to each such state for continuing qualification
therein in connection with such sale. Since the Trust has not adopted a plan
under Rule 12b-1 of the 1940 Act, the Distributor is directed and agrees that it
will not incur any expenses which would require the Trust to adopt a plan under
Rule 12b-1.
Section 5. Indemnification. The Trust agrees to indemnify, defend and hold
the Distributor, its officers and directors and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its officers, directors or any such controlling person may incur
under the 1933 Act, or under common law or otherwise, arising out of or based
upon any untrue statement of a material fact contained in the Registration
Statement or Prospectus or arising out of or based upon any alleged omission to
state a material fact required to be stated in either thereof or necessary to
make the statements in either thereof not misleading, except insofar as such
claims, demands, liabilities or expenses arise out of or are based upon any such
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information furnished in writing by the
Distributor to the Trust for use in the Registration Statement or Prospectus;
provided, however, that this indemnity agreement, to the extent that it might
require indemnity of any person who is also an officer or Trustee of the Trust
or who controls the Trust within the meaning of Section 15 of the 1933 Act,
shall not inure to the benefit of such officer, Trustee or controlling person
unless a court of competent jurisdiction shall determine, or it shall have been
determined by controlling precedent, that such result would not be against
public policy as expressed in the 1933 Act; and further provided that in no
event
3
<PAGE>
shall anything contained herein be so construed as to protect the
Distributor against any liability to the Trust or to its securities holders to
which the Distributor would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
by reason of its reckless disregard of its obligations under this Agreement. The
Trust's agreement to indemnify the Distributor, its officers and directors and
any such controlling person, as aforesaid is expressly conditioned upon the
Trust's being promptly notified of any action brought against the Distributor,
its officers or directors, or any such controlling person, such notification to
be given to the Trust in accordance with Section 9, with a copy to Stephen K.
West, Sullivan & Cromwell, 125 Broad Street, New York, New York 10004. The Trust
agrees promptly to notify the Distributor of the commencement of any litigation
or proceedings against it or any of its officers or Trustees in connection with
the issue and sale of any Shares.
The Distributor agrees to indemnify, defend and hold the Trust, its
Trustees and officers and any person who controls the Trust, if any, within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Trust, its Trustees or
officers of any such controlling person may incur under the 1933 Act or under
common law or otherwise, but only the extent that such liability or expense
incurred by the Trust, its Trustees or officers or such controlling person
resulting from such claims or demands shall arise out of or be based upon any
alleged untrue statement of a material fact contained in information furnished
in writing by the Distributor to the Trust for use in the preparation of the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in such information or a fact
necessary to make such information not misleading, it being understood that the
Trust will rely upon the information provided by the Distributor for use in the
preparation of the Registration Statement and Prospectus. The Distributor's
agreement to indemnify the Trust, its Trustees and officers, and any such
controlling person as aforesaid is expressly conditioned upon the Distributor s
being promptly notified of any action brought against the Trust, its Trustees or
officers or any such controlling person, such notification to be given to the
Distributor in accordance with Section 9.
Section 6. Limitation of Liability. The Distributor shall not be liable for
any error of judgment or for any loss suffered by the Trust in connection with
the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or for reckless disregard by it of its obligations and
duties under this Agreement.
Section 7. Compliance with Securities Laws. The Trust represents that it is
registered as an open-end management investment company under the 1940 Act, and
agrees that it will comply with the provisions of the 1940 Act and of the rules
and regulations thereunder. The Trust and the Distributor each agree to comply
with the applicable terms and provisions of the 1940 Act, the 1933 Act and,
subject to the provisions of Section 3(d), applicable state securities
4
<PAGE>
laws. The Distributor agrees to comply with the applicable terms and
provisions of the Securities Exchange Act of 1934.
Section 8. Term of Agreement; Termination. This Agreement shall commence on
the date first set forth above. This Agreement shall continue in effect for a
period more than two years from the date hereof only so long as such continuance
is specifically approved at least annually in conformity with the requirements
of the 1940 Act.
This Agreement shall terminate automatically in the event of its assignment
(as defined the 1940 Act). In addition, this Agreement may be terminated by
either party at any time, without penalty, on not less than sixty (60) days
written notice to the other party.
Section 9. Notices. Any notice required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid: (1) to the Distributor at Funds Distributor, Inc., 60 State
Street, 13th Floor, Boston, Massachusetts 02109, Attention: President with a
copy to General Counsel; or (2) to the Trust at The Pierpont Funds, at its
address as set forth in its Prospectuses, Attention: Treasurer, with a copy to
Morgan Guaranty Trust Company, 522 Fifth Avenue, New York, New York 10036,
Attention: Funds Management or at such other address as either party may from
time to time specify to the other party pursuant to this
Section 9.
Section 10. Confidentiality. The Distributor agrees on behalf of itself and
its employees to treat confidentially and as proprietary information of the
Trust all records and other information not otherwise publicly available
relative to the Trust and its prior, present or potential shareholders and not
to use such records and information for any purpose other than performance of
its responsibilities and duties hereunder, except after prior notification to
and approval in writing by the Trust, which approval shall not be unreasonably
withheld and may not be withheld where the Distributor may be exposed to civil
or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Trust.
Section 11. No Liability of Shareholders, Trustees, etc. The Trustees have
authorized the execution of this Agreement in their capacity as Trustees and not
individually and the Distributor agrees that neither the shareholders nor the
Trustees nor any officer, employee, representative or agent of the Trust shall
be personally liable upon, nor shall resort be had to their private property for
the satisfaction of, obligations given, executed or delivered on behalf of or by
the Trust, that the shareholders, Trustees, officers, employees, representatives
and agents of the Trust shall not be personally liable hereunder, and that it
shall look solely to the property of the Trust for the satisfaction of any claim
hereunder.
Section 12. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of New York.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
THE PIERPONT FUNDS
By /s/ John E. Pelletier
John E. Pelletier, Vice President
and Secretary
FUNDS DISTRIBUTOR, INC.
By /s/ Marie E. Connolly
Marie E. Connolly, President and
Chief Executive Officer
PP272.DOC
6
CUSTODIAN CONTRACT
Between
THE PIERPONT FUNDS
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be
Held By It. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian
in the United States. . . . . . . . . . . . . . . . . . . . . . 3
2.1 Holding Securities . . . . . . . . . . . . . . . . . . . . 3
2.2 Delivery of Securities . . . . . . . . . . . . . . . . . . 4
2.3 Registration of Securities . . . . . . . . . . . . . . . .11
2.4 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . .12
2.5 Availability of Federal Funds. . . . . . . . . . . . . . .13
2.6 Collection of Income . . . . . . . . . . . . . . . . . . .14
2.7 Payment of Fund Monies . . . . . . . . . . . . . . . . . .15
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased . . . . . . . . . . . . . . . . . . .19
2.9 Appointment of Agents. . . . . . . . . . . . . . . . . . .20
2.10 Deposit of Fund Assets in Securities
System . . . . . . . . . . . . . . . . . . . . . . . . . .20
2.10A Fund Assets Held in the Custodian's
Direct Paper System . . . . . . . . . . . . . . . . .24
2.11 Segregated Account . . . . . . . . . . . . . . . . . . . .26
2.12 Ownership Certificates for Tax Purposes. . . . . . . . . .28
2.13 Proxies. . . . . . . . . . . . . . . . . . . . . . . . . .29
2.14 Communications Relating to Portfolio Securities. . . . . .29
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States. . . . . . . . . . .30
3.1 Appointment of Foreign Sub-Custodians. . . . . . . . . . .30
3.2 Assets to be Held. . . . . . . . . . . . . . . . . . . . .31
3.3 Foreign Securities Depositories. . . . . . . . . . . . . .32
3.4 Agreements with Foreign Banking Institutions . . . . . . .32
3.5 Access of Independent Accountants of the Fund. . . . . . .33
3.6 Reports by Custodian . . . . . . . . . . . . . . . . . . .34
3.7 Transactions in Foreign Custody Account. . . . . . . . . .34
3.8 Liability of Foreign Sub-Custodians. . . . . . . . . . . .36
3.9 Liability of Custodian . . . . . . . . . . . . . . . . . .36
3.10 Reimbursement for Advances . . . . . . . . . . . . . . . .38
3.11 Monitoring Responsibilities. . . . . . . . . . . . . . . .39
3.13 Branches of U.S. Banks . . . . . . . . . . . . . . . . . .40
3.13 Tax Law. . . . . . . . . . . . . . . . . . . . . . . . . .40
4. Payments for Sales or Repurchase or Redemptions of
Shares of the Fund. . . . . . . . . . . . . . . . . . . . . . .41
<PAGE>
5. Proper Instructions . . . . . . . . . . . . . . . . . . . . . .42
6. Actions Permitted Without Express Authority . . . . . . . . . .43
7. Evidence of Authority . . . . . . . . . . . . . . . . . . . . .44
8. Duties of Custodian with Respect to the Books of
Account and Calculation of Net Asset Value and Net
Income . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
9. Records . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
10. Reports to Fund by Independent Public Accountants . . . . . . .46
11. Compensation of Custodian . . . . . . . . . . . . . . . . . . .46
12. Responsibility of Custodian . . . . . . . . . . . . . . . . . .46
13. Effective Period, Termination and Amendment . . . . . . . . . .49
14. Successor Custodian . . . . . . . . . . . . . . . . . . . . . .51
15. Interpretive and Additional Provisions. . . . . . . . . . . . .53
16. Additional Funds. . . . . . . . . . . . . . . . . . . . . . . .54
17. Massachusetts Law to Apply. . . . . . . . . . . . . . . . . . .54
18. Prior Contracts . . . . . . . . . . . . . . . . . . . . . . . .54
19. Shareholder Communications Election . . . . . . . . . . . . . .55
20. Limitation of Liability . . . . . . . . . . . . . . . . . . . .56
<PAGE>
CUSTODIAN CONTRACT
This Contract between The Pierpont Funds, a
business trust organized and existing under the laws of
the Commonwealth of Massachusetts, having its principal
place of business at 461 Fifth Avenue, New York,
New York 10017, hereinafter called the "Fund", and
State Street Bank and Trust Company, a Massachusetts
trust company, having its principal place of business at
225 Franklin Street, Boston, Massachusetts, 02110,
hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in
separate series, with each such series representing
interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund offers shares in nine series, 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 Treasury Money
Market Fund and The Pierpont Short Term Bond Fund, such
series together with all other series subsequently
established by the Fund
1
<PAGE>
and made subject to this Contract in accordance with
paragraph 17, being herein referred to as the
"Portfolio(s)");
NOW THEREFORE, in consideration of the mutual
covenants and agreements hereinafter contained, the
parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the
custodian of the assets of the Portfolios of the Fund,
including securities which the Fund, on behalf of the
applicable Portfolio, desires to be held in places
within the United States ("domestic securities") and
securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions
of the Fund's Declaration of Trust. The Fund on behalf
of the Portfolio(s) agrees to deliver to the Custodian
all securities and cash of the Portfolio(s), and all
payments of income, payments of principal or capital
distributions received by it with respect to all
securities owned by the Portfolio(s) from time to time,
and the cash consideration received by it for such new
or treasury shares of beneficial interest of the Fund
representing interests in the Portfolio(s) ("Shares") as
may be issued by the Fund or sold from time to time.
The Custodian shall not be
2
<PAGE>
responsible for any property of a Portfolio
held or received by the Portfolio and not
delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the
meaning of Article 5), the Custodian shall on behalf of
the applicable Portfolio(s) from time to time employ one
or more sub-custodians, located in the United States but
only in accordance with an applicable vote by the Board
of Trustees of the Fund on behalf of the applicable
Portfolio(s), and provided that the Custodian shall have
no more or less responsibility or liability to the Fund
on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian
has to the Custodian. The Custodian may employ as
sub-custodian for the Fund's foreign securities on
behalf of the applicable Portfolio(s) the foreign
banking institutions and foreign securities
depositories, if any, designated in Schedule A hereto
but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of
the Portfolios Held by the Custodian in the United
States
2.1 Holding Securities. The Custodian shall hold
and physically segregate for the account of
each Portfolio all non-cash property, to be
3
<PAGE>
held by it in the United States including all
domestic securities owned by such Portfolio,
other than (a) securities which are maintained
pursuant to Section 2.10 in a clearing agency
which acts as a securities depository or in a
book-entry system authorized by the U.S.
Department of the Treasury, collectively
referred to herein as "Securities System" and
(b) commercial paper of an issuer for which
the Custodian acts as issuing and paying agent
("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the
Custodian pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall
release and deliver domestic securities owned
by a Portfolio held by the Custodian or in a
Securities System account of the Custodian or
in the Custodian's Direct Paper book entry
system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from
the Fund on behalf of the Portfolio(s), which
may be continuing instructions when deemed
appropriate by the parties, and only in
4
<PAGE>
the following cases:
1) Upon sale of such securities for the
account of the Portfolio and receipt of
payment therefor;
2) Upon the receipt of payment in connection
with any repurchase agreement related to
such securities entered into by the
Portfolio;
3) In the case of a sale effected through a
Securities System, in accordance with the
provisions of Section 2.10 hereof;
4) To the depository agent in connection
with tender or other similar offers for
securities of the Portfolio;
5) To the issuer thereof or its agent when
such securities are called, redeemed,
retired or otherwise become payable;
provided that, in any such case, the cash
or other consideration is to be delivered
to the Custodian;
6) To the issuer thereof, or its agent, for
transfer into the name of the Portfolio
or into the name of any nominee or
nominees of the Custodian or into the
5
<PAGE>
name or nominee name of any agent
appointed pursuant to Section 2.9 or into
the name or nominee name of any
sub-custodian appointed pursuant to
Article 1; or for exchange for a
different number of bonds, certificates
or other evidence representing the same
aggregate face amount or number of units;
provided that, in any such case, the new
securities are to be delivered to the
Custodian;
7) Upon the sale of such securities for the
account of the Portfolio, to the broker
or its clearing agent, against a receipt,
for examination in accordance with
"street delivery" custom; provided that
in any such case, the Custodian shall
have no responsibility or liability for
any loss arising from the delivery of
such securities prior to receiving
payment for such securities except as may
arise from the Custodian's own negligence
or willful misconduct;
8) For exchange or conversion pursuant to
6
<PAGE>
any plan of merger, consolidation,
recapitalization, reorganization or
readjustment of the securities of the
issuer of such securities, or pursuant to
provisions for conversion contained in
such securities, or pursuant to any
deposit agreement; provided that, in any
such case, the new securities and cash,
if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or
similar securities, the surrender thereof
in the exercise of such warrants, rights
or similar securities or the surrender of
interim receipts or temporary securities
for definitive securities; provided that,
in any such case, the new securities and
cash, if any, are to be delivered to the
Custodian;
10) For delivery in connection with any loans
of securities made by the Portfolio, but
only against receipt of adequate
collateral as agreed upon from time to
time by the Custodian and the Fund on
7
<PAGE>
behalf of the Portfolio, which may be in
the form of cash or equivalent collateral
or by a letter of credit equal at all
times to 100% of the market value of the
securities loaned plus accrued income,
except that in connection with any loans
for which collateral is to be credited to
the Custodian's account in the book-entry
system authorized by the U.S. Department
of the Treasury, the Custodian will not
be held liable or responsible for the
delivery of securities owned by the
Portfolio prior to the receipt of such
collateral;
11) For delivery as security in connection
with any borrowings by the Fund on behalf
of the Portfolio requiring a pledge of
assets by the Fund on behalf of the
Portfolio, but only against receipt of
amounts borrowed;
12) For delivery in accordance with the
provisions of any agreement among the
Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered
8
<PAGE>
under the Securities Exchange Act of 1934
(the "Exchange Act") and a member of the
National Association of Securities
Dealers, Inc. (the "NASD"), relating to
compliance with the rules of the Options
Clearing Corporation and of any
registered national securities exchange,
or of any similar organization or
organizations, regarding escrow or other
arrangements in connection with
transactions by the Portfolio of the
Fund;
13) For delivery in accordance with the
provisions of any agreement among the
Fund on behalf of the Portfolio, the
Custodian and a Futures Commission
merchant registered under the Commodity
Exchange Act, relating to compliance with
the rules of the Commodity Futures
Trading Commission and/or any contract
market, or any similar organization or
organizations, regarding account deposits
in connection with transactions by the
Portfolio of the Fund;
9
<PAGE>
14) Upon receipt of instructions from the
Fund's transfer agent (the "Transfer
Agent"), for delivery to the Transfer
Agent or to the holders of shares in
connection with distributions in kind, as
may be described from time to time in the
currently effective prospectus and
statement of additional information of
the Portfolio (the "Prospectus") in
satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose,
but only upon receipt of, in addition to
Proper Instructions from the Fund on
behalf of the Portfolio, a certified copy
of a resolution of the Fund's Board of
Trustees or of the Executive Committee
signed by an officer of the Fund and
certified by the Secretary or an
Assistant Secretary, specifying the
securities of the Portfolio to be
delivered, setting forth the purpose for
which such delivery is to be made,
10
<PAGE>
declaring such purpose to be a proper
corporate purpose and naming the person
or persons to whom delivery of such
securities shall be made.
2.3 Registration of Securities. Domestic
securities held by the Custodian (other than
bearer securities) shall be registered in the
name of the Portfolio or in the name of any
nominee of the Fund on behalf of the Portfolio
or of any nominee of the Custodian which
nominee shall be assigned exclusively to the
Portfolio, or in the name or nominee name of
any agent appointed pursuant to Section 2.9 or
in the name or nominee name of any
sub-custodian appointed pursuant to Article 1.
All securities accepted by the Custodian on
behalf of a Portfolio under the terms of this
Contract shall be in "street name" or other
good delivery form. If, however, the Fund
directs the Custodian to maintain securities in
11
<PAGE>
"street name", the Custodian shall utilize
its best efforts only to collect timely income
due the Fund on such securities and to notify
the Fund on a best efforts basis only of
relevant corporate actions including, without
limitation, pendency of calls, maturities,
tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and
maintain a separate bank account or accounts
in the United States in the name of each
Portfolio, subject only to draft or order by
the Custodian acting pursuant to the terms of
this Contract, and shall hold in such account
or accounts, subject to the provisions hereof,
all cash received by it from or for the
account of the Portfolio, other than cash
maintained by the Portfolio in a bank account
established and used in accordance with Rule
17f-3 under the Investment Company Act of
1940. Funds held by the Custodian for a
Portfolio may be deposited by it to its credit
as Custodian in the Banking Department of the
Custodian or in such other banks or trust
companies as it may in its discretion deem
necessary or desirable;
12
<PAGE>
provided, however, that every such
bank or trust company shall be
qualified to act as a custodian under the
Investment Company Act of 1940 and that each
such bank or trust company and the funds to be
deposited with each such bank or trust company
shall on behalf of the Portfolio be approved
by vote of a majority of the Board of Trustees
of the Fund. Such funds shall be deposited by
the Custodian in its capacity as Custodian and
shall be withdrawable by the Custodian only in
that capacity.
2.5 Availability of Federal Funds. Upon mutual
agreement between the Fund and the Custodian,
the Custodian shall, upon the receipt of
Proper Instructions from the Fund on behalf of
a Portfolio (i) invest in such instruments as
may be set forth in such instructions on the
same day as received all federal funds
received after a time agreed upon by the
Custodian and the Fund and (ii) make federal
funds available to the Portfolio as of
specified times agreed upon from time to time
by the Fund and the
13
<PAGE>
Custodian in the amount of funds
received in respect of sales of
securities by the Portfolio and of funds
obtained through borrowings, in each case
which are deposited into the Portfolio's
account.
2.6 Collection of Income. Subject to the
provisions of Section 2.3, the Custodian shall
collect on a timely basis all income and other
payments with respect to registered domestic
securities held hereunder to which each
Portfolio shall be entitled either by law, or
pursuant to custom in the securities business,
and shall collect on a timely basis all income
and other payments with respect to bearer
domestic securities if, on the date of payment
by the issuer, such securities are held by the
Custodian or its agent thereof and shall
credit such income, as collected, to such
Portfolio's custodian account. Without
limiting the generality of the foregoing, the
Custodian shall detach and present for payment
all coupons and other income items requiring
presentation as and when they become due and
shall collect interest when due on securities
14
<PAGE>
held hereunder. Income due each Portfolio on
securities loaned pursuant to the provisions
of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian
will have no duty or responsibility in
connection therewith, other than to provide
the Fund with such information or data as may
be necessary to assist the Fund in arranging
for the timely delivery to the Custodian of
the income to which a Portfolio is properly
entitled.
2.7 Payment of Fund Monies. Upon receipt of
Proper Instructions from the Fund on behalf of
the applicable Portfolio, which may be
continuing instructions when deemed
appropriate by the parties, the Custodian
shall pay out monies of the Portfolio in the
following cases only:
1) Upon the purchase of domestic securities,
options, futures contracts or options on
futures contracts for the account of the
Portfolio but only (a) against the
delivery of such securities or evidence
of title to such options, futures
contracts or options on futures contracts
to the Custodian (or any bank, banking
15
<PAGE>
firm or trust company doing business in
the United States or abroad which is
qualified under the Investment Company
Act of 1940, as amended, to act as a
custodian and has been designated by the
Custodian as its agent for this purpose)
registered in the name of the Portfolio
or in the name of a nominee of the
Custodian referred to in Section 2.3
hereof or in proper form for transfer;
(b) in the case of a purchase effected
through a Securities System, in
accordance with the conditions set forth
in Section 2.10 hereof; (c) in the case
of a purchase involving the Direct Paper
System, in accordance with the conditions
set forth in Section 2.10A; (d) in the
case of repurchase agreements entered
into between the Fund on behalf of the
Portfolio and the Custodian, or another
bank, or a broker-dealer which is a
member of NASD, (i) against delivery of
the securities either in certificate form
or through an entry crediting the
16
<PAGE>
Custodian's account at the Federal
Reserve Bank with such securities or
(ii) against delivery of the receipt
evidencing purchase by the Portfolio of
securities owned by the Custodian along
with written evidence of the agreement by
the Custodian to repurchase such
securities from the Portfolio or (e) for
transfer to a time deposit account of the
Portfolio in any bank, whether domestic
or foreign; such transfer may be effected
prior to receipt of a confirmation from a
broker and/or the applicable bank
pursuant to Proper Instructions from the
Fund as defined in Article 5;
2) In connection with conversion, exchange
or surrender of securities owned by the
Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of
Shares issued by the Portfolio as set
forth in Article 4 hereof;
4) From an account of the Portfolio located
outside of the United States (except as
17
<PAGE>
otherwise specified by the Fund for a
particular Portfolio), for the payment of any
expense or liability incurred by the
Portfolio, including but not limited to
the following payments for the account of
the Portfolio: interest, taxes,
management, accounting, transfer agent
and legal fees, and operating expenses of
the Portfolio whether or not such
expenses are to be in whole or part
capitalized or treated as deferred
expenses;
5) From an account of the Fund located
outside of the United States (except as
otherwise specified by the Fund for a
particular Portfolio), for the payment of
of any dividends on Shares of the Portfolio
declared pursuant to the governing
documents of the Fund;
6) For payment of the amount of dividends
received in respect of securities sold
short;
7) For any other proper purpose, but only
upon receipt of, in addition to Proper
Instructions from the Fund on behalf of
18
<PAGE>
the Portfolio, a certified copy of a
resolution of the Board of Trustees or
of the Executive Committee of the Fund
signed by two officers of the Fund and
certified by its Secretary or an
Assistant Secretary, specifying the
amount of such payment, setting forth the
purpose for which such payment is to be
made, declaring such purpose to be a
proper purpose and naming the person or
persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased. Except as specifically
stated otherwise in this Contract, in any and
every case where payment for purchase of
domestic securities for the account of a
Portfolio is made by the Custodian in advance
of receipt of the securities purchased in the
absence of specific written instructions from
the Fund on behalf of such Portfolio to so pay
in advance, the Custodian shall be absolutely
liable to the Fund for such securities to the
same extent as if the securities had been
19
<PAGE>
received by the Custodian.
2.9 Appointment of Agents. The Custodian may at
any time or times in its discretion appoint
(and may at any time remove) any other bank or
trust company which is itself qualified under
the Investment Company Act of 1940, as
amended, to act as a custodian, as its agent
to carry out such of the provisions of this
Article 2 as the Custodian may from time to
time direct; provided, however, that the
appointment of any agent shall not relieve the
Custodian of its responsibilities or
liabilities hereunder. In addition, the
Custodian may appoint an affiliate of the
Custodian located outside of the United States
to perform such of its duties hereunder as are
required to be performed outside of the United
States.
2.10 Deposit of Fund Assets in Securities
Systems. The Custodian may deposit and/or
maintain securities owned by a Portfolio in a
clearing agency registered with the Securities
and Exchange Commission under Section 17A of
the Exchange Act of 1934, which acts as a securities
depository, or in the book-entry
20
<PAGE>
authorized by the U.S. Department of the
Treasury and certain federal agencies,
collectively referred to herein as "Securities
System" in accordance with applicable Federal
Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and
subject to the following provisions:
1) The Custodian may keep securities of the
Portfolio in a Securities System provided
that such securities are represented in
an account ("Account") of the
Custodian in the Securities System
which shall not include any assets of the
Custodian other than assets held as a
fiduciary, custodian or otherwise for
customers;
2) The records of the Custodian with respect
to securities of the Portfolio which are
maintained in a Securities System shall
identify by book-entry those securities
belonging to the Portfolio;
3) The Custodian shall pay for securities
purchased for the account of the
Portfolio upon (i) receipt of advice from
the Securities System that such
21
<PAGE>
securities have been transferred to the
Account, and (ii) the making of an
entry on the records of the
Custodian to reflect such payment and
transfer for the account of the
Portfolio. The Custodian shall transfer
securities sold for the account of the
Portfolio upon (i) receipt of advice from
the Securities System that payment for
such securities has been transferred to
the Securities System Account, and (ii)
the making of an entry on the records of
the Custodian to reflect such transfer
and payment for the account of the
Portfolio. Copies of all advices from
the Securities System of transfers of
securities for the account of the
Portfolio shall identify the Portfolio,
be maintained for the Portfolio by the
Custodian and be provided to the Fund at
its request. Upon request, the Custodian
shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer
to or from the account of the Portfolio
in the form of a written advice or notice
and shall
22
<PAGE>
furnish to the Fund on behalf
of the Portfolio copies of daily
transaction sheets reflecting each day's
transactions in the Securities System for
the account of the Portfolio on the next
business day;
4) The Custodian shall provide the Fund with
any report obtained by the Custodian on
the Securities System's accounting
system, internal accounting control and
procedures for safeguarding securities
deposited in the Securities System;
5) The Custodian shall have received from
the Fund on behalf of the Portfolio the
certificates required by Article 14
hereof;
6) Anything to the contrary in this Contract
notwithstanding, the Custodian shall be
liable to the Fund for the benefit of the
Portfolio for any loss or damage to the
Portfolio resulting from use of the
Securities System by reason of any
23
<PAGE>
negligence, misfeasance or misconduct of
the Custodian or any of its agents or of
any of its or their employees or from
failure of the Custodian or any such
agent to enforce effectively such rights
as it may have against the Securities
System; at the election of the Fund, it
shall be entitled to be subrogated to the
rights of the Custodian with respect to
any claim against the Securities System
or any other person which the Custodian
may have as a consequence of any such
loss or damage if and to the extent that
the Portfolio has not been made whole for
any such loss or damage; provided, that
the Custodian shall, notwithstanding such
subrogation, reimburse the Fund for
its reasonable expenses in connection
with such claim.
2.10A Fund Assets Held in the Custodian's
Direct Paper System. The Custodian may
deposit and/or maintain securities owned
by a Portfolio in the Direct Paper System
of the Custodian
24
<PAGE>
subject to the following provisions;
1) No transaction relating to securities in
the Direct Paper System will be effected
in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the
Portfolio in the Direct Paper System only
if such securities are represented in an
account ("Account") of the Custodian in the
Direct Paper System which shall not include
any assets of the Custodian other than assets
held as a fiduciary, custodian or
otherwise for customers;
3) The records of the Custodian with respect
to securities of the Portfolio which are
maintained in the Direct Paper System
shall identify by book-entry those
securities belonging to the Portfolio;
4) The Custodian shall pay for securities
purchased for the account of the
Portfolio upon the making of an entry on
the records of the Custodian to reflect
such payment and transfer of securities
to the account of the Portfolio. The
25
<PAGE>
Custodian shall transfer securities sold
for the account of the Portfolio upon the
making of an entry on the records of the
Custodian to reflect such transfer and
receipt of payment for the account of the
Portfolio;
5) The Custodian shall furnish the Fund on
behalf of the Portfolio confirmation of
each transfer to or from the account of
the Portfolio, in the form of a written
advice or notice, of Direct Paper on the
next business day following such transfer
and shall furnish to the Fund on behalf
of the Portfolio copies of daily
transaction sheets reflecting each day's
transaction in the Direct Paper System
for the account of the Portfolio;
6) The Custodian shall provide the Fund on
behalf of the Portfolio with any report
on its system of internal accounting
control as the Fund may reasonably
request from time to time.
2.11 Segregated Account. The Custodian shall upon
receipt of Proper Instructions from the Fund on
26
<PAGE>
behalf of each applicable Portfolio establish
and maintain a segregated account or accounts for
and on behalf of each such Portfolio, into
which account or accounts may be transferred
cash and/or securities, including securities
maintained in an account by the Custodian
pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any
agreement among the Fund on behalf of the
Portfolio, the Custodian and a broker-dealer
registered under the Exchange Act and a member
of the NASD (or any futures commission
merchant registered under the Commodity
Exchange Act), relating to compliance with the
rules of the Options Clearing Corporation and
of any registered national securities exchange
(or the Commodity Futures Trading Commission
or any registered contract market), or of any
similar organization or organizations,
regarding escrow or other arrangements in
connection with transactions by the Portfolio,
(ii) for purposes of segregating cash or
government securities in connection with
options purchased, sold or written by the
Portfolio
27
<PAGE>
or commodity futures contracts or
options thereon purchased or sold by the
Portfolio, (iii) for the purposes of
compliance by the Portfolio with the
procedures required by Investment Company Act
Release No. 10666, or any subsequent release
or releases of the Securities and Exchange
Commission relating to the maintenance of
segregated accounts by registered investment
companies and (iv) for other proper corporate
purposes, but only, in the case of clause
(iv), upon receipt of, in addition to Proper
Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a
resolution of the Board of Trustees or of the
Executive Committee signed by an officer of
the Fund and certified by the Secretary or an
Assistant Secretary, setting forth the purpose
or purposes of such segregated account and
declaring such purposes to be proper corporate
purposes.
2.12 Ownership Certificates for Tax Purposes. The
Custodian shall execute ownership and other
certificates and affidavits for all federal
and state tax purposes in connection with
29
<PAGE>
receipt of income or other payments with
respect to domestic securities of each
Portfolio held by it and in connection with
transfers of securities.
2.13 Proxies. The Custodian shall, with respect to
the domestic securities held hereunder, cause
to be promptly executed by the registered
holder of such securities, if the securities
are registered otherwise than in the name of
the Portfolio or a nominee of the Portfolio,
all proxies, without indication of the manner
in which such proxies are to be voted, and
shall promptly deliver to the Fund such
proxies, all proxy soliciting materials and
all notices relating to such securities.
2.14 Communications Relating to Portfolio
Securities. Subject to the provisions of
Section 2.3, the Custodian shall transmit
promptly to the Fund for each Portfolio all
written information (including, without
limitation, pendency of calls and maturities
of domestic securities and expirations of
rights in connection therewith and notices of
exercise of call and put options written by
the Fund on behalf of the Portfolio
29
<PAGE>
and the maturity of futures contracts purchased
or sold by the Portfolio) received by the
Custodian from issuers of the securities being
held for the Portfolio. With respect to
tender or exchange offers, the Custodian shall
transmit promptly to the Portfolio all written
information received by the Custodian from
issuers of the securities whose tender or
exchange is sought and from the party (or his
agents) making the tender or exchange offer.
If the Portfolio desires to take action with
respect to any tender offer, exchange offer or
any other similar transaction, the Portfolio shall
notify the Custodian at least three business
days prior to the date on which the Custodian
is to take such action.
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The
Fund hereby authorizes and instructs the
Custodian to employ as sub-custodians for the
Portfolio's securities and other assets, if
any, maintained outside the United States the
foreign banking institutions and foreign
30
<PAGE>
securities depositories designated on Schedule
A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined
in Section 5 of this Contract, together with a
certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree
to amend Schedule A hereto from time to time
to designate additional foreign banking
institutions and foreign securities
depositories to act as sub-custodian. Upon
receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment
of any one or more such sub-custodians for
maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit
the securities and other assets maintained in
the custody of the foreign sub-custodians to:
(a) "foreign securities", as defined in
paragraph (c)(l) of Rule 17f-5 under the
Investment Company Act of 1940, and (b) cash
and cash equivalents in such amounts as the
Custodian or the Fund may determine to be
reasonably necessary to effect the Portfolio's
foreign securities transactions. The Custodian
31
<PAGE>
shall identify on its books as belonging to
the Fund, the foreign securities of the
Fund held by each foreign sub-custodian.
3.3 Foreign Securities Depositories. Except as
may otherwise be agreed upon in writing by the
Custodian and the Fund, assets of the
Portfolios shall be maintained in foreign
securities depositories only through
arrangements implemented by the foreign
banking institutions serving as sub-custodians
pursuant to the terms hereof. Where possible,
such arrangements shall include entry into
agreements containing the provisions set forth
in Section 3.4 hereof.
3.4 Agreements with Foreign Banking Institutions.
Each agreement with a foreign banking
institution shall be substantially in the form
set forth in Exhibit 1 hereto and shall provide
that: (a) the assets of each
Portfolio will not be subject to any
right, charge, security interest, lien or
claim of any kind in favor of the foreign
banking institution or its creditors or agent,
except a claim of payment for their safe
custody or administration; (b)
32
<PAGE>
beneficial ownership for the assets of each
Portfolio will be freely transferable without the
payment of money or value other than for
custody or administration; (c) adequate
records will be maintained identifying the
assets as belonging to each applicable Portfolio;
(d) officers of or auditors employed by, or other
representatives of the Custodian, including to
the extent permitted under applicable law the
independent public accountants for the Fund,
will be given access to the books and records
of the foreign banking institution relating to
its actions under its agreement with the
Custodian; and (e) assets of the Portfolios
held by the foreign sub-custodian will be
subject only to the instructions of the
Custodian or its agents.
3.5 Access of Independent Accountants of the Fund.
Upon request of the Fund, the Custodian will
use its best efforts to arrange for the
independent accountants of the Fund to be
afforded access to the books and records of
any foreign banking institution employed as a
foreign sub-custodian insofar as such books and
33
<PAGE>
records relate to the performance of such
foreign banking institution under its
agreement with the Custodian.
3.6 Reports by Custodian. The Custodian will
supply to the Fund from time to time, as
mutually agreed upon, statements in respect of
the securities and other assets of the
Portfolio(s) held by foreign sub-custodians,
including but not limited to an identification
of entities having possession of the
Portfolio(s) securities and other assets and
advices or notifications of any transfers of
securities to or from each custodial account
maintained by a foreign banking institution
for the Custodian on behalf of each applicable
Portfolio indicating, as to securities acquired
for the Portfolio, the identity of the entity
having physical possession of such securities.
3.7 Transactions in Foreign Custody Account.
(a) Except as otherwise provided in paragraph
(b) of this Section 3.7, the provision of
Sections 2.2 and 2.7 of this Contract shall
apply, mutatis mutandis to the foreign
securities of each Fund held outside the United
34
<PAGE>
States by foreign sub-custodians.
(b) Notwithstanding any provision of this
Contract to the contrary, settlement and
payment for securities received for the account
of each applicable Portfolio and delivery of
securities maintained for the account of each
applicable Portfolio may be effected in
accordance with the customary established
securities trading or securities processing
practices and procedures in the jurisdiction or
market in which the transaction occurs, including,
without limitation, delivering securities to
the purchaser thereof or to a dealer therefor
(or an agent for such purchaser or dealer)
against a receipt with the expectation of
receiving later payment for such securities
from such purchaser or dealer. (c) Securities
maintained in the custody of a foreign
sub-custodian may be maintained in the name of
such entity's nominee to the same extent as
set forth in Section 2.3 of this Contract, and
the Fund agrees to hold any such nominee
harmless from any liability as a holder of
record of such securities.
35
<PAGE>
3.8 Liability of Foreign Sub-Custodians. Each
agreement pursuant to which the Custodian
employs a foreign banking institution as a
foreign sub-custodian shall require the
institution to exercise reasonable care in the
performance of its duties and to indemnify,
and hold harmless, the Custodian and the Fund
from and against any loss, damage, cost,
expense, liability or claim arising out of or
in connection with the institution's
performance of such obligations. At the
election of the Fund, it shall be entitled to
be subrogated to the rights of the Custodian
with respect to any claims against a foreign
banking institution as a consequence of any
such loss, damage, cost, expense, liability or
claim if and to the extent that the Fund has
not been made whole for any such loss, damage,
cost, expense, liability or claim.
3.9 Liability of Custodian. The Custodian shall
be liable for the acts or omissions of a
foreign banking institution to the same extent
as set forth with respect to sub-custodians
generally in this Contract and, regardless of
whether
36
<PAGE>
assets are maintained in the custody
of a foreign banking institution, a foreign
securities depository or a branch of a U.S.
bank as contemplated by paragraph 3.12 hereof,
the Custodian shall not be liable for any
loss, damage, cost, expense, liability or
claim resulting from nationalization,
expropriation, currency restrictions, or acts
of war or terrorism or any loss where the
sub-custodian has otherwise exercised
reasonable care. Notwithstanding the
foregoing provisions of this paragraph 3.9, in
delegating custody duties to State Street
London Ltd., the Custodian shall not be
relieved of any responsibility to the Fund for
any loss due to such delegation, except such
loss as may result from (a) political risk
(including, but not limited to, exchange
control restrictions, confiscation,
expropriation, nationalization, insurrection,
civil strife or armed hostilities) or (b)
other losses (excluding a bankruptcy or
insolvency of State Street London Ltd. not
caused by political risk) due to Acts of God,
nuclear incident or other losses under
37
<PAGE>
circumstances where the Custodian and State
Street London Ltd. have exercised reasonable
care.
3.10 Reimbursement for Advances. If the Fund
requires the Custodian to advance cash or
securities for any purpose for the benefit of
a Portfolio including the purchase or sale of
foreign exchange or of contracts for foreign
exchange, or in the event that the Custodian
or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims
or liabilities in connection with the
performance of this Contract, except such as
may arise from its or its nominee's own
negligent action, negligent failure to act or
willful misconduct, any property at any time
held for the account of the applicable Portfolio
shall be security therefor and should the
Fund fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize
available cash and to dispose of such
Portfolios assets to the extent necessary to
obtain reimbursement.
38
<PAGE>
3.11 Monitoring Responsibilities. The Custodian
shall furnish annually to the Fund,
during the month of June, information
concerning the foreign sub-custodians employed
by the Custodian. Such information shall be
similar in kind and scope to that furnished
to the Fund in connection with the initial approval
of this Contract. In addition, the Custodian
will promptly inform the Fund
in the event that the Custodian learns of a
material adverse change in the financial
condition of a foreign sub-custodian or any
loss of the assets of the Fund or in the
case of any foreign sub-custodian not the
subject of an exemptive order from the
Securities and Exchange Commission is notified
by such foreign sub-custodian that there
appears to be a substantial likelihood that
its shareholders' equity will decline below
$200 million (U.S. dollars or the equivalent
thereof) or that its shareholders' equity has
declined below $200 million (in each case
computed in accordance with generally accepted
U.S. accounting principles).
39
<PAGE>
3.12 Branches of U.S. Banks.
(a) Except as otherwise set forth in this
Contract, the provisions hereof shall not
apply where the custody of the Portfolio's
assets is maintained in a foreign branch of a
banking institution which is a "bank" as
defined by Section 2(a)(5) of the Investment
Company Act of 1940 meeting the qualification
set forth in Section 26(a) of said Act. The
appointment of any such branch as a sub-
custodian shall be governed by paragraph 1
of this Contract. (b) Cash held for each
Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing
account established for the Fund with the
Custodian's London branch, which account shall
be subject to the direction of the Custodian,
State Street London Ltd. or both.
3.13 Tax Law.
(a) United States Taxes.
The Custodian shall have no responsibility
or liability for any obligations now or hereafter
imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of the
40
<PAGE>
United States of America or any state or
political subdivision thereof.
(b) Claiming for Exemption or Refund under the
Tax Laws of Non-United States Jurisdictions.
The sole responsibility of the Custodian with
regard to the tax law of non-United States
jurisdictions shall be to use reasonable
efforts to cooperate with the Fund
and the investment company in which it has
an interest to assist in the
process of making any claim for
exemption or refund of any charges that is
being made by or for the benefit of the Fund.
4. Payments for Sales or Repurchases or Redemptions of
Shares of the Fund
The Custodian shall receive from the distributor
for the Shares or from the Transfer Agent of the Fund
and deposit into the account of the appropriate Portfolio
such payments as are received for Shares of that Portfolio
issued or sold from time to time by the Fund. The
Custodian will provide notification to the Fund on
behalf of each such Portfolio and the Transfer Agent of any
receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose
41
<PAGE>
but subject to the limitations of the Declaration of
Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian
shall, upon receipt of instructions from the Transfer
Agent, make funds available to an account maintained
outside of the United States (except as specified by the
Fund) for payment to holders of Shares who have
delivered to the Transfer Agent a request for redemption
or repurchase of their Shares.
5. Proper Instructions
Proper Instructions as used throughout this
Contract means a writing signed or initialled by one or
more person or persons as the Board of Trustees shall
have from time to time authorized. Each such writing
shall set forth the specific transaction or type of
transaction involved, including a specific statement of
the purpose for which such action is requested. Oral
instructions will be considered Proper Instructions if
the Custodian reasonably believes them to have been
given by a person authorized to give such instructions
with respect to the transaction involved. The Fund shall
cause all oral instructions to be confirmed in writing.
Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board
of Trustees of the
42
<PAGE>
Fund accompanied by a detailed
description of procedures approved by the Board of
Trustees, Proper Instructions may include communications
effected directly between electro-mechanical or
electronic devices provided that the Board of Trustees
and the Custodian are satisfied that such procedures
afford adequate safeguards for the Portfolios' assets.
For purposes of this Section, Proper Instructions
shall include instructions received by the
Custodian pursuant to any three-party agreement which
requires a segregated asset account in accordance with
Section 2.11.
6. Actions Permitted Without Express Authority
The Custodian may in its discretion, without
express authority from the Fund on behalf of each
applicable Portfolio:
1) make payments to itself or others for minor
expenses of handling securities or other
similar items relating to its duties under
this Contract, provided that all such payments
shall be accounted for to the Fund on behalf
of the Portfolio;
2) surrender securities in temporary form for
securities in definitive form;
3) endorse for collection, in the name of the
43
<PAGE>
Portfolio, checks, drafts and other negotiable
instruments; and
4) in general, attend to all non-discretionary
details in connection with the sale, exchange,
substitution, purchase, transfer and other
dealings with the securities and property of
the Portfolio except as otherwise directed by
the Board of Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any
instructions, notice, request, consent, certificate or
other instrument or paper believed by it to be genuine
and to have been properly executed by or on behalf of
the Fund. The Custodian may receive and accept a
certified copy of a vote of the Board of Trustees
of the Fund as conclusive evidence (a) of the authority
of any person to act in accordance with such vote
or (b) of any determination or of any action by the
Board of Trustees pursuant to the Declaration of Trust
as described in such vote, and such vote may
be considered as in full force and effect until receipt
by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of
Account and Calculation of Net Asset Value and Net Income
44
<PAGE>
The Custodian shall cooperate with and supply
necessary information to the entity or entities
appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute
the net asset value per share of the outstanding shares
of each Portfolio.
9. Records
The Custodian shall with respect to each Portfolio
create and maintain records relating to its activities
and obligations under this Contract in such manner as
will meet the obligations of the Fund under the
Investment Company Act of 1940, with particular
attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereof. All such records shall be the property
of the Fund and shall at all times during the regular
business hours of the Custodian be open for inspection
by duly authorized officers, employees or agents of the
Fund and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at the Fund's
request, supply the Fund with a tabulation of securities
owned by each Portfolio and held by the Custodian and
shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund
and the Custodian, include certificate numbers in such
45
<PAGE>
tabulations.
10. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of
each of the Portfolios at such times as the Fund may
reasonably require, with reports by independent public
accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures
contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities
System, relating to the services provided by the
Custodian under this Contract; such reports, shall be of
sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such
inadequacies, the reports shall so state.
11. Compensation of Custodian
The Custodian shall be entitled to reasonable
compensation for its services and expenses as Custodian,
as agreed upon from time to time between the Fund on
behalf of each applicable Portfolio and the Custodian.
12. Responsibility of Custodian
So long as and to the extent that it is in the
exercise of reasonable care, the Custodian shall not be
46
<PAGE>
responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it
or delivered by it pursuant to this Contract and shall
be held harmless in acting upon any notice, request,
consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the
proper party or parties, including any futures
commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian
shall be held to the exercise of reasonable care in
carrying out the provisions of this Contract, but shall
be kept indemnified by and shall be without liability to
the Fund for any action taken or omitted by it in good
faith without negligence. It shall be entitled to rely
on and may act upon advice of counsel (who may be
counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or
omitted pursuant to such advice.
The Custodian shall be liable for the acts or
omissions of a foreign banking institution appointed
pursuant to the provisions of Article 3 to the same
extent as set forth in Article 1 hereof with respect to
sub-custodians located in the United States (except as
specifically provided in Article 3.9) and, regardless of
47
<PAGE>
whether assets are maintained in the custody of a
foreign banking institution, a foreign securities
depository or a branch of a U.S. bank as contemplated by
paragraph 3.12 hereof, the Custodian shall not be liable
for any loss, damage, cost, expense, liability or claim
resulting from, or caused by, the direction of or
authorization by the Fund to maintain custody of any
securities or cash of the Fund in a foreign country
including, but not limited to, losses resulting from
nationalization, expropriation, currency restrictions,
or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires
the Custodian to take any action with respect
to securities, which action involves
the payment of money or which action
may, in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Fund or the
Portfolio being liable for the payment of money or
incurring liability of some other form, the Fund
on behalf of the Portfolio, as a prerequisite
to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an
amount and form satisfactory to it.
If the Fund requires the Custodian, its affiliates,
subsidiaries or agents, to advance cash or securities
for any purpose (including but not limited to securities
48
<PAGE>
settlements, foreign exchange contracts and assumed
settlement) for the benefit of a Portfolio including the
purchase or sale of foreign exchange or of contracts for
foreign exchange or in the event that the Custodian or
its nominee shall incur or be assessed any taxes,
charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except
such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful
misconduct, any property at any time held for the
account of the applicable Portfolio shall be security
therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets
to the extent necessary to obtain reimbursement.
13. Effective Period Termination and Amendment
This Contract shall become effective as of its
execution, shall continue in full force and effect until
terminated as hereinafter provided, may be amended at
any time by mutual agreement of the parties hereto and
may be terminated by either party by an instrument in
writing delivered or mailed, postage prepaid to the
other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or
mailing;
49
<PAGE>
provided, however that the Custodian shall not
with respect to a Portfolio act under Section 2.10 hereof in
the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of
Trustees of the Fund has approved the initial use of a
particular Securities System by such Portfolio and the
receipt of an annual certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has
reviewed the use by such Portfolio of such Securities
System, as required in each case by Rule 17f-4 under the
Investment Company Act of 1940, as amended, and that the
Custodian shall not with respect to a Portfolio act under
Section 2.10A hereof in the absence of receipt of an
initial certificate of the Secretary or an Assistant
Secretary that the Board of Trustees has approved the
initial use of the Direct Paper System by such Portfolio
and the receipt of an annual certificate of the Secretary
or an Assistant Secretary that the Board of Trustees has
reviewed the use by such Portfolio of the Direct Paper
System; provided further, however, that the Fund shall
not amend or terminate this Contract in contravention of
any applicable federal or state regulations, or any
provision of the Declaration of Trust, and further
provided, that the Fund on behalf of one or more of the
50
<PAGE>
Portfolios may at any time by action of its Board
of Trustees (i) substitute another bank or trust company
for the Custodian by giving notice as described above to
the Custodian, or (ii) immediately terminate this
Contract in the event of the appointment of a
conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a
like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf
of each applicable Portfolio shall pay to the Custodian
such compensation as may be due as of the date of such
termination and shall likewise reimburse the Custodian
for its costs, expenses and disbursements.
14. Successor Custodian
If a successor custodian for the Fund, of one or more
of the Portfolios shall be appointed by the Board of
Trustees of the Fund, the
Custodian shall, upon termination, deliver to such
successor custodian at the office of the Custodian, duly
endorsed and in the form for transfer, all securities of
each applicable Portfolio then held by it hereunder and
shall transfer to an account of the successor custodian
all of the securities of each such Portfolio held in a
Securities System.
51
<PAGE>
If no such successor custodian shall be appointed,
the Custodian shall, in like manner, upon receipt of a
certified copy of a vote of the Board of Trustees
of the Fund, deliver at the office of the Custodian and
transfer such securities, funds and other properties in
accordance with such vote.
In the event that no written order designating a
successor custodian or certified copy of a vote of
the Board of Trustees shall have been delivered to the
Custodian on or before the date when such termination
shall become effective, then the Custodian shall have
the right to deliver to a bank or trust company, which
is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its
own selection, having an aggregate capital, surplus, and
undivided profits, as shown by its last published
report, of not less than $50,000,000, all securities,
funds and other properties held by the Custodian on
behalf of each applicable Portfolio(s) and all instruments
held by the Custodian relative thereto and all other
property held by it under this Contract on behalf of each
applicable Portfolio and to transfer to an account of such
successor custodian all of the securities of each
such Portfolio held in any Securities System.
52
<PAGE>
Thereafter, such bank or trust company shall be the
successor of the Custodian under this Contract.
In the event that securities, funds and other
properties remain in the possession of the Custodian
after the date of termination hereof owing to failure of
the Fund to procure the certified copy of the vote
referred to or of the Board of Trustees to appoint a
successor custodian, the Custodian shall be entitled to
fair compensation for its services during such period as
the Custodian retains possession of such securities,
funds and other properties and the provisions of this
Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
15. Interpretive and Additional Provisions
In connection with the operation of this Contract,
the Custodian and the Fund on behalf of each of the
Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the
provisions of this Contract as may in their joint
opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional
provisions shall be in a writing signed by both parties
and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene
any applicable federal or
53
<PAGE>
state regulations or any provision of the Declaration
of Trust of the Fund. No interpretive or additional
provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Contract.
16. Additional Funds
In the event that the Fund establishes one or more
series of Shares in addition to 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 Treasury Money Market Fund and The
Pierpont Short Term Bond Fund, with respect to which it
desires to have the Custodian render services as
custodian under the terms hereof, it shall so notify the
Custodian in writing, and if the Custodian agrees in
writing to provide such services, such series of Shares
shall become a Portfolio hereunder.
17. Massachusetts Law to Apply
This Contract shall be construed and the provisions
thereof interpreted under and in accordance with laws of
The Commonwealth of Massachusetts.
18. Prior Contracts
This Contract supersedes and terminates, as of the
54
<PAGE>
date hereof, all prior contracts between the Fund on
behalf of each of the Portfolios and the Custodian
relating to the custody of the Fund's assets.
19. Shareholder Communications Election
Securities and Exchange Commission Rule 14b-2
requires banks which hold securities for the account of
customers to respond to requests by issuers of
securities for the names, addresses and holdings of
beneficial owners of securities of that issuer held by
the bank unless the beneficial owner has expressly
objected to disclosure of this information. In order to
comply with the rule, the Custodian needs the Fund to
indicate whether it authorizes the Custodian to provide
the Fund's name, address and share position to requesting
companies whose securities the Fund owns. If
the Fund tells the Custodian "no", the
Custodian will not provide this information to
requesting companies. If the Fund tells the Custodian
"yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as
consenting to disclosure of this information for all
securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's
protection, the Rule prohibits the requesting company
from using the Fund's name and address for any
55
<PAGE>
other than corporate communications. Please
indicate below whether the Fund consents or objects by
checking one of the alternatives below.
YES [ ] The Custodian is authorized to release
the Fund's name, address, and share
positions.
NO [X] The Custodian is not authorized to
release the Fund's name, address, and
share positions.
20. Limitation of Liability
The references herein to the Trustees of the Fund
are to the Trustees of the Fund as trustees and not
individually or personally. The obligations of the Fund
entered into on behalf of the Fund by any of the
Trustees are not made individually but in their capacity
as trustees and are not binding on any of the Trustees
personally. All persons dealing with the Fund must look
solely to the assets of the Fund for the enforcement of
any claims against the Fund.
56
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused
this instrument to be executed in its name and behalf by
its duly authorized representative as of the 29th day of
December, 1992.
THE PIERPONT FUNDS
By /s/ Carol R. Schepp
Senior Vice President
STATE STREET BANK AND TRUST COMPANY
By /s/ Ronald E. Logue
Executive Vice President
57
<PAGE>
Schedule A
The following foreign banking institutions and
foreign securities depositories have been approved by
the Board of Trustees of The Pierpont Funds for use as
sub-custodians for the Fund's securities and other
assets:
[NOT APPLICABLE]
<PAGE>
AMENDMENT TO CUSTODIAN CONTRACT
Agreement made by and between State Street Bank and Trust Company (the
"Custodian") and The Pierpont Funds (the "Fund").
WHEREAS, the Custodian and the Fund are parties to a custodian contract
dated December 29, 1992, as amended (the "Custodian Contract");
WHEREAS, the Custodian and the Fund desire to amend the terms and
conditions Custodian Contract pursuant to which the custodian provides services
to the Fund;
NOW, THEREFORE, in consideration of the promises and covenants
contained herein, the Custodian and the Fund hereby agree as follows:
1. The existing Section 3.13 of the Custodian Contract shall be amended
and restated in its entirety to read as follows:
3.13 Tax Law.
(a) United States Taxes. The Custodian shall have no
responsibility or liability for any obligations now or
hereafter imposed on the Fund or the Custodian as custodian of
the Fund by the tax law of the United States of America or any
state or political subdivision thereof. The Custodian will be
responsible for informing the Fund of the income received by
the Fund which is United States source income and which is not
United States source income.
(b) Claiming for Exemption or Refund under the Tax Laws of
Non-United States Jurisdictions. The sole responsibility of
the Custodian with regard to the tax laws of non-United States
jurisdictions shall be to identify the income of the Fund
which has been subject to withholding and other tax
assessments or other governmental charges by such
jurisdictions and the amount thereof and to use reasonable
efforts to assist the Fund with respect to any claim for
exemption or refund of such charges that can be made on behalf
of the Fund.
2. The existing Article 8 of the Custodian Contract shall be amended and
restated in its entirety to read as follows:
8. Duties of Custodian with Respect to the Books of
Account and Calculation of Net Income. The Custodian
shall keep the books of account of each Portfolio of
the Fund. Until otherwise directed by Proper
Instructions, the Custodian shall compute the net
asset value per share of the outstanding shares of
each Portfolio of Fund. The Custodian shall also
calculate daily the net income of each Portfolio of
<PAGE>
the Fund as described in the Fund's currently
effective prospectus for such Portfolio and shall
advise the Fund and the Transfer Agent daily of the
total amounts of such net income and, if instructed
in writing by an officer of the Fund to do so, shall
advise the Transfer Agent periodically of the
division of such net income among its various
components. The calculation of the net asset value
per share and the daily income of each Portfolio of
the Fund shall be made at the time or times described
from time to time in the Fund's currently effective
prospectus for such Portfolio.
3. Except as specifically superseded or modified herein, the terms and
provisions of the Custodian Contract shall continue to apply with full force and
effect.
IN WITNESS WHEREOF, each of the parties has caused this amendment to be
executed as a sealed instrument in its name and behalf by its duly authorized
representative as of this first day of July, 1996.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
Name: Ronald E. Logue
Title: Executive Vice President
THE PIERPONT FUNDS
By: /s/ Matthew Healey
Matthew Healey, Chairman and
Chief Executive Officer
JPM506
<PAGE>
The Pierpont Funds
461 Fifth Avenue
New York, New York 10017
(212) 685-2547
September 27, 1993
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Ladies and Gentlemen:
Re: Custodian Contract and Transfer Agency and Service Agreement
This is to advise you that the Board of Trustees of The Pierpont Funds (the
"Fund") has established and organized four new series of shares of beneficial
interest: The Pierpont U.S. Stock Fund, The Pierpont Diversified Fund, The
Pierpont International Bond Fund and The Pierpont Emerging Markets Equity Fund
(collectively the "Portfolios"). In accordance with the additional funds
provisions in Article 16 of the Custodian Contract dated December 29, 1992 and
in Section 10.01 of the Transfer Agency and Service Agreement dated January 4,
1993 between the Fund and State Street Bank and Trust Company ("State Street"),
the Fund hereby requests that State Street act as Custodian and Transfer Agent
for the Portfolios under the terms of the respective contracts.
Please indicate your acceptance of the foregoing by executing the eight
originals of this letter agreement, returning four to the Fund and retaining
four agreements for your records.
Very truly yours,
By /s/ Carol R. Schepp
Carol R. Schepp
Senior Vice President
Agreed to this 27th day of September, 1993
STATE STREET BANK AND TRUST COMPANY
By /s/ Ronald E. Logue
Executive Vice President
JPM259
<PAGE>
The Pierpont Funds
6 St. James Avenue
Boston, Massachusetts 02116
(617) 423-0800
March 10, 1994
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Ladies and Gentlemen:
Re: Custodian Contract and Transfer Agency and Service Agreement
This is to advise you that the Board of Trustees of The Pierpont Funds (the
"Fund") has established and organized a new series of shares of beneficial
interest, The Pierpont New York Total Return Bond Fund (the "Portfolio"). In
accordance with the additional funds provisions in Article 16 of the Custodian
Contract dated December 29, 1992, as amended, and in Section 10.01 of the
Transfer Agency and Service Agreement dated January 4, 1993, as amended, between
the Fund and State Street Bank and Trust Company ("State Street"), the Fund
hereby requests that State Street act as Custodian and Transfer Agent for the
Portfolio under the terms of the respective contracts.
Please indicate your acceptance of the foregoing by executing the eight
originals of this letter agreement, returning four to the Fund and retaining
four agreements for your records.
Very truly yours,
By /s/ James B. Craver
James B. Craver
Secretary and Treasurer
Agreed to this 10th day of March, 1994
STATE STREET BANK AND TRUST COMPANY
By /s/ Ronald E. Logue
Executive Vice President
JPM259
<PAGE>
The Pierpont Funds
6 St. James Avenue
Boston, Massachusetts 02116
(617) 423-0800
April 30, 1996
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Ladies and Gentlemen:
Re: Custodian Contract and Transfer Agency and Service Agreement
This is to advise you that the Board of Trustees of The Pierpont Funds (the
"Fund") has established and organized three new series of shares of beneficial
interest (The Pierpont European Equity Fund, The Pierpont Japan Equity Fund and
The Pierpont Asia Growth Fund) (the "Portfolios"). In accordance with the
additional funds provisions in Article 16 of the Custodian Contract dated
December 29, 1992, as amended, and in Section 10.01 of the Transfer Agency and
Service Agreement dated January 4, 1993, as amended, between the Fund and State
Street Bank and Trust Company ("State Street"), the Fund hereby requests that
State Street act as Custodian and Transfer Agent for the Portfolios under the
terms of the respective contracts.
Please indicate your acceptance of the foregoing by executing the eight
originals of this letter agreement, returning four to the Fund and retaining
four agreements for your records.
Very truly yours,
By /s/ Thomas M. Lenz
Thomas M. Lenz
Secretary
Agreed to as of the 1st day of May, 1996
STATE STREET BANK AND TRUST COMPANY
By /s/ Ronald E. Logue
Executive Vice President
JPM259
<PAGE>
The JPM Pierpont Funds
60 State Street, Suite 1300
Boston, Massachusetts 02109
(617) 557-0700
December 18, 1996
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Ladies and Gentlemen:
Re: Custodian Contract and Transfer Agency and Service Agreement
This is to advise you that the Board of Trustees of The JPM Pierpont Funds (the
"Fund") has established and organized a new series of shares of beneficial
interest, The JPM Pierpont International Opportunities (the "Portfolio"). In
accordance with the additional funds provisions in Article 16 of the Custodian
Contract dated December 29, 1992, as amended, and in Section 10.01 of the
Transfer Agency and Service Agreement dated January 4, 1993, as amended, between
the Fund and State Street Bank and Trust Company ("State Street"), the Fund
hereby requests that State Street act as Custodian and Transfer Agent for the
Portfolio under the terms of the respective contracts.
Please indicate your acceptance of the foregoing by executing the eight
originals of this letter agreement, returning four to the Fund and retaining
four agreements for your records.
Very truly yours,
By /s/ Richard W. Ingram
Richard W. Ingram
President and Treasurer
Agreed to as of the 18th day of December, 1996
STATE STREET BANK AND TRUST COMPANY
By
Executive Vice President
JPM259
THE PIERPONT FUNDS
CO-ADMINISTRATION AGREEMENT
CO-ADMINISTRATION AGREEMENT, dated as of August 1, 1996, by and between
The Pierpont Funds, a Massachusetts business trust having a Declaration of Trust
on file with the office of Secretary of State of the Commonwealth of
Massachusetts (the "Trust"), and Funds Distributor, Inc., a Massachusetts
corporation (the "Co-Administrator").
W I T N E S S E T H:
WHEREAS, the Trust is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940 (collectively with
the rules and regulations promulgated thereunder, the "1940 Act");
WHEREAS, the Shares of Beneficial Interest (par value $0.001 per share)
of the Trust (the "Shares") are divided into multiple series (together with any
series which may in the future be established, the "Series" or the "Fund"); and
WHEREAS, the Trust wishes to engage the Co-Administrator to provide
certain administrative and management services, and the Co-Administrator is
willing to provide such administrative and management services to the Trust and
each Series, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of the Co-Administrator. Subject to the general direction and
control of the Board of Trustees of the Trust, the Co-Administrator shall
perform the following administrative and management services: (a) providing or
obtaining office space, equipment and clerical personnel necessary for
maintaining the organization of the Trust, including a principal office in
Massachusetts, and for performing the administrative and management functions
herein set forth; (b) arranging for Directors, officers and employees of the
Co-Administrator or its agents, reasonably acceptable to the Trustees, to serve
as Trustees, officers or agents of the Trust and perform the duties incident to
their office, if duly elected or appointed to such positions and subject to
their individual consent and to any limitations imposed by law; (c) preparing
such reports, applications and documents (including reports regarding the sale
and redemption of Shares as reported by the Trust's transfer agent as may be
required in order to comply with state securities laws) as may be necessary or
desirable to register Shares with state securities authorities, monitoring the
sale of Shares as reported by the Trust's transfer agent for compliance with
state securities laws, and filing with the appropriate state securities
authorities the registration statements and reports for the Trust and the Shares
and all amendments thereto, as may be necessary or convenient to register and
keep effective the Trust and the Shares with
1
<PAGE>
state securities authorities to enable the Trust to make a continuous offering
of Shares; (d) reviewing and filing with the National Association of Securities
Dealers all marketing and sales literature provided to the Co-Administrator on
behalf of the Trust; and (e) maintaining books and records of the Trust related
to the foregoing. In the performance of its duties under this Agreement, the
Co-Administrator will comply with the provisions of the Declaration of Trust and
By-Laws of the Trust and the Trust's stated investment objectives, policies and
restrictions and will use its best efforts to safeguard and promote the welfare
of the Trust and to comply with other policies which the Board of Trustees may
from time to time determine. Notwithstanding the foregoing, the Co-Administrator
shall not be deemed to have assumed any duties with respect to this Agreement,
including, without limitation, any responsibility for the management of the
Trust's assets or the rendering of investment advice and supervision with
respect thereto, nor shall the Co-Administrator be deemed to have assumed or
have any responsibility with respect to functions specifically assumed by any
transfer agent, custodian or other administrative service provider of the Trust.
The Co-Administrator undertakes to comply with all applicable requirements of
the federal securities laws and any other laws, rules and regulations of
governmental authorities having jurisdiction with respect to the duties to be
performed by it hereunder.
2. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Co-Administrator hereby agrees that all records which it
maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any such records upon the Trust's request.
3. Allocation of Charges and Expenses. The Co-Administrator shall pay
the entire salaries and wages of all of the Trust's Trustees, officers and
agents who devote part or all of their time to the affairs of the
Co-Administrator or its affiliates, and the wages and salaries of such persons
shall not be deemed to be expenses incurred by the Trust for purposes of this
Section 3. Except as provided in the foregoing sentence, the Co-Administrator
shall not pay other expenses relating to the Trust including, without
limitation, compensation of Trustees not affiliated with the Co-Administrator;
governmental fees; interest charges; taxes; membership dues in the Investment
Company Institute allocable to the Trust; fees and expenses of the Trust's
independent auditors, of legal counsel and of any transfer agent, distributor,
shareholder servicing agent, registrar or dividend disbursing agent of the
Trust; expenses of distributing and redeeming Shares and servicing shareholder
accounts; expenses of preparing, printing and mailing prospectuses and
statements of additional information, reports, notices, proxy statements and
reports to shareholders and governmental officers and commissions; expenses of
preparing and mailing agendas and supporting documents for meetings of Trustees
and committees of Trustees; expenses connected with the execution, recording and
settlement of portfolio security transactions; insurance premiums; fees and
expenses of the Trust's custodian for all services to the Trust, including
safekeeping of funds and securities and maintaining required books and accounts;
expenses of calculating the net asset value of the Shares; expenses of
shareholder meetings; and expenses relating to the issuance, registration and
qualification of Shares.
4. Compensation of Co-Administrator. For the services to be rendered
and the facilities to be provided by the Co-Administrator hereunder, the
Co-Administrator shall receive a fee from each such Series of the Trust as
agreed by the Trust and the Co-Administrator from time to time
2
<PAGE>
as set forth on Schedule A attached hereto. This fee will be payable as agreed
by the Trust and the Co-Administrator, but no more frequently than monthly.
5. Limitation of Liability of the Co-Administrator. The
Co-Administrator shall not be liable for any error of judgment or mistake of law
or for any act or omission in the administration or management of the Trust or
the performance of its duties hereunder, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of the
reckless disregard of its obligations and duties hereunder. As used in this
Section 5, the term "Co-Administrator" shall include Funds Distributor, Inc.
and/or any of its affiliates and the Directors, officers and employees of Funds
Distributor, Inc. and/or of its affiliates.
6. Activities of the Co-Administrator. The services of the
Co-Administrator to the Trust are not to be deemed to be exclusive, the
Co-Administrator being free to render administrative and/or other services to
other parties. It is understood that Trustees, officers, and shareholders of the
Trust are or may become interested in the Co-Administrator and/or any of its
affiliates, as Directors, officers, employees, or otherwise, and that Directors,
officers and employees of the Co-Administrator and/or any of its affiliates are
or may become similarly interested in the Trust and that the Co-Administrator
and/or any of its affiliates may be or become interested in the Trust as a
shareholder or otherwise.
7. Termination. This Agreement may be terminated as to any Series at
any time, without the payment of any penalty, by the Board of Trustees of the
Trust or by the Co-Administrator, in each case on not more than 60 days' nor
less than 30 days' written notice to the other party.
8. Subcontracting by the Co-Administrator. The Co-Administrator may
subcontract for the performance of its obligations hereunder with any one or
more persons; provided, however, that the Co-Administrator may subcontract
hereunder only with the prior consent of the Trustees of the Trust; and
provided, further, that, unless the Trust otherwise expressly agrees in writing,
the Co-Administrator shall be as fully responsible to the Trust for the acts and
omissions of any subcontractor as it would be for its own acts or omissions.
9. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
10. Amendments. This Agreement may be amended by only mutual written
consent.
11. Confidentiality. The Co-Administrator agrees on behalf of itself
and its employees to treat confidentially and as proprietary information of the
Trust all records and other information not otherwise publicly available
relative to the Trust and its prior, present or potential shareholders and not
to use such records and information for any purpose other than performance of
its responsibilities and duties hereunder, except after prior notification to
and approval in writing by the Trust, which approval shall not be unreasonably
withheld and may not be withheld where the Co-Administrator may be exposed to
civil or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Trust.
3
<PAGE>
12. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. Should any part of this Agreement be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors, to the extent
permitted by law.
13. Notice. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Co-Administrator at 60 State
Street, 13th Floor, Boston, Massachusetts 02109, Attention: President with a
copy to General Counsel; or (2) to the Trust at 60 State Street, 13th Floor,
Boston, Massachusetts 02109, Attention: Treasurer, or at such other address as
either party may from time to time specify to the other party pursuant to this
section, with a copy to Morgan Guaranty Trust Company of New York, 522 Fifth
Avenue, New York, New York 10036, Attention: Funds Management.
14. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written. The
undersigned officer of the Trust has executed this Agreement not individually,
but as an officer of the Trust under the Trust's Declaration of Trust, dated
November 4, 1992 as amended, and the obligations of this Agreement are not
binding upon any of the Trustees or shareholders of the Trust individually, but
bind only the Trust estate.
THE PIERPONT FUNDS
By /s/ John E. Pelletier
John E. Pelletier, Vice
President and Secretary
FUNDS DISTRIBUTOR, INC.
By /s/ Marie E. Connolly
Marie E. Connolly, President and
Chief Executive Officer
PPADMI3
4
<PAGE>
Schedule A
The Co-Administrator's annual fee charged to and payable by each
Covered Entity as defined below is its share of an annual complex-wide charge.
The annual complex-wide charge is:
(a) $425,000 for all Covered Entities, provided that such charge shall be
increased by $5,000 for each Covered Entity in excess of 100, plus
(b) out-of-pocket charges for any services subcontracted pursuant to
co-administration agreements with Covered Entities.
The portion of this charge payable by each Covered Entity is (i) in the case of
any charges described in paragraph (b) directly attributable to a particular
Covered Entity, the amount attributable to such Covered Entity, plus (ii) in the
case of all other amounts, the amount determined by the proportionate share that
such Covered Entity's net assets bear to the total net assets of the Covered
Entities.
A Covered Entity is any series of The Pierpont Funds, The JPM Institutional
Funds, The JPM Advisor Funds, the Portfolios in which they invest, and each
other current or future mutual fund (or series thereof) for which both (1) a tax
return is filed with the Internal Revenue Service under United States tax law
and (2) Morgan Guaranty Trust Company of New York provides investment advice
and/or administrative services and the Co-Administrator provides administration
services.
Approved: July 11, 1996
Effective August 1, 1996
PPADMI3
THE PIERPONT FUNDS
RESTATED SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT originally made as of the 23rd day of December 1992 restated
as of July 7, 1994 between THE PIERPONT FUNDS, an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts (the "Trust"), and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a New York trust company ("Morgan").
W I T N E S S E T H:
WHEREAS, the Trust is a diversified open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, transactions in shares of the Trust ("Shares") may be made by
investors who are using the services of a financial institution which is acting
as shareholder servicing agent pursuant to an agreement with the Trust; and
WHEREAS, Morgan wishes to act as the shareholder servicing agent for its
customers and for other investors in the Trust who are customers of an Eligible
Institution as contemplated by the currently effective prospectus of the
respective Series of the Trust (the "Customers") in performing certain
administrative functions in connection with purchases and redemptions of Shares
from time to time upon the order and for the account of Customers and to provide
related services to Customers in connection with their investments in the Trust;
and
WHEREAS, it is in the interest of the Trust to make the shareholder
services of Morgan available to Customers who are or may become shareholders of
the Trust; and
NOW, THEREFORE, the Trust and Morgan hereby agree as follows:
1. Appointment. Morgan hereby agrees to perform certain shareholder
services as agent for Customers with respect to each Fund (as defined in the
next sentence) as hereinafter set forth. As used herein, a "Fund" means the
assets and liabilities of the Trust attributable to any series of Shares as may
be created from time to time by the Trustees of the Trust and to which the Trust
and Morgan agree this Agreement shall apply.
2. Services to be Performed.
2.1. Shareholder Services. Morgan shall be responsible for performing
shareholder account administrative and servicing functions, which shall include
without limitation:
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<PAGE>
(a) answering Customer inquiries regarding account status and history, the
manner in which purchases and redemptions of the Shares may be effected, and
certain other matters pertaining to the Trust; (b) assisting Customers in
designating and changing dividend options, account designations and addresses;
(c) providing necessary personnel and facilities to coordinate the establishment
and maintenance of shareholder accounts and records with the Trust's transfer
agent; (d) receiving Customers' purchase and redemption orders on behalf of, and
transmitting such orders to the Trust's transfer agent; (e) arranging for the
wiring or other transfer of funds to and from Customer accounts in connection
with Customer orders to purchase or redeem Shares; (f) verifying purchase and
redemption orders, transfers among and changes in Customer-designated accounts;
(g) informing the distributor of the Trust of the gross amount of purchase and
redemption orders for Shares; (h) monitoring the activities of the Trust's
transfer agent related to Customers' accounts, and to statements, confirmations
or other reports furnished to Customers by the Trust's transfer agent; and (i)
providing such other related services as the Trust or a Customer may reasonably
request, to the extent permitted by applicable law. Morgan shall provide all
personnel and facilities necessary in order for it to perform the functions
contemplated by this paragraph with respect to Customers.
2.2 Standard of Services. All services to be rendered by Morgan hereunder
shall be performed in a professional, competent and timely manner subject to the
supervision of the Trustees of the Trust. The details of the operating standards
and procedures to be followed by Morgan in the performance of the services
described above shall be determined from time to time by agreement between
Morgan and the Trust.
3. Fees. As full compensation for the services described in Section 2
hereof and expenses incurred by Morgan, the Trust shall pay Morgan a fee at an
annual rate of the daily net asset values of each Fund's shares owned by or for
Customers and attributable to the Trust as set forth on Schedule A attached
hereto. This fee will be computed daily and will be payable as agreed by the
Trust and Morgan, but no more frequently than monthly.
4. Information Pertaining to the Shares; Etc. Morgan and its officers,
employees and agents are not authorized to make any representations concerning
the Trust or the Shares except to communicate to Customers accurately factual
information contained in the Fund's Prospectus and Statement of Additional
Information and objective historical performance information. Morgan shall act
as agent for Customers only in furnishing information regarding the Trust or the
Shares and shall have no authority to act as agent for the Trust in its capacity
as shareholder servicing agent hereunder.
During the term of this Agreement, the Trust agrees to furnish Morgan all
prospectuses, statements of additional information, proxy statements, reports to
shareholders, sales literature, or other material the Trust will distribute to
shareholders of each Fund or the public, which refer in any way to Morgan, and
Morgan agrees to furnish the Trust all material prepared for Customers, in each
case prior to use thereof,
2
<PAGE>
and not to use such material if the other party reasonably objects in
writing within five business days (or such other time as may be mutually agreed
in writing) after receipt thereof. In the event of termination of this
Agreement, the Trust will continue to furnish to Morgan copies of any of the
above-mentioned materials which refer in any way to Morgan. The Trust shall
furnish or otherwise make available to Morgan such other information relating to
the business affairs of the Trust as Morgan at any time, or from time to time,
reasonably requests in order to discharge its obligations hereunder.
Nothing in this Section 4 shall be construed to make the Trust liable for
the use of any information about the Trust which is disseminated by Morgan.
5. Use of Morgan's Name. The Trust shall not use the name of Morgan in any
prospectus, sales literature or other material relating to the Trust in a manner
not approved by Morgan prior thereto in writing; provided, however, that the
approval of Morgan shall not be required for any use of its name which merely
refers in accurate and factual terms to its appointment hereunder or as
investment advisor to the Trust or which is required by the Securities and
Exchange Commission or any state securities authority or any other appropriate
regulatory, governmental or judicial authority; provided, further, that in no
event shall such approval be unreasonably withheld or delayed.
6. Use of the Fund's Name. Morgan shall not use the name of the Trust on
any checks, bank drafts, bank statements or forms for other than internal use in
a manner not approved by the Trust prior thereto in writing; provided, however,
that the approval of the Trust shall not be required for the use of the Trust's
name in connection with communications permitted by Sections 2 and 4 hereof or
for any use of the Trust's name which merely refers in accurate and factual
terms to Morgan's role hereunder or as investment advisor to the Trust or which
is required by the Securities and Exchange Commission or any state securities
authority or any other appropriate regulatory, governmental or judicial
authority; provided, further, that in no event shall such approval be
unreasonably withheld or delayed.
7. Security. Morgan represents and warrants that the various procedures and
systems which it has implemented with regard to safeguarding from loss or damage
attributable to fire, theft or any other cause any Trust records and other data
and Morgan's records, data, equipment, facilities and other property used in the
performance of its obligations hereunder are adequate and that it will make such
changes therein from time to time as in its judgment are required for the secure
performance of its obligations hereunder. The parties shall review such systems
and procedures on a periodic basis, and the Trust shall from time to time
specify the types of records and other data of the Trust to be safeguarded in
accordance with this Section 7.
8. Compliance with Laws; etc. Morgan assumes no responsibilities under this
Agreement other than to render the services called for hereunder, on the terms
and conditions provided herein. Morgan shall comply with all applicable federal
and state
3
<PAGE>
laws and regulations. Morgan represents and warrants to the Trust that
the performance of all its obligations hereunder will comply with all applicable
laws and regulations, the provisions of its charter documents and by-laws and
all material contractual obligations binding upon Morgan. Morgan furthermore
undertakes that it will promptly inform the Trust of any change in applicable
laws or regulations (or interpretations thereof) which would prevent or impair
full performance of any of its obligations hereunder.
9. Force Majeure. Morgan shall not be liable or responsible for delays or
errors by reason of circumstances beyond its control, including, but not limited
to, acts of civil or military authority, national emergencies, labor
difficulties, fire, mechanical breakdown, flood or catastrophe, Acts of God,
insurrection, war, riots or failure of communication or power supply.
10. Indemnification. 10.1. Indemnification of Morgan. The Trust will
indemnify and hold Morgan harmless, from all losses, claims, damages,
liabilities or expenses (including reasonable fees and disbursements of counsel)
from any claim, demand, action or suit (collectively, "Claims") (a) arising in
connection with misstatements or omissions in each Fund's Prospectus, actions or
inactions by the Trust or any of its agents or contractors or the performance of
Morgan's obligations hereunder and (b) not resulting from the willful
misfeasance, bad faith, or gross negligence of Morgan, its officers, employees
or agents, in the performance of Morgan's duties or from reckless disregard by
Morgan, its officers, employees or agents of Morgan's obligations and duties
under this Agreement. Notwithstanding anything herein to the contrary, the Trust
will indemnify and hold Morgan harmless from any and all losses, claims,
damages, liabilities or expenses (including reasonable counsel fees and
expenses) resulting from any Claim as a result of Morgan's acting in accordance
with any written instructions reasonably believed by Morgan to have been
executed by any person duly authorized by the Trust, or as a result of acting in
reliance upon any instrument or stock certificate reasonably believed by Morgan
to have been genuine and signed, countersigned or executed by a person duly
authorized by the Trust, excepting only the gross negligence or bad faith of
Morgan.
In any case in which the Trust may be asked to indemnify or hold Morgan
harmless, the Trust shall be advised of all pertinent facts concerning the
situation in question and Morgan shall use reasonable care to identify and
notify the Trust promptly concerning any situation which presents or appears
likely to present a claim for indemnification against the Trust. The Trust shall
have the option to defend Morgan against any Claim which may be the subject of
indemnification under this Section 10.1. In the event that the Trust elects to
defend against such Claim, the defense shall be conducted by counsel chosen by
the Trust and reasonably satisfactory to Morgan. Morgan may retain additional
counsel at its expense. Except with the prior written consent of the Trust,
Morgan shall not confess any Claim or make any compromise in any case in which
the Trust will be asked to indemnify Morgan.
4
<PAGE>
10.2. Indemnification of the Trust. Without limiting the rights of the
Trust under applicable law, Morgan will indemnify and hold the Trust harmless
from all losses, claims, damages, liabilities or expenses (including reasonable
fees and disbursements of counsel) from any Claim (a) resulting from the willful
misfeasance, bad faith or gross negligence of Morgan, its officers, employees,
or agents, in the performance of Morgan's duties or from reckless disregard by
Morgan, its officers, employees or agents of Morgan's obligations and duties
under this Agreement, and (b) not resulting from Morgan's actions in accordance
with written instructions reasonably believed by Morgan to have been executed by
any person duly authorized by the Trust, or in reliance upon any instrument or
stock certificate reasonably believed by Morgan to have been genuine and signed,
countersigned or executed by a person authorized by the Trust.
In any case in which Morgan may be asked to indemnify or hold the Trust
harmless, Morgan shall be advised of all pertinent facts concerning the
situation in question and the Trust shall use reasonable care to identify and
notify Morgan promptly concerning any situation which presents or appears likely
to present a claim for indemnification against Morgan. Morgan shall have the
option to defend the Trust against any Claim which may be the subject of
indemnification under this Section 10.2. In the event that Morgan elects to
defend against such Claim, the defense shall be conducted by counsel chosen by
Morgan and reasonably satisfactory to the Trust. The Trust may retain additional
counsel at its expense. Except with the prior written consent of Morgan, the
Trust shall not confess any Claim or make any compromise in any case in which
Morgan will be asked to indemnify the Trust.
10.3. Survival of Indemnities. The indemnities granted by the parties in
this Section 10 shall survive the termination of this Agreement.
11. Insurance. Morgan shall maintain reasonable insurance coverage against
any and all liabilities which may arise in connection with the performance of
its duties hereunder.
12. Further Assurances. Each party agrees to perform such further acts and
execute further documents as are necessary to effectuate the purposes hereof.
13. Termination. This Agreement shall continue in effect for a period of
one year and may thereafter be renewed by the Trustees of the Trust; provided,
however, that this Agreement may be terminated by the Trust at any time without
the payment of any penalty, by the Trustees of the Trust or by vote of a
majority of the outstanding voting securities (as defined in the 1940 Act) of
the Trust, upon not less than six (6) months' written notice to Morgan or by
Morgan at any time, without the payment of any penalty, on not less than ninety
(90) days' written notice to the Trust. This Agreement shall terminate
automatically in the event of its assignment (as defined in the 1940 Act).
5
<PAGE>
14. Subcontracting by Morgan. Morgan may subcontract for the performance of
its obligations hereunder with any one or more persons, including but not
limited to any one or more persons which is an affiliate of Morgan; provided
however, unless the Trust otherwise expressly agrees in writing, Morgan shall be
as fully responsible to the Trust for the acts and omissions of any
subcontractor as it would be for its own acts or omissions.
15. Nothing in this Agreement shall limit or restrict the right of Morgan
to engage in any other business or to render services of any kind to any other
corporation, firm, individual or association.
16. Changes; Amendments. This Agreement may be amended only by mutual
written consent.
17. Notices. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to Morgan at Morgan Guaranty Trust Company
of New York, 9 West 57th Street, 10019, Attention: Managing Director, Funds
Management Division, or (2) to the Trust at The Pierpont Funds c/o Signature
Broker-Dealer Services, Inc., 6 St. James Avenue, Boston, Massachusetts 02116,
Attention: Treasurer, or at such other address as either party may designate by
notice to the other party.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first
written.
THE PIERPONT FUNDS
By /s/ James B. Craver
James B. Craver
Secretary and Treasurer
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By /s/ Kathleen H. Tripp
Kathleen H. Tripp
Vice President
6
<PAGE>
Schedule A
Shareholder Servicing Fees
The JPM Pierpont Money Market Fund
The JPM Pierpont Treasury Money Market Fund
The JPM Pierpont Tax Exempt Money Market Fund
0.15% of the average daily net asset value of Fund shares
owned by or for Customers up to $2 billion; 0.10% thereafter
The JPM Pierpont Short Term Bond Fund
The JPM Pierpont Bond Fund
The JPM Pierpont Tax Exempt Bond Fund
The JPM Pierpont New York Total Return Bond Fund
0.20% of the average daily net asset value of Fund shares
owned by or for Customers
The JPM Pierpont Equity Fund
The JPM Pierpont Capital Appreciation Fund
The JPM Pierpont International Equity Fund
The JPM Pierpont Emerging Markets Equity Fund
The JPM Pierpont Diversified Fund
The JPM Pierpont European Equity Fund
The JPM Pierpont Japan Equity Fund
The JPM Pierpont Asia Growth Fund
The JPM Pierpont Global Strategic Income Fund
The JPM Pierpont International Opportunities Fund
0.25% of the average daily net asset value of Fund shares
owned by or for Customers
PFSSA1
Approved October 10, 1996
Effective December 27, 1996
(supersedes 2/28/96 schedule)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
THE PIERPONT FUNDS
and
STATE STREET BANK AND TRUST COMPANY
1C193
WP2319C
<PAGE>
TABLE OF CONTENTS
Page
Article 1 Terms of Appointment; Duties of the Bank 2
Article 2 Fees and Expenses 5
Article 3 Representations and Warranties of the Bank 6
Article 4 Representations and Warranties of the Fund 7
Article 5 Data Access and Proprietary Information 8
Article 6 Indemnification 10
Article 7 Standard of Care 13
Article 8 Covenants of the Fund and the Bank 13
Article 9 Termination of Agreement 16
Article 10 Additional Funds 16
Article 11 Assignment 16
Article 12 Amendment 17
Article 13 Massachusetts Law to Apply 17
Article 14 Merger of Agreement 17
Article 15 Limitations of Liability of the Trustees
and the Shareholders 18
Article 16 Counterparts 18
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 4th day of January, 1993, by and between THE
PIERPONT FUNDS, a Massachusetts business trust, having its principal office and
place of business at 461 Fifth Avenue, New York, New York 10017 (the "Fund"),
and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company having
its principal office and place of business at 225 Franklin Street, Boston,
Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, between December 1, 1992 and July 15, 1993, the Fund has
established and has offered and continues to offer shares in nine series, 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 Treasury Money Market Fund, and The Pierpont Short Term Bond Fund
(each such series, together with all other series subsequently established by
the Fund and made subject to this Agreement in accordance with Article 10, being
herein referred to as a "Portfolio", and collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the
Bank as its transfer agent, dividend disbursing agent, custodian of certain
retirement plans and agent in connection with certain other activities, and the
Bank desires to accept such appointment;
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in this
Agreement, the Fund, on behalf of the Portfolios, hereby employs and appoints
the Bank to act as, and the Bank agrees to act as its transfer agent for the
authorized and issued shares of beneficial interest of the Fund representing
interests in each of the respective Portfolios ("Shares"), dividend disbursing
agent, custodian of certain retirement plans and agent in connection with any
accumulation, open-account or similar plans provided to the shareholders of each
of the respective Portfolios of the Fund ("Shareholders") and set out in the
currently effective prospectus and statement of additional information
("prospectus") of the Fund on behalf of the applicable Portfolio, including
without limitation any periodic investment plan or periodic withdrawal program.
1.02 The Bank agrees that it will perform the following
services:
(a) In accordance with procedures established from time to
time by agreement between the Fund on behalf of each of the Portfolios, as
applicable and the Bank, the Bank shall:
(i) Receive orders for the purchase of
Shares, and promptly deliver payment and appropriate
documentation thereof to the Custodian of the Fund
authorized pursuant to the Declaration of Trust of
the Fund (the "Custodian");
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<PAGE>
(ii) Pursuant to purchase orders, issue the
appropriate number of Shares and hold such Shares in
the appropriate Shareholder account;
(iii) Receive redemption requests and
redemption directions and deliver the
appropriate documentation thereof to the Custodian;
(iv) At the appropriate time as and when it
receives monies paid to it by the Custodian with
respect to any redemption, pay over or cause to be
paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(v) Effect transfers of Shares by the
registered owners thereof upon receipt of
appropriate instructions;
(vi) Prepare and transmit payments for
dividends and distributions declared by the Fund on
behalf of the applicable Portfolio;
(vii) Report abandoned property to the
various states as authorized by the Fund per policies
and principles agreed upon by the Fund and the Bank.
(viii) Maintain records of account for and
advise the Fund and its Shareholders as to the
foregoing; and
(ix) Record the issuance of Shares of the
Fund and maintain pursuant to SEC Rule 17Ad-10(e) a
record of the total number of Shares which are
authorized, based upon data provided to it by the
Fund, and issued and outstanding. The Bank shall
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<PAGE>
also provide the Fund on a regular basis with the
total number of Shares which are authorized and
issued and outstanding and shall have no obligation,
when recording the issuance of Shares, to monitor the
issuance of such Shares or to take cognizance of any
laws relating to the issue or sale of such Shares,
which functions shall be the sole responsibility of
the Fund.
(b) In addition to and neither in lieu nor in contravention of
the services set forth in the above paragraph (a), the Bank shall: (i) perform
the customary services of a transfer agent, dividend disbursing agent, custodian
of certain retirement plans and, as relevant, agent in connection with
accumulation, open-account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to: maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders, preparing and mailing confirmation
forms and statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in Shareholder
accounts, preparing and mailing activity statements for Shareholders, and
providing Shareholder account information
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<PAGE>
and (ii) provide a system which will enable the Fund to monitor the total number
of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in
writing those transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of transactions for
each State on the system prior to activation and thereafter monitor the daily
activity for each State. The responsibility of the Bank for the Fund's blue sky
State registration status is solely limited to providing the system referred to
above, the initial establishment of transactions subject to blue sky compliance
by the Fund and the reporting of such transactions to the Fund as provided
above.
(d) Procedures as to who shall provide certain of these
services in Article 1 may be established from time to time by agreement between
the Fund on behalf of each Portfolio and the Bank per the attached service
responsibility schedule. The Bank may at times perform only a portion of these
services and the Fund or its agent may perform these services on the Fund's
behalf.
Article 2 Fees and Expenses
2.01 For performance by the Bank pursuant to this Agreement,
the Fund agrees on behalf of each of the Portfolios to pay the Bank an annual
maintenance fee for each Shareholder account as set out in the initial fee
schedule attached hereto. Such fees and out-of-pocket expenses and advances
identified under Section 2.02 below may be changed from time to time subject to
mutual written agreement between the Fund and the Bank.
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<PAGE>
2.02 In addition to the fee paid under Section 2.01 above, the
Fund agrees on behalf of each of the Portfolios to reimburse the Bank for
out-of-pocket expenses, including but not limited to confirmation production,
postage, forms, telephone, microfilm, microfiche, tabulating proxies, records
storage or advances incurred by the Bank for the items set out in the fee
schedule attached hereto. In addition, any other expenses incurred by the Bank
at the request or with the consent of the Fund, will be reimbursed by the Fund
on behalf of the applicable Portfolio.
2.03 The Fund agrees on behalf of each of the Portfolios to
pay all fees and reimbursable expenses promptly following the receipt of the
respective billing notice. Procedures applicable to advance payment by the Fund
to the Bank of postage for mailing dividends, proxies, Fund reports and other
mailings to Shareholder accounts may be established from time to time by
agreement between the Fund and the Bank.
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and existing and in
good standing under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the
Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its
Charter and By-Laws to enter into and perform this Agreement.
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<PAGE>
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the
necessary facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.01 It is a business trust duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
4.02 It is empowered under applicable laws and by its Declaration of
Trust and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Declaration of Trust
and By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.04 It is an open-end management investment company registered under
the Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of 1933, as
amended on behalf of each of the Portfolios is currently effective and will
remain effective, and appropriate state securities law filings have been made
and the Fund will use its best efforts to continue to make such filings with
respect to all Shares of the Fund being offered for sale.
-7-
<PAGE>
Article 5 Data Access and Proprietary Information
5.01 The Fund acknowledges that the data bases, computer
programs, screen format, report formats, interactive design techniques, and
documentation manuals (collectively, "Proprietary Information") furnished to the
Fund by the Bank as part of the Fund's ability to access certain Fund-related
data ("Customer Data") maintained by the Bank on data bases under the control
and ownership of the Bank or other third party ("Data Access Services")
constitute copyrighted, trade secret, or other proprietary information of
substantial value to the Bank or other third party. In no event shall
Proprietary Information be deemed Customer Data. The Fund agrees to treat all
Proprietary Information as proprietary to the Bank and further agrees that it
shall not divulge any Proprietary Information to any person or organization
except as may be provided hereunder. Without limiting the foregoing, the Fund
agrees for itself and its employees and agents:
(a) to access Customer Data solely from
locations as may be designated in writing by the Bank
and solely in accordance with the Bank's applicable
user documentation;
(b) to refrain from copying or duplicating
in any way the Proprietary Information;
(c) to refrain from obtaining unauthorized
access to any portion of the Proprietary Information,
and if such access is inadvertently obtained, to
inform in a timely manner of such fact and
-8-
<PAGE>
dispose of such information in accordance with the
Bank's instructions;
(d) to refrain from causing or allowing
third-party data required hereunder from being
retransmitted to any other computer facility or other
location, except with the prior written consent of
the Bank;
(e) that the Fund shall have access only to
those authorized transactions agreed upon by the
parties;
(f) to honor all reasonable written
requests made by the Bank to protect at the Bank's
expense the rights of the Bank in Proprietary
Information at common law, under federal copyright
law and under other federal or state law.
Each party shall take reasonable efforts to advise its
employees of their obligations pursuant to this Article 5. The obligations of
this Article shall survive any earlier termination of this Agreement.
5.02 If the Fund notifies the Bank that any of the Data Access
Services do not operate in material compliance with the most recently issued
user documentation for such services, the Bank shall use its best efforts to
promptly correct such failure. Organizations from which the Bank may obtain
certain data included in the Data Access Services are solely responsible for the
contents of such data and the Fund agrees to make no claim against the Bank
arising out of the contents of such third-party data, including, but not limited
to, the accuracy
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thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE
SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS
AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE
EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.03 If the transactions available to the Fund include the
ability to originate electronic instructions to the Bank in order to (i) effect
the transfer or movement of cash of Shares or (ii) transmit Shareholder
information or other information (such transactions are known as "Customer
Originated Electronic Financial Instructions" or "COEFI"), then in such event
the Bank shall be entitled to rely on the validity and authenticity of such
instruction without undertaking any further inquiry as long as such instruction
is undertaken in conformity with security procedures established by the Bank
from time to time.
Article 6 Indemnification
6.01 The Bank shall not be responsible for, and the Fund shall
on behalf of the applicable Portfolio indemnify and hold the Bank harmless from
and against, any and all losses, damages, costs, charges, reasonable counsel
fees, payments, expenses and liability arising out of or attributable to any
claim, demand, action or suit in connection with:
(a) All actions of the Bank or its agent or subcontractors
required to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
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<PAGE>
(b) The Fund's lack of good faith, negligence or willful
misconduct which arise out of the breach of any representation or warranty of
the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or services which (i) are
received by the Bank or its agents or subcontractors, and (ii) have been
prepared, maintained or performed by the Fund or any other person or firm on
behalf of the Fund.
(d) The reliance on, or the carrying out by the Bank or
its agents or subcontractors of any instructions or requests of the Fund on
behalf of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any
requirement under the federal securities laws or regulations or the securities
laws or regulations of any state that such Shares be registered in such state or
in violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state unless any such violation results from failure of the system provided by
the Bank to Section 1.02 (b) to operate properly.
6.02 The Bank shall indemnify and hold the Fund harmless from
and against any and all losses, damages, costs, charges, reasonable counsel
fees, payments, expenses and liability arising out of or attributable to any
action or failure or omission to act by the Bank as a result of the Bank's lack
of good faith, negligence or willful misconduct.
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<PAGE>
6.03 At any time the Bank may apply to any officer of the Fund
for instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund on behalf of the applicable Portfolio for any
action taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel. The Bank, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document furnished by or
on behalf of the Fund, reasonably believed to be genuine and to have been signed
by the proper person or persons, or upon any instruction, information, data,
records or documents provided the Bank or its agents or subcontractors by
machine readable input, telex, CRT data entry or other similar means authorized
by the Fund, and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the Fund. The Bank, its
agents and subcontractors shall also be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper manual or
facsimile signatures of the officers of the Fund, and the proper
countersignature of any former transfer agent or former registrar, or of a
co-transfer agent or co-registrar.
6.04 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond
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<PAGE>
its control, or other causes reasonably beyond its control, such party
shall not be liable for damages to the other for any damages resulting from such
failure to perform or otherwise from such causes, provided that the Bank shall
use its best efforts to minimize the likelihood of all damage, loss of data,
delays and errors resulting from uncontrollable events, and if such damage, loss
of data, delays or errors occur, the Bank shall use its best efforts to mitigate
the effects of such occurrence.
6.05 Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of this Agreement or
for any consequential damages arising out of any act or failure to act
hereunder.
6.06 In order that the indemnification provisions contained in
this Article 6 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
Article 7 Standard of Care
7.01 The Bank shall at all times act in good faith and agrees
to use its best efforts within reasonable limits to
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<PAGE>
insure the accuracy of all services performed under this Agreement, but
assumes no responsibility and shall not be liable for loss or damage due to
errors unless said errors are caused by its negligence, bad faith, or willful
misconduct or that of its employees.
Article 8 Covenants of the Fund and the Bank
8.01 The Fund shall on behalf of each of the Portfolios
promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Trustees of the
Fund authorizing the appointment of the Bank and the execution and delivery of
this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the
Fund and all amendments thereto.
8.02 The Bank hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to the Fund for safekeeping of
stock certificates, check forms and facsimile signature imprinting devices, if
any; and for the preparation or use, and for keeping account of, such
certificates, forms and devices. The forms and documents used for the Fund or
its Shareholders shall be acceptable to the Fund.
8.03 The Bank shall keep records relating to the services to
be performed hereunder, in the form and manner as it may deem advisable and as
may be reasonably acceptable to the Fund. To the extent required by Section 31
of the Investment Company Act of 1940, as amended, and the Rules thereunder, the
Bank agrees that all such records prepared or maintained by the Bank relating to
the services to be performed by the Bank
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<PAGE>
hereunder are the property of the Fund and will be preserved, maintained
and made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
8.04 The Bank and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed to
any other person, except as may be required by law. Notice shall be given to the
other party a reasonable time in advance of any such disclosure. In addition, in
the case of any request or demand for the inspection of the Shareholder records
of the Fund, the Bank will notify the Fund promptly of receipt of such request
or demand and request instructions from an authorized officer of the Fund as to
such inspection. The Fund will within two business days furnish instructions to
the Bank. Pending receipt of such instructions, the Bank will not disclose such
Shareholder records and upon receipt the Bank will abide by such instructions.
Notwithstanding any other provision of this Agreement, in the event that (a) the
Fund instructs the Bank not to disclose such Shareholder records and the Bank
has furnished the Fund with an opinion of counsel that the Bank may be held
liable for the failure to disclose such Shareholder records, the Fund will
indemnify the Bank for any such liability, or (b) the Bank discloses such
Shareholder records without proper instructions from the Fund, the Bank shall
indemnify and hold the Fund harmless
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<PAGE>
from and against any and all losses, damages, costs, charges, reasonable
counsel fees, payments, expenses and liability arising out of or attributable to
such disclosure. The provision of Section 6.06 shall govern such
indemnification.
Article 9 Termination of Agreement
9.01 This Agreement may be terminated by either party upon one
hundred twenty (120) days written notice to the other.
9.02 Should the Fund exercise its right to terminate, all
out-of-pocket expenses associated with the movement of records and material will
be borne by the Fund on behalf of the applicable Portfolio(s). Additionally,
the Bank reserves the right to charge for any other reasonable expenses
associated with such termination.
Article 10 Additional Funds
10.01 In the event that the Fund establishes one or more
series of Shares in addition to 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 Treasury Money Market Fund, and
The Pierpont Short Term Bond Fund with respect to which it desires to have the
Bank render services as transfer agent under the terms hereof, it shall so
notify the Bank in writing, and if the Bank agrees in writing to provide such
services, such series of Shares shall become a Portfolio hereunder.
Article 11 Assignment
11.01 Except as provided in Section 11.03 below,
neither this Agreement nor any rights or obligations hereunder
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<PAGE>
may be assigned by either party without the written consent of the other party.
11.02 This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and assigns.
11.03 The Bank may, without further consent on the part of the
Fund, subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly registered as
a transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended ("Section 17A(c)(1)"), (ii) a BFDS subsidiary duly registered
as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS affiliate;
provided, however, that the Bank shall be as fully responsible to the Fund for
the acts and omissions of any subcontractor as it is for its own acts and
omissions.
Article 12 Amendment
12.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution
of the Trustees of the Fund.
Article 13 Massachusetts Law to Apply
13.01 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the Commonwealth
of Massachusetts.
Article 14 Merger of Agreement
14.01 This Agreement constitutes the entire agreement between
the parties hereto and supersedes any prior agreement with respect to the
subject matter hereof whether oral or written.
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<PAGE>
Article 15 Limitations of Liability of the Trustees and Shareholders
15.01 A copy of the Declaration of Trust of the Trust is on
file with the Secretary of the Commonwealth of Massachusetts, and notice is
hereby given that this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or Shareholders individually
but are binding only upon the assets and property of the Fund.
Article 16 Counterparts
16.01 This Agreement may be executed by the parties hereto on
any number of counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their behalf by and through their
duly authorized officers, as of the day and year first above written.
THE PIERPONT FUNDS
BY: /s/ Carol R. Schepp
Senior Vice President
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Ronald E. Logue
Executive Vice President
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<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Responsibility
Service Performed Bank Fund
1. Receives orders for the purchase of Shares. X
2. Hold Shares and hold Shares in
Shareholder accounts. X
3. Receive redemption requests. X
4. Effect transactions 1-3 above directly
with broker-dealers. N/A
5. Pay over monies to redeeming Shareholders. X
6. Effect transfers of Shares. X
7. Prepare and transmit dividends and distributions. X
8. Issue Replacement Certificates. N/A
9. Reporting of abandoned property. X
10. Maintain records of account. X
11. Maintain and keep a current and accurate
control book for each issue of securities. X
12. Mail proxies. X
13. Mail Shareholder reports. X
14. Mail prospectuses to current Shareholders. X
15. Withhold taxes on U.S. resident and
non-resident alien accounts. X
16. Prepare and file U.S. Treasury Department forms. X
17. Prepare and mail account and confirmation
statements for Shareholders. X
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<PAGE>
Responsibility
Service Performed Bank Fund
18. Provide Shareholder account information. X
19. Blue sky reporting. X
* Such services are more fully described in Article 1.02 (a), (b) and (c)
of the Agreement.
THE PIERPONT FUNDS
BY: /s/ Carol R. Schepp
Senior Vice President
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Ronald E. Logue
Executive Vice President
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<PAGE>
[logo] State Street [registered trademark]
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105-1713
STATE STREET BANK & TRUST COMPANY
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
The Pierpont Funds
General: Fees are comprised of a base fee, an annual per
shareholder account charge for account maintenance,
plus out-of-pocket and other agreed upon expenses.
Base Fee: There is a base fee of $5,000 per month for the
Pierpont Family of Funds.
Account
Maintenance: There is a minimum charge of $1,665 per fund per
month. Account maintenance fees for each fund are
as follows:
. Money Market Funds - Per Account, Per Year $20.00
. Daily Dividend Funds - Per Account, Per Year $18.00
. Non-daily Dividend Funds - Per Account, Per Year $15.00
The following features will each be assessed additional charges
as an add-on to the annual per account rate.
. Transmissions $300.00
. Super Selects $100.00
. Tape Jobs $150.00
. Spacs $25.00
These charges will be billed to Morgan Guaranty as servicing
agent for the Fund, as directed by authorized individuals.
Closed accounts - Per Account Per Month $0.10
Disaster Recovery/Emergency Backup - Per Account
Serviced, Per Year $0.25
The Pierpont Funds State Street Bank and Trust Co.
By: /s/ Thomas M. Lenz By: /s/ Indistinguishable
Title: Secretary Title: Vice President
Date: May 9, 1996 Date: May 9, 1996
<PAGE>
The Pierpont Funds
461 Fifth Avenue
New York, New York 10017
(212) 685-2547
September 27, 1993
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Ladies and Gentlemen:
Re: Custodian Contract and Transfer Agency and Service Agreement
This is to advise you that the Board of Trustees of The Pierpont Funds (the
"Fund") has established and organized four new series of shares of beneficial
interest: The Pierpont U.S. Stock Fund, The Pierpont Diversified Fund, The
Pierpont International Bond Fund and The Pierpont Emerging Markets Equity Fund
(collectively the "Portfolios"). In accordance with the additional funds
provisions in Article 16 of the Custodian Contract dated December 29, 1992 and
in Section 10.01 of the Transfer Agency and Service Agreement dated January 4,
1993 between the Fund and State Street Bank and Trust Company ("State Street"),
the Fund hereby requests that State Street act as Custodian and Transfer Agent
for the Portfolios under the terms of the respective contracts.
Please indicate your acceptance of the foregoing by executing the eight
originals of this letter agreement, returning four to the Fund and retaining
four agreements for your records.
Very truly yours,
By /s/ Carol R. Schepp
Carol R. Schepp
Senior Vice President
Agreed to this 27th day of September, 1993
STATE STREET BANK AND TRUST COMPANY
By /s/ Ronald E. Logue
Executive Vice President
JPM259
<PAGE>
The Pierpont Funds
6 St. James Avenue
Boston, Massachusetts 02116
(617) 423-0800
March 10, 1994
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Ladies and Gentlemen:
Re: Custodian Contract and Transfer Agency and Service Agreement
This is to advise you that the Board of Trustees of The Pierpont Funds (the
"Fund") has established and organized a new series of shares of beneficial
interest, The Pierpont New York Total Return Bond Fund (the "Portfolio"). In
accordance with the additional funds provisions in Article 16 of the Custodian
Contract dated December 29, 1992, as amended, and in Section 10.01 of the
Transfer Agency and Service Agreement dated January 4, 1993, as amended, between
the Fund and State Street Bank and Trust Company ("State Street"), the Fund
hereby requests that State Street act as Custodian and Transfer Agent for the
Portfolio under the terms of the respective contracts.
Please indicate your acceptance of the foregoing by executing the eight
originals of this letter agreement, returning four to the Fund and retaining
four agreements for your records.
Very truly yours,
By /s/ James B. Craver
James B. Craver
Secretary and Treasurer
Agreed to this 10th day of March, 1994
STATE STREET BANK AND TRUST COMPANY
By /s/ Ronald E. Logue
Executive Vice President
JPM259
<PAGE>
The Pierpont Funds
6 St. James Avenue
Boston, Massachusetts 02116
(617) 423-0800
April 30, 1996
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Ladies and Gentlemen:
Re: Custodian Contract and Transfer Agency and Service Agreement
This is to advise you that the Board of Trustees of The Pierpont Funds (the
"Fund") has established and organized three new series of shares of beneficial
interest (The Pierpont European Equity Fund, The Pierpont Japan Equity Fund and
The Pierpont Asia Growth Fund) (the "Portfolios"). In accordance with the
additional funds provisions in Article 16 of the Custodian Contract dated
December 29, 1992, as amended, and in Section 10.01 of the Transfer Agency and
Service Agreement dated January 4, 1993, as amended, between the Fund and State
Street Bank and Trust Company ("State Street"), the Fund hereby requests that
State Street act as Custodian and Transfer Agent for the Portfolios under the
terms of the respective contracts.
Please indicate your acceptance of the foregoing by executing the eight
originals of this letter agreement, returning four to the Fund and retaining
four agreements for your records.
Very truly yours,
By /s/ Thomas M. Lenz
Thomas M. Lenz
Secretary
Agreed to as of the 1st day of May, 1996
STATE STREET BANK AND TRUST COMPANY
By /s/ Ronald E. Logue
Executive Vice President
JPM259
<PAGE>
The JPM Pierpont Funds
60 State Street, Suite 1300
Boston, Massachusetts 02109
(617) 557-0700
December 18, 1996
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Ladies and Gentlemen:
Re: Custodian Contract and Transfer Agency and Service Agreement
This is to advise you that the Board of Trustees of The JPM Pierpont Funds (the
"Fund") has established and organized a new series of shares of beneficial
interest, The JPM Pierpont International Opportunities (the "Portfolio"). In
accordance with the additional funds provisions in Article 16 of the Custodian
Contract dated December 29, 1992, as amended, and in Section 10.01 of the
Transfer Agency and Service Agreement dated January 4, 1993, as amended, between
the Fund and State Street Bank and Trust Company ("State Street"), the Fund
hereby requests that State Street act as Custodian and Transfer Agent for the
Portfolio under the terms of the respective contracts.
Please indicate your acceptance of the foregoing by executing the eight
originals of this letter agreement, returning four to the Fund and retaining
four agreements for your records.
Very truly yours,
By /s/ Richard W. Ingram
Richard W. Ingram
President and Treasurer
Agreed to as of the 18th day of December, 1996
STATE STREET BANK AND TRUST COMPANY
By
Executive Vice President
JPM259
THE PIERPONT FUNDS
RESTATED ADMINISTRATIVE SERVICES AGREEMENT
RESTATED ADMINISTRATIVE SERVICES AGREEMENT, dated as of August 1, 1996, by
and between The Pierpont Funds, a Massachusetts business trust having a
Declaration of Trust on file with the office of Secretary of State of the
Commonwealth of Massachusetts (the "Trust"), and Morgan Guaranty Trust Company
of New York, a New York trust company ("Morgan").
W I T N E S S E T H:
WHEREAS, the Trust is engaged in business as an open-end investment company
registered under the Investment Company Act of 1940 (collectively with the rules
and regulations promulgated thereunder, the "1940 Act");
WHEREAS, the Shares of Beneficial Interest (par value $0.001 per share) of
the Trust (the "Shares") are divided into multiple series (such series together
with any other series which may in the future be established, the "Funds"); and
WHEREAS, the Trust wishes to engage Morgan to provide certain
administrative services for the Funds, and Morgan is willing to provide such
services for each Fund, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of Morgan.
1.1. Subject to the general direction and control of the Board of Trustees
of the Trust, Morgan shall perform such administrative and related services as
may from time to time be reasonably requested by the Trust, which shall include
without limitation: a) arranging for the preparation and filing of the Trust's
tax returns and preparing financial statements and other financial reports for
review by the Trust's independent auditors; b) coordinating the Trust's annual
audits; c) developing the budget and establishing the rate of expense accrual
for each Fund; d) overseeing the preparation by the Trust's transfer agent (the
"Transfer Agent") of tax information for shareholders; e) overseeing the Trust's
custodian (the "Custodian") and the Transfer Agent and other service providers,
including expense disbursement; verifying the calculation of performance data
for the Trust and its reporting to the appropriate tracking services; computing
the amount and monitoring the frequency of distributing each Fund's dividends
and capital gains distributions and confirming that they have been properly
distributed to the shareholders of record; and monitoring calculation of net
asset value of Shares by the
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<PAGE>
Custodian; f) taking responsibility for compliance with all applicable
federal securities and other regulatory requirements (other than state
securities registration and filing requirements); g) taking responsibility for
monitoring each Fund s status as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"); h) arranging for
preparation of agendas and supporting documents for and minutes of meetings of
Trustees, committees of Trustees, and shareholders; and i) maintaining books and
records relating to such services.
1.2. Morgan shall provide such other related services as the Trust may
reasonably request, to the extent permitted by applicable law. Morgan shall
provide all personnel and facilities necessary in order for it to provide the
services contemplated by this paragraph.
Morgan assumes no responsibilities under this Agreement other than to
render the services called for hereunder, on the terms and conditions provided
herein. In the performance of its duties under this Agreement, Morgan will
comply with the provisions of the Declaration of Trust and By-Laws of the Trust
and the stated investment objective, policies and restrictions of each Fund, and
will use its best efforts to safeguard and promote the welfare of the Trust, and
to comply with other policies which the Board of Trustees may from time to time
determine.
2. Books and Records. Morgan shall with respect to each Fund create and
maintain all records relating to its activities and obligations under this
Agreement in such manner as will meet the obligations of the Trust under the
1940 Act, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the Trust and shall
at all times during the regular business hours of Morgan be open for inspection
by duly authorized officers, employees or agents of the Securities and Exchange
Commission. In compliance with the requirements of Rule 31a-3 under the 1940
Act, Morgan hereby agrees that all records which it maintains for the Funds are
the property of the Trust and further agrees to surrender promptly to the Trust
any such records upon the Trust's request.
3. Opinion of the Trust's Independent Public Accountants. Morgan shall take
all reasonable action with respect to each Fund, as the Trust may from time to
time request, to obtain from year to year favorable opinions from the Trust's
independent public accountants with respect to its activities hereunder in
connection with the preparation of the Trust's registration statement on Form
N-1A, reports on Form N-SAR or other periodic reports to the Securities and
Exchange Commission and with respect to any other requirements of such
Commission.
4. Liaison with Independent Public Accountants. Morgan shall act as liaison
with the Trust's independent public accountants and shall provide, upon request,
account analyses, fiscal year summaries and other audit-related schedules.
Morgan shall take all reasonable action in the performance of its obligations
under this Agreement to assure that the necessary information is made available
to such accountants for the expression of their opinion as such may be required
by the Trust from time to time.
5. Allocation of Charges and Expenses. Morgan shall bear all of the
expenses incurred in connection with carrying out its duties hereunder. Each
Fund shall pay the usual, customary
2
<PAGE>
or extraordinary expenses incurred by the Fund or, as appropriate, the
Trust and allocable to the Fund, including without limitation compensation of
Trustees; federal and state governmental fees; interest charges; taxes;
membership dues in the Investment Company Institute allocable to the Trust; fees
and expenses of any provider other than Morgan of services to the Trust under a
co-administration agreement (the "Co-Administrator"), Morgan pursuant to the
Shareholder Servicing Agreement and this Agreement, Pierpont Group Inc. pursuant
to the Fund Services Agreement, independent auditors, legal counsel and of any
transfer agent, registrar or dividend disbursing agent of the Trust; expenses of
preparing, printing and mailing prospectuses and statements of additional
information, reports, notices, proxy statements and reports to shareholders and
governmental offices and commissions; expenses of preparing, printing and
mailing agendas and supporting documents for meetings of Trustees and committees
of Trustees; insurance premiums; fees and expenses of the Custodian for all
services to the Trust, including safekeeping of funds and securities and
maintaining required books and accounts; expenses of calculating the net asset
value of Shares; expenses of shareholder meetings; expenses relating to the
issuance, registration and qualification of Shares of the Trust; and litigation
and indemnification expenses.
6. Compensation of Morgan. For the services to be rendered and the expenses
to be borne by Morgan hereunder, the Trust shall pay Morgan a fee at an annual
rate as set forth on Schedule A attached hereto from each Fund. This fee will be
computed daily and will be payable as agreed by the Trust and Morgan, but no
more frequently than monthly.
7. Limitation of Liability of Morgan. Morgan shall not be liable for any
error of judgment or mistake of law or for any act or omission in the
performance of its duties hereunder, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties, or by reason of the
reckless disregard of its obligations and duties hereunder.
8. Activities of Morgan. The services of Morgan to the Trust are not to be
deemed to be exclusive, Morgan being free to engage in any other business or to
render services of any kind to any other corporation, firm, individual or
association.
9. Termination. This Agreement may be terminated as to any Fund at any
time, without the payment of any penalty, by the Board of Trustees of the Trust
or by Morgan, in each case on not more than 60 days' nor less than 30 days'
written notice to the other party.
10. Subcontracting by Morgan. Morgan may subcontract for the performance of
its obligations hereunder with any one or more persons; provided, however, that,
unless the Trust otherwise expressly agrees in writing, Morgan shall be as fully
responsible to the Trust for the acts and omissions of any subcontractor as it
would be for its own acts or omissions.
11. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
12. Amendments. This Agreement may be amended only by mutual written
consent.
3
<PAGE>
13. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements,
terminations, extensions or other understandings relating to Morgan's provision
of financial, fund accounting or administrative services for the Funds. The
captions in this Agreement are included for convenience of reference only and in
no way define or delimit any of the provisions hereof or otherwise affect their
construction or effect. Should any part of this Agreement be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement shall be binding and
shall inure to the benefit of the parties hereto and their respective
successors, to the extent permitted by law.
14. Notice. Any notice or other communication required to be given pursuant
to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid (1) to Morgan at Morgan Guaranty Trust Company
of New York, 522 Fifth Avenue, New York, New York 10036, Attention: Funds
Management, or (2) to the Trust at The Pierpont Funds at its principal place of
business as provided to Morgan, Attention: Treasurer.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written. The
undersigned officer of the Trust has executed this Agreement not individually,
but as an officer of the Trust under the Trust's Declaration of Trust, dated
November 4, 1992 as amended, and the obligations of this Agreement are not
binding upon any of the Trustees or shareholders of the Trust individually, but
bind only the Trust estate.
THE PIERPONT FUNDS
By /s/ Elizabeth A. Bachman
Elizabeth A. Bachman, Vice President
and Assistant Secretary
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By /s/ Stephen H. Hopkins
Stephen H. Hopkins, Vice President
FFASKPP4.DOC
4
<PAGE>
Schedule A
Administrative Services Fees
The JPM Pierpont Funds (the "Trust")
The annual administrative services fee charged to and payable by each Fund
is equal to its proportionate share of an annual complex-wide charge. This
charge is calculated daily based on the aggregate net assets of the registered
investment companies listed on Exhibit I, as amended from time to time
(collectively the "Master Portfolios"), and 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
LESS the complex-wide charge of the Co-Administrator
The portion of this charge payable by each Fund is determined by the
proportionate share that its net assets bear to the total of the net assets of
the Trust, The JPM Institutional Funds, The JPM Advisor Funds, JPM Series Trust,
the Master Portfolios and other investors in the Master Portfolios for which
Morgan provides similar services.
Approved: October 10, 1996
Effective: November 4, 1996
<PAGE>
Exhibit I
Date of Effective
Portfolio Declaration of Trust Date
The Treasury Money Market Portfolio 11/4/92 8/1/96
The Money Market Portfolio 1/29/93 8/1/96
The Tax Exempt Money Market Portfolio 1/29/93 8/1/96
The Short Term Bond Portfolio 1/29/93 8/1/96
The U.S. Fixed Income Portfolio 1/29/93 8/1/96
The Tax Exempt Bond Portfolio 1/29/93 8/1/96
The Selected U.S. Equity Portfolio 1/29/93 8/1/96
The U.S. Small Company Portfolio 1/29/93 8/1/96
The Non-U.S. Equity Portfolio 1/29/93 8/1/96
The Diversified Portfolio 1/29/93 8/1/96
The Non-U.S. Fixed Income Portfolio 6/16/93 8/1/96
The Emerging Markets Equity Portfolio 6/16/93 8/1/96
The New York Total Return Bond Portfolio 6/16/93 8/1/96
The Series Portfolio* 6/24/94
The Asia Growth Portfolio 8/1/96
The Japan Equity Portfolio 8/1/96
The European Equity Portfolio 8/1/96
The Disciplined Equity Portfolio 12/27/96
The Global Strategic Income Portfolio 12/27/96
The International Opportunities Portfolio 12/27/96
JPM Series Trust* 8/15/96
Tax Aware Equity Fund 11/4/96
Tax Aware Disciplined Equity Fund 11/4/96
California Bond Fund 11/4/96
*In the cases of The Series Portfolio and JPM Series Trust,
references to "Portfolio" or "Fund" refer to their respective
individual series as the context requires.
THE PIERPONT FUNDS
AMENDED AND RESTATED
FUND SERVICES AGREEMENT
FUND SERVICES AGREEMENT made as of the 23rd day of December, 1992, as
amended and restated as, of July 11, 1996, between The Pierpont Funds, an
unincorporated business trust organized under the laws of the Commonwealth of
Massachusetts (the "Trust"), and PIERPONT GROUP, INC., a New York corporation
(the "Group").
WITNESSETH:
WHEREAS, the Trust is an open-end management investment company,
registered under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Trust has retained organizations to be its custodian,
transfer agent, distributor and services agent and an administrator to
administer and manage all aspects of the Trust's day-to-day operations (except
for providing a Chief Executive Officer pursuant to this Agreement and for those
services provided pursuant to the Trust's Administrative Services Agreement with
Morgan Guaranty Trust Company of New York ("Morgan")); and
WHEREAS, the Trust and its Trustees wish to engage the Group to assist
the Trustees in carrying out their duties as Trustees in supervising the Trust's
affairs;
NOW, THEREFORE, the Trust and the Group hereby agree as follows:
1. Beginning on the date hereof, the Group shall provide facilities and
personnel to assist the Trustees in carrying out their duties as Trustees in
supervising the affairs of the Trust, including without limitation:
a) Organization of the times and participation in the
preparation of agendas for Trustees' meetings;
b) Providing personnel acceptable to the Trustees to act
in the capacity of Chief Executive Officer when so requested by the Trustees;
and
c) Oversight and review of the performance of services
to the Trust by others, including review of registration statements, annual and
semi-annual reports to shareholders, proxies, compliance procedures with
applicable legal, regulatory, and financial requirements,
1
<PAGE>
current market and legal developments in the investment management industry,
materials presented to the Trustees for approval, and any other matters as
directed by the Trustees.
2. In return for the services provided hereunder, the Trust will pay
the Group a fee in an amount representing the reasonable costs of the Group in
providing services hereunder, payable in a manner corresponding as closely as
practicable to the Trust's receipt of such services, all as determined from time
to time by the Trustees.
3. The Group shall not be liable for any error of judgment or for any
loss suffered by the Trust in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or for reckless
disregard by it of its obligations and duties under this Agreement.
4. This Agreement shall continue in effect for a period of two years
from July 11, 1996, and may be renewed by the Trustees; provided, however, that
this Agreement may be terminated by the Trust at any time without the payment of
any penalty by the Trustees or by vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the Trust, upon not less than six (6)
months' written notice to the Group, or by the Group at any time, without the
payment of any penalty, upon not less than six (6) months' written notice to the
Trust. This Agreement shall terminate automatically in the event of its
assignment (as defined in the 1940 Act).
5. The Group's activities will be limited to performing the services
hereunder for the Trust and any other registered investment company which has
the same Trustees as the Trust. No employee of the Group shall engage in any
other business or devote his time and attention in part to the management or
other aspects of any business whether of a similar or dissimilar nature except
with the consent of the Trustees of the Trust.
6. The Trustees have authorized the execution of this Agreement not
individually, but as Trustees under the Trust's Declaration of Trust, and the
Group agrees that the obligation of this Agreement are not binding upon any of
the Trustees or shareholders individually, but bind only the trust estate.
7. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
mail, postage prepaid (1) to the Group at 461 Fifth Avenue, New York, NY 10017,
Attention: President or (2) to the Trust at the address set forth on the cover
of its Registration Statement as then in effect or at such other address as
either party shall designate by notice to the other party.
8. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Fund Services Agreement to be executed by their officers designated
below as of July 11, 1996.
THE PIERPONT FUNDS
By /s/ Matthew Healey
Matthew Healey, Chief
Executive Officer
PIERPONT GROUP, INC.
By /s/ Nina O. Shenker
Nina O. Shenker, President
PPARFSA.WP5
3
SULLIVAN & CROMWELL
NEW YORK TELEPHONE: (212) 558-4000
TELEX: 62694 (INTERNATIONAL) 127816 (DOMESTIC)
CABLE ADDRESS: LADYCOURT, NEW YORK
FACSIMILE: (212) 558-3588 (125 BROAD STREET)
(212) 558-3792 (250 PARK AVENUE)
125 Broad Street, New York 10004-2498
250 PARK AVENUE, NEW YORK 10177-0021
1701 PENNSYLVANIA AVE., N.W., WASHINGTON, DC 20006-5805
444 SOUTH FLOWER STREET, LOS ANGELES 90071-2901
8, PLACE VENDOME, 75001 PARIS
ST. OLAVE'S HOUSE, 9a IRONMONGER LANE, LONDON EC2V 8EY
101 COLLINS STREET, MELBOURNE 3000
2-1, MARUNOUCHI 1-CHOME, CHIYODA-KU, TOKYO 100
December 23, 1992
The Pierpont Funds,
461 Fifth Avenue,
New York, New York 10017.
Dear Sirs:
In connection with the Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A (File No. 33-54632) of The Pierpont Funds, a
Massachusetts business trust (the "Trust"), which you expect to file under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to an
indefinite number of shares of beneficial interest, par value $.001 per share
(the "Shares"), we, as your counsel, have examined such trust records,
certificates and other documents, and such questions of law, as we have
considered necessary or appropriate for the purposes of this opinion.
Upon the basis of such examination, we advise you that, in our opinion, the
shares have been duly authorized and, when the Registration Statement referred
to above has become effective under the Securities Act and the Shares
<PAGE>
The Pierpont Funds -2-
have been issued and sold (a) for at least the par value thereof pursuant
to the Distribution Agreement between the Trust and Signature Broker-Dealer
Services, Inc. and (b) in accordance with the authorization of the Trustees, the
Shares will be validly issued, fully paid and nonassessable.
The foregoing opinion is limited to the Federal laws of the United States
and the laws of the Commonwealth of Massachusetts, and we are expressing no
opinion as to the effect of the laws of any other jurisdiction. With respect to
all matters of Massachusetts law, we have relied upon the opinion, dated
December 23, 1992, of Ropes & Gray , and our opinion is subject to the same
assumptions, qualifications and limitations with respect to such matters as are
contained in such opinion of Ropes & Gray.
Also, we have relied as to certain matters on information obtained from
public officials, officers of the Trust and other sources believed by us to be
responsible.
We hereby consent to the filing of this opinion as an exhibit to the
Pre-Effective Amendment referred to above. In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ Sullivan & Cromwell
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. 30 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 JPM Pierpont Equity Fund and The JPM
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 JPM 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 16, 1996, relating to the financial
statements and financial highlights of The JPM Pierpont Tax Exempt Money Market
Fund and The JPM 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, 1996 Annual Reports, which are also
incorporated by reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated December 15, 1995, relating to the financial
statements and financial highlights of The JPM Pierpont Treasury Money Market
Fund and The JPM 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 JPM Pierpont Emerging Markets Equity
Fund, The JPM Pierpont Bond Fund and The JPM Pierpont
<PAGE>
Consents of Independent Accountants
Page 2
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 JPM 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 JPM 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
December 26, 1996
SIGNATURE FINANCIAL GROUP INC.
6 St. James Avenue
Boston, Massachusetts 02116
Tel. (617) 423-0800
Fax (617) 542-5815
December 23, 1992
The Pierpont Funds
461 Fifth Avenue
New York, NY 10017
Ladies and Gentlemen:
With respect to our purchase from you of 100,000 shares of beneficial
interest ("Initial Shares") of The Pierpont Treasury Money Market Fund
(the "Fund"), a series of The Pierpont Funds, we hereby advise you that we are
purchasing such Initial Shares with no intention to dispose of them either
through resale to others or redemption by the Fund.
The amount paid by the Fund on any redemption by us the Initial Shares
will be reduced by the pro rata portion of any unamortized organization expenses
which the number of Initial Shares redeemed bears to the total number of Initial
Shares outstanding immediately prior to such redemption.
Very truly yours,
SIGNATURE FINANCIAL GROUP, INC.
By /s/ Linwood C. Downs
Linwood C. Downs
Treasurer
JPM36[JPM513A]
<PAGE>
CHANGE IN OWNERSHIP AGREEMENT
SFG Investors II Limited Partnership ("SFG") and FDI Distribution Services,
Inc. ("FDI"), a Delaware corporation, hereby agree with each other as follows:
1. SFG and FDI hereby represent that this change in ownership agreement
(the "Agreement") shall be entered into for the benefit of The Pierpont Funds, a
Massachusetts business trust (the "Trust"), such benefit to be evidenced by the
Trust's acceptance of the terms of this Agreement by signature inscribed at the
end hereof;
2. SFG hereby offers FDI and FDI hereby purchases 102,417.530 shares
(par value $.001 per share) of the Treasury Money Market Fund of the Trust (the
"Fund") (the "Shares") by deposit of a sum of $102,484.68 determined as the net
asset value of the Shares as of the close of business on the last business day
immediately preceding this Agreement, plus any accrued but yet unpaid dividends
(the "Cash Deposit").
3. SFG represents and warrants to FDI and the Trust that, upon receipt
of the Cash Deposit from FDI as consideration for this transaction, SFG shall
immediately notify (via fax, with hard copy to follow) the Trust's transfer
agent or shareholder servicing agent to change the record of ownership, as of
the date of this Agreement, to reflect that FDI has assumed ownership of the
Shares. Such notification shall take the form of the letter attached hereto as
Exhibit A.
4. FDI represents and warrants to the Trust that the Shares are being
acquired for investment purposes and not with a view to the distribution
thereof.
5. FDI agrees that if it or any direct or indirect transferee of any of
the Shares redeems any of the Shares prior to the fifth anniversary of January
4, 1993, the date the Trust began its investment activities, FDI will pay to the
Trust an amount equal to the number resulting from multiplying the Trust's total
unamortized organizational expenses by a fraction, the numerator of which is
equal to the number of Shares redeemed by FDI or such transferee and the
denominator of which is equal to the number of Shares held by FDI outstanding as
of the date of such redemption, as long as the administrative position of the
staff of the Securities and Exchange Commission requires such reimbursement.
6. FDI is authorized and otherwise duly qualified to purchase and
hold Shares and to enter into this Agreement.
<PAGE>
SFG Investors II Limited Partnership
Attest:
By: H.C. Wainwright & Co., Inc.
as General Partner
/s/ Michael Flynn By: /s/ Stephen D. Barrett
Stephen D. Barrett, President
Date: 8/6/96
FDI Distribution Services, Inc.
Attest:
/s/ Cheryl A. Vella By: /s/ Joseph F. Tower
Joseph F. Tower, Senior Vice
President & Treasurer
Date: Date: 8/6/96
Accepted By:
The Pierpont Funds
Attest:
___________________________________ By: _________________________
Richard W. Ingram, President
Date: _________________
[JPM513A]
<PAGE>
EXHIBIT A
August , 1996
Mr. Timothy Herrera
Morgan Guaranty Trust Co. of New York
522 Fifth Avenue
New York, NY 10036
Re: SFG Investors II, L.P. Seed Capital
Dear Mr. Herrera:
We have entered into a change in ownership agreement, effective immediately (the
"Agreement"), whereby SFG Investors II Limited Partnership ("SFG") shall
transfer ownership of certain shares of the Treasury Money Market Fund (the
"Fund") of The Pierpont Funds, a Massachusetts business trust (the "Trust"), to
FDI Distribution Services, Inc. ("FDI"), in exchange for such consideration as
is defined in the Agreement, which is attached hereto.
Please re-register all full and fractional shares in the following account
previously held by SFG and FDI:
PIERPONT FUND FUND AND ACCOUNT NUMBER
Treasury Money Market Fund 229 - 101
The account should be registered to FDI in the following manner:
FDI Distribution Services, Inc.
Attn: Joseph F. Tower
60 State Street
Suite 1300
Boston, MA 02109
Tax ID#: 04-3229807
If you have any questions regarding these instructions, please contact
______________________, at _________________.
Sincerely,
[Authorized Signatory of SFG]
[JPM513A]
Exhibit 16
THE JPM PIERPONT FUNDS
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATIONS
MONEY MARKET FUNDS
7-Day Yield
Quotations of "yield" will be based on the net investment income per
share generated over a seven-day period. The income is then "annualized".
BASE PERIOD RETURN = Net Change in Account Value
---------------------------
Beginning Account Value
CURRENT YIELD = Base Period Return x (365/7)
7-Day Effective Yield
The "effective yield" is calculated similarly, but when annualized, the
income earned by the investment during that seven-day period is assumed to be
reinvested. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
EFFECTIVE YIELD = [(Base Period Return + 1)365/7 [superscript]] - 1
TAX EXEMPT MONEY MARKET FUND
7-Day Tax Equivalent Yield
The tax equivalent yield is computed by first calculating the current
yield. The portion of the current yield attributable to securities the income
of which was exempt for federal income tax purposes is then determined; this
portion of the yield is divided by one minus the stated assumed federal income
tax rate and then added to the portion of the yield that is not attributable
to securities the income of which was not tax exempt.
TAX EQUIVALENT YIELD = Current Yield
-------------
1 - Tax Rate
BOND FUNDS
30-Day Yield
Quotations of yield will be based on a Fund's investment income per
share earned during a particular 30-day period, less expenses accrued during
the period ("net investment income") and will be computed by dividing net
<PAGE>
investment income by the maximum offering price per share on the last day of
the period, according to the following formula:
30-DAY YIELD = 2[(a-b + 1)6 [superscript] - 1]
---
cd
(where a = dividends and interest earned during the period, b = expenses
accrued for the period (net of any reimbursements), c = the average daily
number of shares outstanding during the period that were entitled to receive
dividends and d = the maximum offering price per share on the last day of the
period).
TAX EXEMPT BOND FUNDS
30-Day Tax Equivalent Yield
30-DAY TAX EQUIVALENT YIELD = 30-Day Yield
------------
1-Tax Rate
ALL FUNDS
Annual Total Return
Quotations of a Fund's average annual total return will be expressed in
terms of the average annual compounded rate of return of a hypothetical
investment in such Fund over periods of 1, 5 and 10 years (up to the life of
the Fund), calculated pursuant to the following formula:
P (1 + T)n [superscript] = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures will reflect the deduction of Fund expenses (net of certain
expenses reimbursed) on an annual basis and will assume that all dividends and
distributions are reinvested when paid.
Aggregate Total Return
A Fund's aggregate total return, reflecting the cumulative percentage
change over a measuring period, is calculated according to the following
formula:
P (1 + T) = ERV
(where P = a hypothetical initial payment of $1,000 and T = total return).
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Matthew Healey, Richard W.
Ingram, Marie E. Connolly, Joseph F. Tower III, John E. Pelletier, Elizabeth A.
Bachman, Karen Jacoppo-Wood, Mary A. Nelson, Douglas C. Conroy, Christopher J.
Kelley, Jacqueline Henning and Lenore J. McCabe, and each of them, with full
powers of substitution as his true and lawful attorneys and agents to execute in
his name and on his behalf in any and all capacities the Registration Statements
on Form N-1A, and any and all amendments thereto, filed by The Pierpont Funds,
The JPM Institutional Funds, The JPM Advisor Funds or JPM Series Trust (each a
"Trust"), or the Registration Statement(s), and any and all amendments thereto,
filed by any other investor in any registered investment company in which any of
the Trusts invest, with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended, and any and all instruments which such attorneys and agents, or any of
them, deem necessary or advisable to enable each Trust to comply with such Acts,
the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction, and the undersigned hereby ratifies and confirms as his own act
and deed any and all acts that such attorneys and agents, or any of them, shall
do or cause to be done by virtue hereof. Any one of such attorneys and agents
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 10th day
of October, 1996, in Hamilton, Bermuda.
/s/ F.S. Addy
Frederick S. Addy
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Matthew Healey, Richard W.
Ingram, Marie E. Connolly, Joseph F. Tower III, John E. Pelletier, Elizabeth A.
Bachman, Karen Jacoppo-Wood, Mary A. Nelson, Douglas C. Conroy, Christopher J.
Kelley, Jacqueline Henning and Lenore J. McCabe, and each of them, with full
powers of substitution as his true and lawful attorneys and agents to execute in
his name and on his behalf in any and all capacities the Registration Statements
on Form N-1A, and any and all amendments thereto, filed by The Pierpont Funds,
The JPM Institutional Funds, The JPM Advisor Funds or JPM Series Trust (each a
"Trust"), or the Registration Statement(s), and any and all amendments thereto,
filed by any other investor in any registered investment company in which any of
the Trusts invest, with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended, and any and all instruments which such attorneys and agents, or any of
them, deem necessary or advisable to enable each Trust to comply with such Acts,
the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction, and the undersigned hereby ratifies and confirms as his own act
and deed any and all acts that such attorneys and agents, or any of them, shall
do or cause to be done by virtue hereof. Any one of such attorneys and agents
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 10th day
of October, 1996, in Hamilton, Bermuda.
/s/ William G. Burns
William G. Burns
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Matthew Healey, Richard W.
Ingram, Marie E. Connolly, Joseph F. Tower III, John E. Pelletier, Elizabeth A.
Bachman, Karen Jacoppo-Wood, Mary A. Nelson, Douglas C. Conroy, Christopher J.
Kelley, Jacqueline Henning and Lenore J. McCabe, and each of them, with full
powers of substitution as his true and lawful attorneys and agents to execute in
his name and on his behalf in any and all capacities the Registration Statements
on Form N-1A, and any and all amendments thereto, filed by The Pierpont Funds,
The JPM Institutional Funds, The JPM Advisor Funds or JPM Series Trust (each a
"Trust"), or the Registration Statement(s), and any and all amendments thereto,
filed by any other investor in any registered investment company in which any of
the Trusts invest, with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended, and any and all instruments which such attorneys and agents, or any of
them, deem necessary or advisable to enable each Trust to comply with such Acts,
the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction, and the undersigned hereby ratifies and confirms as his own act
and deed any and all acts that such attorneys and agents, or any of them, shall
do or cause to be done by virtue hereof. Any one of such attorneys and agents
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 10th day
of October, 1996, in Hamilton, Bermuda.
/s/ Arthur C. Eschenlauer
Arthur C. Eschenlauer
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Richard W. Ingram, Marie E.
Connolly, Joseph F. Tower III, John E. Pelletier, Elizabeth A. Bachman, Karen
Jacoppo-Wood, Mary A. Nelson, Douglas C. Conroy, Christopher J. Kelley,
Jacqueline Henning and Lenore J. McCabe, and each of them, with full powers of
substitution as his true and lawful attorneys and agents to execute in his name
and on his behalf in any and all capacities the Registration Statements on Form
N-1A, and any and all amendments thereto, filed by The Pierpont Funds, The JPM
Institutional Funds, The JPM Advisor Funds or JPM Series Trust (each a "Trust"),
or the Registration Statement(s), and any and all amendments thereto, filed by
any other investor in any registered investment company in which any of the
Trusts invest, with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended, and
any and all instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable each Trust to comply with such Acts, the rules,
regulations and requirements of the Securities and Exchange Commission, and the
securities or Blue Sky laws of any state or other jurisdiction, and the
undersigned hereby ratifies and confirms as his own act and deed any and all
acts that such attorneys and agents, or any of them, shall do or cause to be
done by virtue hereof. Any one of such attorneys and agents have, and may
exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 10th day
of October, 1996, in Hamilton, Bermuda.
/s/ Matthew Healey
Matthew Healey
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Matthew Healey, Richard W.
Ingram, Marie E. Connolly, Joseph F. Tower III, John E. Pelletier, Elizabeth A.
Bachman, Karen Jacoppo-Wood, Mary A. Nelson, Douglas C. Conroy, Christopher J.
Kelley, Jacqueline Henning and Lenore J. McCabe, and each of them, with full
powers of substitution as his true and lawful attorneys and agents to execute in
his name and on his behalf in any and all capacities the Registration Statements
on Form N-1A, and any and all amendments thereto, filed by The Pierpont Funds,
The JPM Institutional Funds, The JPM Advisor Funds or JPM Series Trust (each a
"Trust"), or the Registration Statement(s), and any and all amendments thereto,
filed by any other investor in any registered investment company in which any of
the Trusts invest, with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended, and any and all instruments which such attorneys and agents, or any of
them, deem necessary or advisable to enable each Trust to comply with such Acts,
the rules, regulations and requirements of the Securities and Exchange
Commission, and the securities or Blue Sky laws of any state or other
jurisdiction, and the undersigned hereby ratifies and confirms as his own act
and deed any and all acts that such attorneys and agents, or any of them, shall
do or cause to be done by virtue hereof. Any one of such attorneys and agents
have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 10th day
of October, 1996, in Hamilton, Bermuda.
/s/ Michael P. Mallardi
Michael P. Mallardi
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Matthew Healey, Marie E.
Connolly, Joseph F. Tower III, John E. Pelletier, Elizabeth A. Bachman, Karen
Jacoppo-Wood, Mary A. Nelson, Douglas C. Conroy, Christopher J. Kelley,
Jacqueline Henning and Lenore J. McCabe, and each of them, with full powers of
substitution as his true and lawful attorneys and agents to execute in his name
and on his behalf in any and all capacities the Registration Statements on Form
N-1A, and any and all amendments thereto, filed by The Pierpont Funds, The JPM
Institutional Funds, The JPM Advisor Funds or JPM Series Trust (each a "Trust"),
or the Registration Statement(s), and any and all amendments thereto, filed by
any other investor in any registered investment company in which any of the
Trusts invest, with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended, and
any and all instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable each Trust to comply with such Acts, the rules,
regulations and requirements of the Securities and Exchange Commission, and the
securities or Blue Sky laws of any state or other jurisdiction, and the
undersigned hereby ratifies and confirms as his own act and deed any and all
acts that such attorneys and agents, or any of them, shall do or cause to be
done by virtue hereof. Any one of such attorneys and agents have, and may
exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 10th day
of October, 1996, in Hamilton, Bermuda.
/s/ Richard W. Ingram
Richard W. Ingram
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM-SAR DATED MAY 31, 1996 FOR THE JPM PIERPONT MONEY MARKET FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK>0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 012
<NAME> THE JPM 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>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM-SAR DATED AUGUST 31, 1996 FOR THE JPM PIERPONT TAX EXEMPT MONEY MARKET
FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 007
<NAME> THE JPM PIERPONT TAX EXEMPT MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 357546
<INVESTMENTS-AT-VALUE> 370194
<RECEIVABLES> 193
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 370387
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 400
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 357155
<SHARES-COMMON-STOCK> 31811
<SHARES-COMMON-PRIOR> 29997
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 182
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12648
<NET-ASSETS> 369987
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 17896
<EXPENSES-NET> 962
<NET-INVESTMENT-INCOME> 16933
<REALIZED-GAINS-CURRENT> 535
<APPREC-INCREASE-CURRENT> (3838)
<NET-CHANGE-FROM-OPS> 13630
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 16931
<DISTRIBUTIONS-OF-GAINS> 455
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11887
<NUMBER-OF-SHARES-REDEEMED> 11275
<SHARES-REINVESTED> 1202
<NET-CHANGE-IN-ASSETS> 1814
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 99
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 962
<AVERAGE-NET-ASSETS> 362788
<PER-SHARE-NAV-BEGIN> 11.73
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> 0.08
<PER-SHARE-DIVIDEND> 0.55
<PER-SHARE-DISTRIBUTIONS> 0.02
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.63
<EXPENSE-RATIO> 0.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI-ANNUAL
REPORT DATED APRIL 30, 1996 FOR THE JPM PIERPONT TREASURY MONEY MARKET FUND
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI-ANNUAL REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 001
<NAME> THE JPM 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>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI-ANNUAL
REPORT DATED APRIL 30, 1996 FOR THE JPM PIERPONT SHORT TERM BOND FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI-ANNUAL REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 002
<NAME> THE JPM 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>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI-ANNUAL
REPORT DATED APRIL 30, 1996 FOR THE JPM PIERPONT BOND FUND AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH SEMI-ANNUAL REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 003
<NAME> THE JPM 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>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM-SAR DATED AUGUST 31, 1996 FOR THE JPM PIERPONT TAX EXEMPT BOND FUND AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 006
<NAME> THE JPM PIERPONT TAX EXEMPT BOND FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 1050860
<INVESTMENTS-AT-VALUE> 1050860
<RECEIVABLES> 3
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1050872
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 501
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1050657
<SHARES-COMMON-STOCK> 1050312
<SHARES-COMMON-PRIOR> 985010
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1050371
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 33828
<OTHER-INCOME> 0
<EXPENSES-NET> 2290
<NET-INVESTMENT-INCOME> 31538
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 31538
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3833008
<NUMBER-OF-SHARES-REDEEMED> 3798791
<SHARES-REINVESTED> 31085
<NET-CHANGE-IN-ASSETS> 65302
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 389
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2290
<AVERAGE-NET-ASSETS> 993833
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .032
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .032
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED MAY 31, 1996 FOR THE JPM PIERPONT EQUITY FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 010
<NAME> THE JPM 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>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED MAY 31, 1996 FOR THE JPM PIERPONT CAPITAL APPRECIATION
FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 011
<NAME> THE JPM 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>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI-ANNUAL
REPORT DATED APRIL 30, 1996 FOR THE JPM PIERPONT INTERNATIONAL EQUITY FUND AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI-ANNUAL REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 004
<NAME> THE JPM 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>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED JUNE 30, 1996 FOR THE JPM PIERPONT DIVERSIFIED FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000908940
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 008
<NAME> THE JPM 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> 11.20
<PER-SHARE-NII> .30
<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>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMI-ANNUAL
REPORT DATED APRIL 30, 1996 FOR THE JPM PIERPONT EMERGING MARKETS FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SEMI-ANNUAL REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 005
<NAME> THE JPM 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>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM-SAR DATED SEPTEMBER 30, 1996 FOR THE JPM PIERPONT NEW YORK TOTAL RETURN
BOND FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 013
<NAME> THE JPM PIERPONT NEW YORK TOTAL RETURN BOND FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 56698
<INVESTMENTS-AT-VALUE> 55448
<RECEIVABLES> 4
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 55459
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 99
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 53983
<SHARES-COMMON-STOCK> 5355
<SHARES-COMMON-PRIOR> 4888
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 127
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1250
<NET-ASSETS> 55360
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1266
<EXPENSES-NET> 82
<NET-INVESTMENT-INCOME> 1184
<REALIZED-GAINS-CURRENT> 11
<APPREC-INCREASE-CURRENT> 30
<NET-CHANGE-FROM-OPS> 1225
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1184
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 680
<NUMBER-OF-SHARES-REDEEMED> 82
<SHARES-REINVESTED> 295
<NET-CHANGE-IN-ASSETS> 467
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 115
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 99
<AVERAGE-NET-ASSETS> 53457
<PER-SHARE-NAV-BEGIN> 10.34
<PER-SHARE-NII> .23
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .23
<PER-SHARE-DISTRIBUTIONS> 0
<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>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED JUNE 30, 1996 FOR THE JPM PIERPONT EUROPEAN EQUITY FUND
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 015
<NAME> THE JPM 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
<GROSS-ADVISORY-FEES> 0
<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>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED JUNE 30, 1996 FOR THE JPM PIERPONT JAPAN EQUITY FUND AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 016
<NAME> THE JPM 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>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED JUNE 30, 1996 FOR THE JPM PIERPONT ASIA GROWTH FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 014
<NAME> THE JPM 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> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
